The pros and cons of Medicare for independent practices

These days, there’s no shortage of payers in the healthcare marketplace, and many physicians choose to contract with those that pay the highest rates. This strategy means that Medicare — a payer that often pays the lowest rates — falls to the bottom of the priority list, and many physicians simply choose not to participate.

In some ways, this makes sense — especially when a practice is already at optimal capacity. Why would a physician want to do the same amount work for less reimbursement? But is it the right approach when trying to expand the practice? 

We talked to Frank Cohen, director of analytics at Doctors Management, LLC in Spring Hill, Florida, to hear some pros and cons as it comes to Medicare's impact on medical practices. 

“The truth is that Medicare doesn’t pay the best, but the hassle factor is the least, and it pays the fastest,” says Cohen. “Medicare is also totally transparent with its fee schedule, so you can plan ahead.”

Accepting Medicare patients essentially allows physicians to grow their patient volume while establishing a predictable cash flow. 

“Practices can build volume on the front end because there’s no shortage of Medicare patients out there,” he adds.

This is especially true for new practices. A study by the Kaiser Family Foundation found that younger physicians are more likely to accept new Medicare patients as they build their patient caseloads.

Even though Medicare often pays less than commercial payers, Cohen says the denial rate is also often much lower, meaning physicians recoup much of what they bill without needing to waste precious time and administrative resources on appeals and resubmissions.

With private payers, reimbursement amounts may be higher, but denials occur much more frequently. 

“You’ve got to fight them to get your money. Sometimes it’s just not worth it,” he adds. 

This game of ‘bait and switch’ makes it difficult for practices to grow. The turnaround time for payments also tends to be longer with private payers, making cashflow problematic — particularly when a practice is trying to expand, he adds.

Still, there are cons to participating with Medicare. Reimbursement amounts are one of the biggest cons with Medicare paying an average of 20% less than most private payers, says Cohen.

Another challenge is that physicians receive a financial penalty when they don’t satisfy the requirements outlined in the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, although participating physicians can also receive incentives. 

“You face the problem of being in a contract with a government agency that can come back and audit you at any time and take all of your money back,” says Cohen. “That’s a real problem.”

Practices that have been in business for a while can perform a financial analysis to determine the average cost per relative value unit (RVU) before deciding whether to participate with Medicare, says Cohen. 

If the per-RVU costs are less than what Medicare pays per RVU (i.e., $30 to $32), the practice profits every time a Medicare patient receives services. That profit might be nominal, but at least it’s money coming in the door, he adds.

And remember that accepting Medicare certainly isn’t the only way to grow a practice. Cohen says physicians should also explore other options, such as contracting with additional private payers or even transitioning to concierge medicine.

“It’s a business decision,” says Cohen. “You can only lose money for so long, and then you’re out of business.”