The Ongoing Impact of Medicare on Anesthesia Practices

Summary: There is often a cause-and-effect relationship between higher utilization and lower reimbursement within the healthcare sector. This relationship is coming into sharp focus with the surge of seniors now entering the Medicare program.

Baby boomers are increasingly entering the rolls of Medicare. While many of them lead healthy and active lives, this swelling of subscribers is having a profound impact on the Medicare program. It is this inevitable growth in beneficiaries and health care utilization that has led to the recent reduction in the Medicare rate for anesthesia services, which we now anticipate will be about 3 percent less in 2021 than it was in 2020. While many practice managers use this 3 percent rate drop to do a quick napkin calculation of the financial impact of the change, there is more to an assessment of Medicare rate changes than one might initially consider.

A Growing Trend

The demographic trends are truly compelling. Americans are aging dramatically. The fastest growing segment of the population consists of those over 80. It is true that not all of these older Americans will end up in the operating room for surgery, but some will. The table below clearly demonstrates how significant the current trend is. While some practices are located in communities that have higher Medicare populations, because this is a national trend no practice is immune to the inexorable growth of its Medicare population.

The potential significance of this trend cannot be overstated. On average, Medicare payment rates are 30 percent or lower of average commercial rates. Typically, Medicaid rates are even lower. This discussion is focused on the impact of Medicare, but many consultants refer to the Public Payer Percentage (PPP), which includes Medicaid and workers' compensation. What distinguishes public payers from others is that their rates are set by federal and state governments. Private practices have no ability to impact the rates set by these payers.

Diving into the Numbers

A review of a large sampling of our clients, for which we have five years of data, reveals just how consistent this trend is. While it is true that most practices have seen year-over-year increases in case volume through 2019, Medicare case volume has increased at a faster rate. 2020 was an exception because of the impact of Covid-19. Not only did case volumes drop, but Medicare patients were especially concerned about the possibility of getting infected if they had surgery.

The chart presents a global view of the impact of Medicare on our sample clients. The average practice saw an increase in payer mix from 34.3 percent in 2016 to 36.1 percent in 2019. We believe the 2020 number was an outlier because of Covid and that 2021 will probably exceed the 2019 rate.

Considering the Impact

Assessing this impact may involve some careful analysis of lines of business. Obviously cardiac care is primarily provided to Medicare subscribers but cardiac volume is declining. The perception is that a significant percentage of endoscopic cases are Medicare, but this percentage has actually been declining. Interestingly, the Medicare percentage of orthopedic cases is actually increasing.

What most practices really need to consider, however, is the long-term impact of payer mix. If utilization continues to increase and rates remain flat or decreasing, then the overall impact will be significant as there will be a multiplier effect. It is also important to remember that the higher the percentage of Medicare and Medicaid cases, the less impact the practice will have on the rates it receives for anesthesia services. A practice that is more than 50 percent public payers will have very limited ability to cost shift the impact of low public payer rates.

There are two variables to consider here. Medicare volume is sure to increase, but rates may not continue to drop. We have seen corrections in the past. Let us hope that this occurs again in the days ahead.

If you have questions about how your Medicare mix may affect your revenue projections for 2021, please contact your account executive at info@anesthesiallc.com.