The Healthcare Supply Chain: Healthcare Reform and the Laws of Supply and Demand

Six months after the passage of healthcare reform the proverbial pendulum still swings over the head of physicians who treat Medicare patients. A payment cut of 23.6% is scheduled to take effect on December 1 unless Congress acts to once again delay its implementation. But on January 1, 2011 an additional 6.5% cut is scheduled to take effect. Readers will recall that many years ago Congress passed a cut but then every year (or every several months, as in the case of this year), have kicked the can down the road hoping it would become someone else's problem. The issue is particularly interesting this year because paying for healthcare reform means $500 billion in Medicare cuts over ten years and physicians face their share.

According to Dr. Cecil Wilson, President of the American Medical Association, Medicare currently only covers about half the cost of running a physician practice. A recent survey of physician practices reported that two in three physicians planned to limit or stop seeing new Medicare patients. The pending issue could have a chilling effect on the wellness focus of the healthcare reform bill for senior citizens because the physician is a key player in wellness care. If this cut goes through physicians will become heavily dependent on private insurance to meet their financial requirements. If that goes away, as those in favor of single payer would like, it will likely mean that fewer people will have access to relatively inexpensive in office care and more people will be showing up at hospital emergency rooms, just the opposite of what we are told is supposed to happen. This is actually happening already. Medicare reduced the amount it pays physicians to provide in office chemotherapy. As a result, more physicians are trying to have their chemo patients treated in the hospital, where reimbursement is no better.

In procurement we know that if the supply of an item goes down (doctors leaving Medicare) and demand goes up (aging Baby Boomers flood the Medicare program) one of two things will happen, and neither is good. Either costs will go up (government paying more to lure doctors back into the program) or there will be reduced access (more patients trying to access services from fewer physicians resulting in de facto rationing [versus system based rationing]).

None of this is to suggest that some form of health care reform is not needed. But in the midst of a recession an incremental approach would have been far wiser, starting with catastrophic coverage that would have picked up after lifetime maximums were reached through traditional insurance. Once we understood the real cost of that, we could have continued step by step to reach the point where no citizen would ever have to worry about losing everything as a result of healthcare costs.

Lynn James Everard

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