Pros and cons of Medicare for independent practices

Medicare is a pivotal player in a world filled with new healthcare solutions. While these health plans often offer a multitude of opportunities for physician practices, the opportunities aren’t without challenges.

With so many options in the healthcare marketplace, many physicians simply choose to contract with those who 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.

If you are one of your practice’s healthcare decision-makers trying to figure out whether your practice will accept Medicare, you have a lot to consider. We have talked through the pros and cons of Medicare for physician practices with Frank Cohen, director of analytics at DoctorsManagement, LLC, based in Knoxville, Tennessee.

Healthcare coverage is a cornerstone of modern medicine, shaping patient access, provider reimbursement, and overall healthcare delivery. For physician practices, health insurance benefits play a key role in determining financial stability and operational efficiency.

Medicare offers personalized health benefits to millions of Americans aged 65 and older and individuals with certain disabilities. Looking in terms of health economics, Medicare spending grew to more than $944 billion in 2022 — 21% of the nation's health expenditures.

Medicare is an affordable care option for millions of people, with the ability to expand patient benefits based on patient preferences and the individual's healthcare costs. Medicare also offers a medical savings program that can benefit insured patients who have low incomes and resources. It's a popular choice when it comes to consumer-friendly healthcare services.

One of the primary advantages of Medicare lies in its ability to provide faster payments and streamlined administrative processes for independent practices. Medicare offers expedited payment cycles, minimizing delays and administrative burdens for physician practices.

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

This aspect holds particular significance for healthcare organizations grappling with the complexities of patient revenue and healthcare payments. By minimizing administrative burdens and expediting payment cycles, Medicare enables physicians to focus more intently on patient care. This, in turn, fosters greater patient satisfaction and ultimately results in better patient outcomes.

Accepting Medicare healthcare plans can significantly enhance patient intake and volume for healthcare practices. With a sizable population of Medicare beneficiaries seeking medical care, practices have the opportunity to expand their patient base and leverage Medicare's expansive network to increase healthcare visits.

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

Research indicates that younger physicians, in particular, are inclined to accept new Medicare patients as they build their patient caseloads.

Medicare offers lower denial rates compared to most commercial health plans, reducing the need for resource-intensive appeals and resubmissions. While Medicare reimbursement amounts may be lower on average, the reduction in administrative overhead associated with denials helps to make up for that.

In contrast, private payers often have higher denial rates to go with their higher reimbursement rates. This creates an ongoing, tedious balancing act for healthcare organizations striving to optimize physician reimbursement while minimizing administrative burden.

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

This game of "bait and switch" makes it difficult for practices to grow. Because the turnaround time for payments tends to be longer with private payers, cash flow can become a problem — particularly when a practice is trying to expand, he adds.

Medicare's transparent fee schedule and consistent payment cycles provide practices with stability and predictability in revenue generation. This predictability enables practices to better forecast financial performance and allocate resources strategically.

After Medicare was created, the US Congress developed standards for enrollment in these healthcare programs. Hospital policies changed to conform to these new modern healthcare standards, and practices are now required to publicly report things like infection rates and readmissions. This translates to greater patient protection, better patient experiences, and better medical care overall.

We have just reviewed how independent practices benefit from the financially oriented "healthcare pros." However, Medicare, a ground-breaking healthcare reform, also helps practices provide better medical care and patient outcomes. For example, when people can make healthcare decisions based on their needs, rather than the cost of health insurance, there is less deferred healthcare. All healthcare stakeholders benefit when patients seek care sooner rather than later.

Despite its numerous advantages, Medicare presents challenges for physician practices.

Chief among Medicare’s challenges is the issue of lower reimbursement rates. Medicare typically pays an average of 20% less than most private payers, Cohen says. This disparity in reimbursement rates can pose financial challenges for physician practices, necessitating careful evaluation of the cost-benefit calculus associated with Medicare participation.

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, Cohen says.

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

Physicians are subject to regulatory requirements under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015, which may entail financial penalties for non-compliance. Practices must invest in comprehensive compliance measures and audit preparedness to mitigate the impact of audits and safeguard financial stability.

Physician practices will have to contend with the specter of audits and recoupments by government agencies. These upheavals can erode financial stability and undermine the viability of a practice. The inherent uncertainty associated with Medicare audits underscores the need for robust compliance mechanisms and diligent adherence to regulatory requirements.

“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,” Cohen says. “That’s a real problem.”

Navigating the complexities of Medicare reimbursement and regulatory requirements requires significant resources and expertise, posing operational challenges for physician practices. The dynamic nature of the healthcare market necessitates ongoing adaptation and strategic planning to optimize Medicare participation and practice performance.