How Low Can Fees Go?

By Crane, Mark | Medical Economics, April 7, 1997 | Go to article overview

How Low Can Fees Go?


Crane, Mark, Medical Economics


Health plans are demanding steeper discounts than ever. But you may have more negotiating room than you realize.

Only a few years ago, physicians were complaining bitterly about Medicare fees. Now, in some parts of the country, Medicare is the best payer. The discounts being demanded by HMOs and PPOs are approaching the fire-sale level, especially in markets where there's an oversupply of physicians. Even where commercial third parties still pay more than Medicare, the gap is narrowing.

"Managed-care organizations are trimming the horse's shoe until the hoof bleeds," contends Miami OBG Paul A. Gluck, president of the Dade County Medical Association. MCOs in southern Florida typically pay about 70 percent of the Medicare allowance, he says. "I'd love to get Medicare rates. That would be a significant raise." In parts of California, one consultant says he's seen fees drop to as low as 40 percent of usual and customary.

Physicians who think they can do better financially with capitation may be out of luck. "Many plans won't grant capitation contracts to physicians," says Barry S. Scheur, a health-plan consultant in Newton, Mass. With the growth of capitation slowing,* it appears that discounted fee-for-service will remain the predominant reimbursement method of managed-care organizations for some time to come. "And reimbursement will go lower and lower," Scheur says.

But others claim it's misleading to generalize about fees because they vary from market to market. "In some areas, there's heavy discounting," says Robert B. Doherty, vice president for governmental affairs and public policy at the American Society of Internal Medicine. "In other areas, where there's significant demand for primary-care physicians, fees may be increasing.

"Also, compensation for individual physicians is partly determined by incentive-based measures, such as keeping longer office hours or scoring well on patient satisfaction studies," he continues. "Overall, fees for primary-care physicians have been flat, but we expect the picture to improve somewhat, at least for a while."

One reason things might improve is the recent overhaul of the Medicare fee schedule, which has resulted in higher fees for evaluation and management codes. "These increases will carry over into the private sector as more and more plans use RBRVS [Medicare's resource-based relative value scale] as a benchmark for their own compensation schedules," says Doherty. Of course, the Clinton administration's plan to reduce overall Medicare expenditures may more than balance out this year's average primarycare increase of 2.5 percent.

The long-range outlook isn't bright

Year after year, the vast majority of physicians have experienced ever-steeper discounts. Medical Economics' latest Continuing Survey shows reimbursement levels sinking across the board. Payments for 37 procedures or services decreased by an average of 7 percent last year.

In the long run, analysts predict, payments are likely to fall still further. "There's pressure on HMOs to lower their premiums," says internist Peter R. Kongstvedt, a partner in the accounting firm Ernst & Young and a former health-plan medical director. "That will force down fees paid to physicians and hospitals. Plus, the Clinton administration has floated a trial balloon to slash Medicare HMO rates. If that happens, many HMOs will bail out of the program. The ones that stay will have to reduce fees even more, and commercial third parties will follow suit."

Most commercial insurers set their fees in relation to Medicare's RBRVS. "And the insurance industry just loves having the government beat the price down," says David C. Scroggins, a practice management consultant with Clayton L. Scroggins Associates in Cincinnati. "It can then say, `We're just following Medicare.' "

Of course, it's not just this follow-the-leader syndrome that's driving down compensation; it's the fundamental imperative of MCOs to cut costs wherever they can. …

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