Physician pay cuts are another threat to independent practices

On Nov. 2, Medicare announced that surgeons will see a 9 percent cut in payment for medical services starting Jan. 1, 2022. Obviously, physicians aren’t excited about this, but these types of political decisions have enormous consequences for our entire healthcare system.

These types of cuts place external pressure on physicians and drive them into more hospital-employed practices. Physicians then become hospital employees. This gives hospitals control over physicians and physician care delivery. Simultaneously, hospitals are merging and consolidating around regional healthcare markets on an astounding basis. 

All of this is creating rent-seeking crony-type monopolies over the delivery of healthcare. This destroys the potential for a free-choice healthcare marketplace and will not be a sustainable model for treating patients. 

There will actually be a 9.75 percent cut, which comes from the combined effect of different policies. The expiration of the 2021 temporary 3.75 percent fix is being combined with the expiration of a temporary moratorium on the annual 2 percent Medicare sequester cut. This is in addition to a different 4 percent cut secondary to the “pay as you go” provisions of the $1.9 trillion American Rescue Plan Act.  

A collection of the country’s leading surgical societies, the Alliance of Specialty Medicine and the Surgical Care Coalition, recognize this downward pressure as impossible to maintain.  

In fact, Medicare physician pay has increased only 11 percent from 2001-2020. Meanwhile, the cost of running a medical practice increased 39 percent from 2001-2020.  Adjusting for inflation and the cost of running a practice, Medicare physician pay dropped 22 percent over the time period.

Where did the money go? 

Medicare payment to hospitals increased nearly 60 percent over the same time period. 

What’s happening now is that due to these pressures, more and more physicians are turning towards hospital-based employment. And they are turning over in droves. Eighty-five percent of all physicians under the age of 40 are now employees. Medicare cuts make stand-alone private practices, owned by physicians, simply much harder to maintain.  

The hospitals capitalize on this by making it simpler and paying surgeons largely based on volume incentives.  

In the hospital employee model, the hospital pays the physician directly. This cedes control over practice and puts an eventual downward pay pressure that will entice physicians to produce more volume in order to meet quota. 

In the backdrop of all of this, hospitals are also consolidating their power in regional markets. Fifty years ago there used to be a couple of hospitals in town. Physicians and patients had the ability to choose which hospital to affiliate with or seek care at, respectively. Now, sprawling healthcare enterprises own multiple hospitals and physician practice groups in the same geographic area. Often there are no real choices and providers and patients are linked within warring healthcare conglomerates seeking to build empires. 

Our research in a leading neurosurgery journal through the Council of State Neurosurgical Societies illustrated the negative impact of this on physician practices. And, hospital mergers have nearly doubled since 2009.  

Do we really want to give hospitals that much unilateral control over our country’s healthcare? 

This destroys market principles. It takes away healthcare consumer options. It handcuffs physicians. While the government is openly challenged with Medicare solvency budget concerns, cutting physician pay is the wrong emphasis for legislation.  

Physician payments are only approximately 20 percent of Medicare spending. We could consider looking at cutting hospital payments more aggressively, but then again, hospitals now pay most of my colleagues’ salaries. And that’s a problem.

Richard Menger, MD MPA  is an assistant professor of neurosurgery and an assistant professor of political science at the University of South Alabama.  He is the lead editor of the textbook, “The Business, Policy, and Economics of Neurosurgery.” Twitter: @RMengerMD