Caught in a Reimbursement Squeeze

San Diego County physicians in private practice face increasingly difficult times financially. While the costs of medical practice rise inexorably, reimbursement for medical care is declining. The downturn in reimbursement is especially problematic today in San Diego County for a combination of reasons.

First, San Diego County has an abundance of physicians in many specialties. The desirability of living here attracts many physicians who compete for a limited base of patients. In other areas that are less desirable to live in, physicians make up for declining reimbursement rates by working harder and seeing more patients. In the competitive climate of San Diego County, that option is less available.

Secondly, San Diego County still has a dominance of HMO-style managed care. While managed care, with its fixed reimbursement determined by the health insurance plan rather than the physician, receded in most of the country during this decade, this did not happen in San Diego County. Elsewhere, the limited number of physicians simply refused to participate in such plans, and the insurance industry had to capitulate. Here in San Diego County, due to the competition for a limited base of patients, if one group of physicians refuses to participate in a health plans with lower reimbursement, another group will in order to get the patients.

Adding insult to this injurious situation, Medicare, the health insurance plans for seniors, pays physicians differently in various regions of the country. This geographic difference in reimbursement is based on history dating back to the 1970s and has not been changed despite many attempts by underpaid counties. San Diego County physicians are paid by Medicare the same rates as rural counties in California, such as Imperial County. San Diego County physicians are paid lower for the same care compared with physicians in Orange or Los Angeles County. The incorrect algorithm in Washington, DC, computes the overhead of office space and employees' wages are lower here, which if of course not true. Attempts to fix this geographic disparity in the legislature have failed given that legislative efforts for new money fails and giving more to San Diego County physicians would mean taking money away from others.

On top of this geographic disadvantage for San Diego County physicians, Medicare is planning a 10 percent reduction in reimbursement with more reductions planned due to a "sustainable growth rate" formula enacted by Congress in 1997. This law was a clear example of fixing a problem at the time by borrowing from the future. Now that this future is here, physicians are facing cuts from Medicare that cause them to lose money caring for the patients. Because of this, many physicians have stopped seeing new Medicare patients and more are planning to do so.

Finally, Medi-Cal, the state program for the poor, will cut physician reimbursement by 10 percent in order to address the state budget deficit. Most physicians already lose money seeing Medi-Cal patients, and this further cut will drive out those that do so out of a willingness to meet social needs. In the past, physicians could survive in practice seeing Medi-Cal patients through "cost shifting" from patients with higher reimbursement. Such higher reimbursement has all be disappeared for the reasons stated above, so treating Medi-Cal patients, especially with a further cut in reimbursement, is simply not feasible to stay in business. Cutting Medi-Cal reimbursement to physicians is a counterproductive action by the state since this will drive more patients to emergency rooms where the care is more expensive.

All of this combines to form a "perfect storm" of inadequate reimbursement to run a medical practice. Physicians in small private practice are leaving the area or joining large groups. Those that are hanging in there are unable to recruit new partners due to the miserable financial situation. Many physicians wonder if private practice in San Diego County will survive.

Given this bleak economic climate, many physicians are resorting to direct payment from patients. Some specialties, like plastic surgery, have always relied on a base of direct payment by patients. These physicians may be doing relatively better, but with the downturn in the overall economy, they are suffering too. When people have less money to spend, they will forego medical treatment they would otherwise get.

It is hard to see solutions to the reimbursement problems facing physicians in San Diego County. The combination of factors prevents any single solution from taking care of the problem. There is likely to be more major changes in healthcare financing with a new administration in Washington, DC. Most believe that there is plenty of money in healthcare in America, $2.3 trillion by the latest estimate, but as much as 30 percent of that money does not go to those that provide the care. Health insurance companies, pharmaceutical companies, and other corporations that supply the healthcare have done well in recent decades. The small nature of private medical practice puts physicians at a disadvantage in competing in the healthcare marketplace. Do not be surprised if there is some type of action among physicians to demand reimbursement that allows them to have sustainable medical practices.