True Cost – Analyzing our economy, government policy, and society through the lens of cost-benefit

The media often reports that doctors are dropping Medicare patients because they are “losing money on Medicare.” Given the vagaries of the Medicare fee-setting process, it’s definitely the case that certain medical procedures are under-reimbursed, and that others are over-reimbursed, creating winners and losers within the medical profession. More generally, do doctors really lose money by simply seeing a Medicare patient for an office visit? This American College of Physicians blog post claims that is the case.

It’s possible to perform some simple calculations to check the veracity of this claim. Assume that a doctor sees 16 patients a day for half an hour each, for 8 hours of patient time per day. With two hours of overtime work that makes for a 10 hour day, or 50 hours per week. That’s busy, but not an uncommon workweek for many professionals in the US. If the physician works 48 weeks per year, 5 days a week, that’s a potential 3840 patient visits a year. Assuming a 10% vacancy rate in appointments, whether due to cancellations, additional vacation, or otherwise, this leaves 3456 appointments per year.

Medicare reimburses office visits at around $85 per visit [1], though precise reimbursements vary by region. At $85 per visit, a primary care physician seeing nothing but Medicare patients could expect to receive $293,760 in annual reimbursements. Subtracting out the physician’s annual overhead provides an estimate of the physician’s salary. According to this physicians’ overhead spreadsheet, 50% is a good target for a primary care physician’s overhead. Overhead cannot fall below 100-150k for most physicians, as many expenses are fixed. This would leave our example physician with net income of roughly $147,000 annually.

This isn’t a terrible income, as it’s more than triple the average American income, but it is slightly less than primary care physicians’ average pay nationwide. These numbers do show conclusively that it is possible for a family practice physician to make a living on Medicare patients alone!

While Medicare reimbursements may be sufficient for a primary care physician to make ends meet, what is the situation with Medicaid reimbursements? Medicaid pays significantly less than Medicare, with reimbursements averaging roughly 60% of Medicare. This implies that Medicaid would pay less than $50 for an office visit. If our example doctor saw only Medicaid patients, they would gross $172,800 in annual reimbursements. Unfortunately, overhead costs tend to be fixed, so the doctor would still have around $147,000 in overhead, leaving a net income of only $26,000! This helps explain why only 40% of doctors nationwide will accept all Medicaid patients.

With hard work, it is possible to make an extraordinary living even from Medicare and Medicaid reimbursements. I know a family practice physician who works incredibly hard, seeing patients 6 1/2 days a week for 10-12 hours a day, and averaging close to 40 patients a day! He lives in a poor community with many Medicaid patients, but his patient volume (due in part to his efficiency, seeing a patient every 15 minutes) makes up the difference since overhead is relatively fixed. By having over 12,000 appointments a year, this doctor is able to take home roughly half a million per year, likely in the top 1% of all family practice doctors nationwide. While this cannot be expected of all doctors, it is possible to make money while serving the poor on Medicaid!

[1] This link provides example reimbursement amounts for pediatricians in Colorado based on both Medicaid and Medicare schedules. While reimbursement varies by type of procedure and geography (Medicare bases reimbursement in part on local costs), $85 seems appropriate based on this data. Physicians are sometimes able to bill multiple codes for a single visit, increasing their potential reimbursement.