Monday, January 24, 2005

Rocket Scientists

SeattleLike most states, Medicaid in Washington State has struggled to provide health care for the poor. In Washington, Medicaid has been on life support for least several years. Its shortcomings are legion: very low reimbursements for services to providers; a poorly-written provider contract which put physicians at a severe disadvantage in any disputes; retroactive computer-generated audits of providers demanding repayment for services provided four or five years prior, under different payment rules, based purely on computer algorithms without chart review. As a result, physicians have been fleeing the program in large numbers. Statewide, only 33 percent of Washington physicians accept Medicaid patients, and most of those who do are severely limiting the numbers of such patients they will see. This has created an enormous crisis of access to health care services for the poor, which has resulted in a surge in visits to emergency rooms by patients far sicker than they would be if they had ready access to routine health care. I have personally cared for numerous patients who drove two or three hours to see me, because they could not find a provider in my specialty any closer to home.

The large majority of Washington physicians would prefer to see Medicaid patients, but are quite simply financially unable to do so. For years, both Medicare and Medicaid have operated under an unspoken and hidden tax, paying for less than the cost to provide services while relying on providers to make up the difference from their insured patients. As insurance carriers have progressively ratcheted their reimbursements down in response to spiraling health care costs and insurance premiums, subsidizing patients insured under Federal programs such as Medicare and Medicaid is no longer feasible.

For most medical practices in our area, Medicare currently reimburses at, or slightly below, the cost of providing those services. It is not widely recognized that Medicare does not pay the same for services across the country. Because of historical cost formulas, reimbursements in areas such as the Southeast or large urban areas like New York or Chicago are substantially greater than in areas where care has historically been provided at lower cost. This, however, is not a dynamic formula, and therefore regions which previously provided care at lower cost when Medicare was new, but which have since become high-cost areas, are penalized by very low Medicare reimbursement rates. Washington is such an example, and despite the current high cost of providing care in the Puget Sound area, Washington State ranks 46th out of all states for Medicare reimbursement. Medicaid in Washington State provides significantly lower reimbursements than Medicare; according to recent statistics, Medicaid in Washington State is paying at 62 percent of the Medicare rate for its services.

The State government in Olympia has come up with an ingenious new plan to solve this crisis: it plans to tax physicians to generate additional revenue to pay for higher Medicaid reimbursements. In his final budget, our previous Democratic governor, Gary Locke, proposed a 67% increase in the state business and occupation tax on physicians. Unlike most states, Washington does not have an state income tax, but instead levies a business and occupation tax on gross receipts, as well as a substantial sales tax. The specific tax rate varies by industry and business type. Our new governor, Christine Yanukovich Gregoire, formerly Governor Locke's Attorney General, also supports this idea:
Gregoire said she supports the goal behind Locke's proposal. "I can't imagine that it wouldn't get us more providers," she said. "I hope that means that those who are in need actually have access.

The rocket scientists are hard at work in state government again.

Now, as a physician, it should come as no surprise that I am somewhat resistant to the idea that I have been specially singled out for this honored responsibility. But it really does go beyond my personal reluctance to pay higher taxes -- even narrowly targeted ones such as this proposal. The simple fact is, this legislation, if passed, will not result in "those who are in need actually have[ing] access", but will severely exacerbate the crisis of access to health care for low income individuals in Washington State.

According to Governor Locke's own statistics, Medicaid currently reimburses at 62 percent of Medicare rates. Hence, even without considering the issue of profit, physicians seeing Medicaid patients are already picking up over a third of the tab for provider services in Washington State. The proposed legislation would increase reimbursements to 75 percent of the Medicare rate. So, a substantial new tax will be added for providers, while still paying them less than the cost to provide this care. The income from services to Medicaid patients is not exempt from the tax on gross receipts, and therefore the higher reimbursements will also be taxed at the new rate.

Imagine you are selling computers. You build a computer with a supply cost of $1000 (not including your time and expertise to make it), and must sell it retail for $620. Needless to say, this business model will not win you any Nobel prizes in economics. Now the State comes in, and wants to buy a large number of your computers, and offers to pay you $750 a computer -- but is going to nearly double your tax on that $750. Such a deal! It is not hard to see what you will do: you are going to stop selling computers, or sell them only to someone who will pay you more than $1000 -- or go out of business. The end results of this brain-dead legislation is simple: physicians in large numbers will simply stop seeing Medicaid patients, as they will be increasingly unable to afford to do so, no matter how strong their desire to care for the poor.

I never cease to be amazed at how seemingly intelligent individuals in government so completely and utterly fail to understand the ramifications of these sort of policies. I guess I am setting my expectations far too high.

Nevertheless, there's not much value to another "this policy will never work!" commentary on health care, so in following posts I will explore some principles and reforms which I believe stand a much better chance for success.

UPDATE: My statistic that only 33% of Washington physicians accept Medicaid patients was based on incorrect interpretation of data. The actual percentage appears to be approximately 47%, based on WSMA surveys. I will try to confirm this and post an update when I have more accurate numbers.