Tuesday, October 12, 2010

Grassroots Report -Physician Uncertainties and Supply Demand Disequilibriums’ .

It has been more than six months since the Health Reform Law passed, and a cloud of uncertainty hangs over the heads of grassroots physicians.

Who are these grassroots physicians? They are the 700,000 physicians in urban, suburban, and rural America who deliver care to 310 million Americans.
They work singly, in large and small groups, clinics, hospitals, emergency rooms, academic centers, diagnostic and surgical centers. They are primary care physicians and specialists.

Some are employed on salary by large organizations. Some are owners of their own practices. Most think of themselves as independent professionals. Most make adequate incomes, With mounting physician shortages, most are in demand and have no problem finding jobs.


So why the uncertainties? I could cite many reasons- America’s economic malaise, the growing national debt, concerns about their futures and the future of their children, Congress leaving town without passing a budget, failures to pass malpractice reform or to resolve the SGR, challenges to the constitutionality of health reform mandates, and implications of the outcome of the mid-term elections.

But the main source of the uncertainty, as I see it, is the supply side-demand side disequilibrium, which is my way of saying the health reform law doesn’t make economic sense to grassroots physicians.

Increased Demand

The supply of physicians will be unable to meet the demand for their services from 32 to 34 million newly insured, from 70 million currently insured with expanded benefits, from 58 million baby boomers soon to join the Medicare rolls.

Essentially, the reform law increases the demand for physicians, nurses, and paramedical personnel without increasing the supply. There is nothing in the law to expand the number of medical school graduates or residency slots.

And the reform law purports to expand entitlement programs without increasing costs. The law indicates it will bend the cost curve lower than it might have been without reform. The government says it will bend the curve by cutting $575 billion out of Medicare, lessening fraud and abuse, introducing EHRs, coordinating care, having physicians work in teams, decreasing reimbursements for physicians and hospitals, and increasing physician effectiveness and efficiency through a series of pilot programs.

No Cost Controla

The problem with the law is that it does little to control costs. Indeed, it defies the laws of economic supply and demand. If economic studies are to be believed, it will double the demand for care without increasing the supply of doctors, nurses, and paramedical personnel who deliver the care.

This is where the physician uncertainties kick in. How do you simultaneously increase the demand for physician services while decreasing physician reimbursements? How do you meet the provisions of the law without increasing the supply of physicians? The logic is that physicians by using EHRs, being judged by performance data, and joining large accountable care organizations, will become more effective, efficient, and productive.

Illusions of "Productivity"

But, as economist John Goodman explains in his blog on October 11, “ Once you get past the rhetoric about doctors becoming more ‘productive,’ you will discover that the new law’s mechanism to control Medicare spending is to ratchet down payments to doctors and hospitals.” According to the Office of the Medicare Actuary, Medicare payment rates will steadily decrease and will fall below Medicaid rates by 2019 and drop increasingly below Medicaid in future years.

So how will the reform law work? Normally , when demand exceeds supply, the income of suppliers, in this case, physicians, rise. If supply is prevented from increasing, overall prices rise even more. Which is what is happening, premiums will increase by 10% this year.

What is government to do? It can dither and delay the SGR fix, postponing the inevitable need to pay doctors more because of increased demand for their services. It can squeeze doctors even more by cutting Medicare fees for high ticket specialists, like cardiologists and orthopedic surgeons. It can pay token bonuses to primary care doctors, hoping that may increase their supply at the margins. It can delay solutions to malpractice reform, by conducting demonstration projects.

Meanwhile, at the physician grassroots level, the reform law is likely to exaggerate the physician shortage, drive more physicians out of Medicare and Medicaid markets, create a physician access crisis, and defy the laws of supply and demand by ignoring market forces.


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