The Mayo Clinic and Medicare

(HT Drudge Report)  It is hard to reconcile the news that the Mayo Family Clinic in Glendale, Arizona will stop accepting Medicare patients with President Obama's reform goals of extending care, improving medical care and lowering the cost of care to Americans.  David Olmos, writing for Bloomberg ("Mayo Clinic in Arizona to Stop Treating Some Medicare Patients," Dec. 31, 2009) describes Mayo's action and some reaction to it.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little.

More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix, said Michael Yardley, a Mayo spokesman. The decision, which Yardley called a two-year pilot project, won’t affect other Mayo facilities in Arizona, Florida and Minnesota.

Obama in June cited the nonprofit Rochester, Minnesota-based Mayo Clinic and the Cleveland Clinic in Ohio for offering “the highest quality care at costs well below the national norm.” Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program, said Lori Heim, president of the American Academy of Family Physicians, in a telephone interview yesterday.

The Mayo organization had 3,700 staff physicians and scientists and treated 526,000 patients in 2008. It lost $840 million last year on Medicare, the government’s health program for the disabled and those 65 and older, Mayo spokeswoman Lynn Closway said.

Other health care providers may follow the Mayo's lead...

Mayo’s decision may herald similar moves by other Phoenix- area doctors who cite inadequate Medicare fees as a reason to curtail treatment of the elderly, said John Rivers, chief executive of the Phoenix-based Arizona Hospital and Healthcare Association.

“We’ve got doctors who are saying we are not going to deal with Medicare patients in the hospital” because they consider the fees too low, Rivers said. “Or they are saying we are not going to take new ones in our practice.”

Olmos interviews Robert Berenson, who is an M.D.  He provides a justification for the government's actions. 

Robert Berenson, a fellow at the Urban Institute’s Health Policy Center in Washington, D.C., said physicians’ claims of inadequate reimbursement are overstated. Rather, the program faces a lack of medical providers because not enough new doctors are becoming family doctors, internists and pediatricians who oversee patients’ primary care.

“Some primary care doctors don’t have to see Medicare patients because there is an unlimited demand for their services,” Berenson said. When patients with private insurance can be treated at 50 percent to 100 percent higher fees, “then Medicare does indeed look like a poor payer,” he said.

Dr. Berenson's explanation and the model that he uses do not explain why a firm should accept losses from an insurer.  Before I proceed, I confess that I do not like the idea of the policy makers using market power to shove markets in a direction that they think is superior.  Experience has taught that they simply cannot organize knowledge and make decisions from it as effectively as individuals acting within a market.  Perhaps more importantly, market participants are more adaptive and innovative than government policy makers.  But if I did believe that the government should exercise market power, and policy makers thought that there was a shortage of primary care physicians relative to specialists, it seems that their strategy should be to meet the market price for primary care physicians' services and bid down the price for specialists' services, thus lowering the wage differential between the two groups.  This policy would provide an incentive to existing medical students to go into primary care rather than some other specialization but might have the unintended consequence of deterring students from entering medical schools.

In the second paragraph, Dr. Berenson describes a competitive industry; no other has the perfectly elastic demand he describes.  This would imply that the Mayo Clinic could only charge a competitive price.  No government selected price could provide a better outcome to insurers or patients than this price.  Altering his model to one in which medical suppliers collude to set a monopoly price might create a justification for government intervention and price regulation but still does not explain why a firm should accept a price that results in losses from any insurer.  Furthermore, the evidence suggests that firms do not effectively collude.  Some have exited the market for Medicare patients while others have remained.  It is more likely that the government has used its special role as lawmaker to bully health care providers into pushing their losses onto other insured patients. 

Health care reform should start with tax reform.  Those who have their insurance premiums paid by their employer should not have a tax advantage over those who buy insurance individually.  This tax advantage has distorted markets by creating a "tragedy of the health care commons" in which the employer based group insurance patients over consume health care services.  See "Rationing Health Care" for a more detailed explanation of how tax subsidies of employee provided health plans have distorted markets.  Once a more vigorous market has lowered cost, policy makers could more cheaply provide universal coverage. 

Taking the President's view that the Mayo Clinic is a "national model for efficient health care," what can be inferred about the quality of medicine from health care from policy makers' actions regarding Medicare?  Perhaps policy makers are more concerned about providing universal coverage and lowering government expenditures than providing high quality, low cost care.