The Heritage Foundation

Executive Summary #1539 on Health Care

April 22, 2002

April 22, 2002 | Executive Summary on Health Care

Executive Summary: Why Doctors Are Abandoning Medicare and What Should Be Done About It

Doctors are leaving Medicare. More doctors are not accepting new Medicare patients, and some physicians are withdrawing from Medicare altogether. The reason: Medicare's complex system of administrative pricing is cutting physician reimbursement by 5.4 percent this year while forcing frustrated doctors to comply with an ever growing body of incomprehensible rules and regulations. "For years," writes Robert Pear, veteran reporter on health care policy for The New York Times, "doctors have expressed frustration with Medicare, grumbling about reimbursement and complex federal regulations. But the latest reaction appears to be different. Doctors are acting on their concerns, in ways that could reduce access to care for patients who need it."

Remarkably, in spite of the sobering news that doctors are refusing to accept senior citizens enrolled in Medicare, the American Association of Retired Persons (AARP) strongly opposes increased payments to doctors and other providers in Medicare unless Congress first agrees to provide a "meaningful" prescription drug benefit in the Medicare program--a benefit that, under the AARP's own definition, would cost no less than $750 billion over 10 years. This is far in excess of leading Administration and congressional proposals and would guarantee a sharp acceleration of the rapidly rising cost of the financially troubled Medicare program. In making this demand, the AARP is, in effect, holding doctors and other medical professionals hostage even though they, as a class, may not have any specific stake in the cost, design, or structure of the Medicare prescription drug benefit.

Archaic Central Planning.
Medicare is a system of central planning and price regulation in which virtually every aspect of the financing and delivery of medical services to senior citizens is under bureaucratic control. Congress and the Centers for Medicare and Medicaid (CMS), the powerful federal agency that runs Medicare, define which benefits, medical services, and treatments or procedures seniors will (or will not) have available to them in the program. This means that with every benefit change, biomedical breakthrough, or innovation in technology or service delivery, Congress has to change the law or authorize the Medicare bureaucracy to make the appropriate adjustments in changing the benefits or adding services or procedures. This process is painfully slow and inefficient. Medicare patients must often wait while patients in the private sector may receive much quicker access to new medical services and technologies.

The emerging refusal of physicians to see Medicare patients is an ominous development in the medical community's reaction to the morass of red tape, sluggish and inappropriate payments for services provided, and fears of retaliation for even unintentional noncompliance posed by the current Medicare system. Rather than add to the disincentive to care for Medicare patients, Congress and the Bush Administration should take action to address the systemic problems at their roots with a vision of long-range, substantive reform.

Steps Toward Reform.
Seniors' reduced access to care and the deepening demoralization of doctors are rooted in the outdated structure of Medicare itself. Instead of relying on Medicare's systems of central planning and price regulations, Congress should enact structural changes that would enhance patient choice and control over health care decisions and move toward a more rational system. A model for such reform already exists in the popular and successful Federal Employees Health Benefits Program (FEHBP), the patient-centered, consumer-driven system that covers Members of Congress, federal workers and retirees, and their 9 million family members.

To address the problems of Medicare before they reach crisis proportions with the forthcoming retirement of the 77-million-strong baby-boom generation, Congress and the Administration should act quickly to initiate reform in the system. Specifically, they should:

  • Increase Medicare payments to doctors practicing in the Medicare program, reversing the current 5.4 percent cut in this year's Medicare physician reimbursement.
  • Intensify their review of the regulatory burdens facing doctors and other providers in the Medicare program and give them timely regulatory relief.
  • Continue to press for comprehensive Medicare reform.

Congress and the Administration should start to create a new competitive system modeled after the FEHBP. Such a new system, based on patient choice and a competitive market, would enhance the quality of health care for a growing number of senior citizens and improve the working environment for seniors' physicians. In contrast with bureaucratic central planning, the new competitive system would be characterized by rapid innovations in benefits and the efficient delivery of medical services, free of the sluggish bureaucratic process and red tape that hobble benefit setting in the current Medicare program. Doctors, Medicare patients, and the taxpayers who fund this system deserve such reform.

Robert E. Moffit, Ph.D., is Director of Domestic Policy Studies at the Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care