Saturday, January 2, 2010

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.


Unknown said...

Andrew: The "don't take any more Medicare patients" rule has been ongoing in San Francisco for some time among legitimate doctors. I was fortunate enough to have the same doctors for many years, so they are still my doctors. They can afford to continue operating with some Medicare patients, but too many, and they can't continue to pay for their practices.

My rare encounters with doctors who are strictly government employees have been unpleasant, to say the least, and yet that is what Obama wants for everyone. Let's hope that public disclosure and further action by respected organizations like the Mayo Clinic result in stopping this disaster before it goes any farther.

AndrewPrice said...

Lawhawk, My experience with government doctors (particularly as a military dependent) has been an unending string of horror stories.

I know that more and more doctors have been refusing to see Medicare patients for some time now, but I think this Mayo announcement is really significant. As far as I can tell, this is the first reputable organization of any size to take such a step. This will open the floodgates and could lead to a near total collapse of the system. . . not financially, but in the sense that there simply won't be any doctors left in the system.

Unknown said...

Andrew: I agree. I have great doctors, but nobody outside of their patients and the medical boards know anything about them. The Mayo Clinic's action will have a huge public impact. My biggest hope is that the same "scientists" and statisticians who brought us global warming don't get hold of control of the Mayo's final report.

StanH said...

Politicians have been over promising for decades and all of this Tom Foolery is coming home to roost. As the Baby Boomers continue to retire in masse, the system will break and Washington knows it. This insanity has been limped along for decades, we now have 55trillion in unfunded mandates, Medicare accounts for 35trillion of that, and growing. This is unsustainable and in my opinion has been the nexus for “healthcare reform.’

Bear in mind Prescription Drugs for Seniors came into existence with Republicans, and is an example of politicians doing what politicians do, expand government.

Mayo is the canary in the mine, and I agree Andrew, Medicare is in it’s death throws, and Barry’s determined to kill it …why?

AndrewPrice said...

Lawhawk, I suspect there is a lot of pressure being applied right now by the White House to get the Mayo to change their minds or to give some other reason for their announcement. But you really can't put that kind of genie back into the bottle. And with this directly affecting their profitability, I'm not sure how effective White House pressure could be.

CrispyRice said...

Hi Andrew and LawHawk! I saw an article regarding this, too, and there was a comment by someone defending Medicare saying that Medicare pays just fine. It only "appears" to be paying too little because those big mean evil insurance companies can pay so much more! Damn them all the Hades!!

So, see, problem solved. Get rid of the insurance companies and voila.

AndrewPrice said...

Stan, That's one of several truly stupid things Bush did and for which history will remember him poorly.

You're right about the unfunded obligation, except that you're assuming the government is going to honor that. We may wake up one morning and find that "Medicare" has come to mean "government run clinics."

AndrewPrice said...

CrispyRice, That's typical of liberal thinking. When their plans blow up, it's because they were betrayed by the enemy. In this case, the fact that insurers "pay so much" is the only thing keeping Medicare afloat -- they're subsidizing the cut rate government program. If that ends, Medicare will either need to pay a lot more or seniors are going to find that no doctors will take them.

That's what this Mayo thing is about. Look at their profit margins -- they literally would have been better served putting their money into Treasury bills. People don't stay in business long with that kind of profit margin.

StanH said...

Oh no Andrew, I’m with you, I think it’s going to collapse. It’s just a matter of when. Washington has recreated the Weimar Republic on steroids, and I’m coming to the sad conclusion that only a collapse will save us.

Does anybody know a good witch doctor?

Andrew, have you seen Jesse Ventura’s show “Conspiracy Theory.” Make your head explode, they did the Bilderbergs group last week. I know how you love a conspiracy.

AndrewPrice said...

Stan, Sadly, I don't know many witch doctors and even fewer good ones! LOL!

I haven't seen Ventura's show, but I've seen all of that stuff on various other shows over the years. If you want a good no-nonsense show that just takes all of this apart with a minimum of effort, look for something called "Is It Real." I think it's on the Discovery Channel.

Writer X said...

My parents, who are in their 80's and live in Arizona, are particularly concerned by this as they rely on Mayo for care. Where are those doctors now who thought Obamacare was so great? Were they all Obama props?

AndrewPrice said...

Writer X, You're assuming those doctors were more concerned about their patients than politics.

The Mayo decision is very bad news for Medicare patients, unless the Democrats re-think their crazy plan.

Writer X said...

Andrew, it's sickening that the Dems are more concerned with "getting something passed" than with seriously thinking through what that "something" is.

AndrewPrice said...

True Writer X, but that's what being a leftist is all about -- getting your ideology forced upon people no matter who gets hurt.

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