As Medicare Payment Reduction Takes Effect, Physicians Need to Look at Options

As of June 18, CMS began processing Medicare claims with dates of service of June 1 and later with a 21.3 percent physician fee cut. What does this mean for physicians, and how can they minimize the effect on their immediate cash flow?

According to Cindy Hughes, C.P.C., a coding expert in the Academy's Practice Support Division, physicians must carefully consider the effect this development has on their practice revenue.

The pay cut will affect each physician -- and each practice -- differently, said Hughes.

First of all, physicians should keep in mind that private payer plans that base physician payment on the Medicare physician fee schedule usually do not use the current fee schedule, said Hughes. Therefore, revenue from patients on private plans -- as well as patients who pay out-of-pocket -- may not be affected.

Family medicine practices should consider what percentage of their revenue comes from Medicare and TRICARE, a federal health insurance plan that covers U.S. military personnel and their families.

Unfortunately, TRICARE pays at 85 percent of the current Medicare fee schedule, so physicians who have patients with this coverage will see significant decreases in pay, said Hughes.

If just 10 percent of a physician's patient panel has Medicare coverage, the cut's effect will be minimal. However "if a family physician specializes in geriatrics, this reduction in pay could have a drastic effect on cash flow," Hughes said.

Hughes told AAFP News Now that physicians might consider implementing some of the following options to help decrease the immediate effect of the pay cut.

"Physicians need to be creative, and they're going to have to rely on their practice managers to help implement some of these things," said Hughes. She added that if a practice's profit margins are already razor thin, physicians may have to consider implementing cost-cutting measures -- at least in the short term -- in addition to seeking extra revenue.

Hughes noted that as long as the 21.3 percent pay cut stands, patient copays will also be lower, because the patient portion is 20 percent of the total Medicare-allowed fee.

However, the actual dollar amount difference will be fairly minimal in most situations, said Hughes. To illustrate, she figured the difference in a patient copay for a visit billed as a CPT code 99213 -- family physicians' most commonly billed charge -- using Medicare's national average rate:

The Medicare allowable charge for services rendered to a patient from Jan. 1 to May 31, 2010, was $65.67; Medicare paid $52.54, and the patient paid $13.14. As of June 1, the Medicare allowable charge was $51.68; Medicare will pay $41.34 and the patient would be responsible for $10.34.

In this instance, the physician's Medicare payment is decreased by $11.20, but the difference in the patient coinsurance amount is just $2.80.

Hughes pointed out that Medicare dictates that physicians must collect full copayments from patients, so if the 21.3 percent cut in pay is ultimately reversed, physicians may find they undercollected patient copays.

However, Hughes said that in previous instances where payment rates were in flux, CMS directed physicians that they did not have to bill beneficiaries for additional copay amounts when the amount billed was less than the overall cost of processing and mailing the statement.

In addition, physicians have three options regarding Medicare participation. The AAFP has updated detailed information about those options.

Physicians should know that the deadline for making Medicare participation or nonparticipation decisions for 2010 ended on March 17. No further changes can be made until 2011.

However, physicians may choose to opt out of the Medicare system by becoming private contracting physicians, agreeing to bill patients directly and forgoing any payments from Medicare to their patients or themselves. Physicians who are considering this route can opt out of Medicare 30 days before the first day of the next calendar quarter. Therefore, physicians could begin preparing now to opt out for the fourth quarter of 2010, which begins on Oct. 1.