Medical Fees

It seems that there will be more, not less, debate over the national health care plan. Massachusetts has confused matters and, apparently, the administration. Some financial perspective from the medical angle might be worthwhile.
Over the last years there has been a gradual decline in Medicare medical fees to physicians. One reason is that individual fees are determined by attempting to keep total physician reimbursement stable at 19% of total medical expense despite the increase in patient volume and the expansion of medical therapies. The GEO estimates that fees will decline further, about 35%, from 2005 to 2012 while office overhead will increase 19%. Medicare also pays on average ten percent less than private insurance for the identical service. Medicaid pays less than the cost of billing and I know no physician who bills it. Moreover, Medicare plans a 21% decrease in reimbursement to physicians across the board on March 1, 2010 as well as a $500 billion decrease to overall Medicare funding.
It almost looks like a satire on price controls, how it misunderstands cost and what it does to supply.
The overhead--the percentage of total earnings that go to running a medical office before profit--varies between 47% and 60%; for the sake of argument let's say 50%.
If a medical office suffers a 21% decline in reimbursement, that vastly underestimates the impact in the office itself. The overhead costs are fixed--rent, salaries, insurance. So the decline in reimbursement will be absorbed by the profit side of the ledger. If the overhead is 50%, the profit 50%--a 21% decline would result in a 42% decline in earnings. That, with the erosion of earnings over the last years, would be unthinkable in any other field. It is unlikely many medical offices would survive. That it is being considered at all means the government is intentionally trying to destroy medicine or create a physician shortage. The other option is they don't understand what they are doing.
On the other hand, with Barney Frank's 180 degree turn on Freddy and Fanny, maybe the entire country is being run at random.