The Death of Medicare

There was an interesting announcement yesterday that portends the death of Medicare. The Mayo Clinic announced that it would stop seeing Medicare patients in its Arizona clinics. This is part of a two year test by the Mayo Clinic to see the economic (and likely the public relations) effects of their decision. Until that test is completed, this won’t affect other Mayo facilities, but afterwards it presumably would be extended to their other facilities.

The Mayo Clinic, a Minnesota and Cleveland based organization with 3,700 staff physicians and scientists, treated 526,000 patients last year over a number of states (Florida, Minnesota, Ohio, Arizona). The Medicare decision will affect 3,000 patients only at this point. These patients will be required to pay cash if they wish to receive treatment.

The Mayo clinic made this decision because of the amount of money they lose on treating Medicare patients each year. How bad did things get for the Mayo Clinic? They lost $840 million treating Medicare patients in 2009. $120 million of that loss came from their Arizona operations.

To give you a sense of how significant that is, in 2006, the Mayo Clinic had revenues of $6.9 billion yet only earned a profit of $117 million (a measly profit margin of 1.69% -- a worse return on investment than treasury notes at the time). Think about that: their Medicare losses were more than seven times their profits ($840 million versus $117 million).

How could they lose so much in treating Medicare patients? According to the clinic, Medicare covered only 50% of the cost of treating elderly primary-care patients.

So why does this mean the death of Medicare? Simple, doctors can’t afford to keep seeing Medicare patients.

Many doctors claim (correctly) that they lose money when they see Medicare patients and that they simply cannot afford to keep seeing such patients. On an anecdotal note, I’m aware of several doctors who went bankrupt trying to treat Medicare patients and I know of many more who simply will not accept Medicare patients. The Mayo decision only highlights how bad this can get and that the problem is indeed widespread.

With a large, respected group like the Mayo Clinic publicly opening this door, it is highly likely that whatever stigma there might be in refusing to take Medicare patients will disappear almost overnight. Human history tells us this will result in more and more doctors and medical facilities rejecting Medicare patients. If doctors won’t see Medicare patients, then Medicare becomes worthless.

Add in the fact (despite Democratic denials) that the $500 billion in Medicare cuts the Democrats have planned will result in even lower rates of reimbursement, and you have a recipe for even more doctors leaving the system.

The likely end result is twofold. First, those on Medicare who can afford private insurance will probably begin buying such insurance so that they can get medical treatment. This should actually reduce the costs to Medicare and will extend its life, but will wipe out the support the program currently enjoys among the population at large.

Secondly, those on Medicare who can’t afford private insurance will likely find themselves trapped in a ghetto-cized system with few doctors and few facilities willing to treat them. As with most such programs, these will not be the best doctors, nor will they have access to the best (or possible even adequate) equipment.

How long can such a system survive? It’s not clear. If the only people using it are the aged-poor, then it will have little support -- especially as they will not be enamored of the treatment they receive. Other voters will likely be furious that they paid into a system that gives them nothing. Moreover, fixing the program would take nearly as much money as Obama is proposing to spend on ObamaCare, money which no longer exists because Obama blew his wad on the faux-stimulus and bailing out his contributors (banks and GM). Nor is it likely that taxpayers would support paying more for Medicare once most of them have abandoned the system.

This has all the makings of a death spiral.

In the end, the Democrats may have achieved something rather bizarre. In their desire to seize control of the nation’s medical system to extend FDR’s legacy, they may have killed the one achievement of FDR that people actually liked. Now that would be a fitting legacy for Obama, Pelosi and Reid.