Are you ready for the big health care chill of 2014?

Parallels exist between global warming and the inevitable cooling of health care economics.

John B. Pinto

Hope is the denial of reality.
— Margaret Weis

The worst lies are the lies we tell ourselves … because we’re afraid.
— Richard Bach

Sometimes reality has a way of sneaking up and biting us on the ass.
— Meredith Grey, MD, fictional surgeon on Grey’s Anatomy

As the warm summer months and increasingly violent weather patterns roll along borne of climate change, it has me thinking about the difference between problems and issues. Problems, as the old man said, we can solve. Issues we may just have to live with.

For example, most science now lines up behind the notion that anthropogenic global warming is not only real, but that the knock-on effects will be inescapable for many generations that follow us. Global warming has passed the threshold of being a problem and is now an issue we (our grandchildren, actually) will just have to live with.

The most fatalistic scientists now understand that for the next half-century or longer, we are not going to reduce the human carbon footprint but increase it. Coal-fired power in Asia will rise 60% in the next 10 years alone. So even if the U.S. and Europe were to cut CO₂ emissions by far more than their targeted 20% in the same time frame, the total CO₂ increase from Asia would offset it by a wide margin. Atmospheric CO₂ levels will keep soaring. Absent some unforeseen population collapse, for a few centuries at least, the adverse results of warming will ensue. Earth will change.

What’s to be done? Can this course be reversed in the near term? No. Our descendents will simply have to adjust to a world made very different by the folly of the present generation. Will they be able to make the needed adjustments? Of course. But it will not be easy, swift or pleasant.

In the same way, it will not be easy or pleasant for U.S. surgeons and their staff to adjust to the “global economic cooling” that is now inevitably in the cards for health care.

Like the climate scientists, an increasing number of health analysts, this one included, are realizing that runaway health costs, like runaway carbon outputs, are going to inescapably lead this country — now ranked No. 1 in costs and No. 31 in longevity — toward a cascade of unstoppable, relatively near-term changes to our accustomed medical-economic system.

The prominent difference between these two runaway impacts — global warming and health care cooling — is the timing of adverse events. Most eye surgeons reading this column will not be personally affected by global warming; just their grandkids will. But all eye surgeons who are planning to work for more than the next decade will be affected to a great degree by what is just around the bend in health care cooling: the big chill.

Why now, after all prior hollow threats of pending fee and utilization reform, is change certain?

• We are now spending about 18% of the nation’s gross domestic product on health care. The rest of the industrial world spends 12% or less.
• Our high health spending levels were affordable when the U.S. enjoyed a significant per capita GDP edge over the rest of the advanced nations. But 60 years of post-WWII American exceptionalism (energy was cheap and we were an undamaged industrial nation ready to sell to the world) is now coming to an end.
• Countries get wealthy by making transportable goods and then selling them to the world. China, Japan and Germany do this pretty well today. Not so much the U.S. According to Georgia Tech, China surpassed us a few years ago in technology development, and from consensus reports, China is now also ahead in manufacturing output.
• To be a viable nation in an increasingly competitive world, our health care costs have to be in line with our competitors and our resources, especially as the tsunami of aging baby boomers approaches to inundate Medicare.
• We have already overshot as a nation, for many years, what is affordable to spend on health care. The bubble has not burst until now because of the political third rail of Medicare funding and the historic borrowing power of the country.
• That borrowing power could soon be curtailed. In the recent words of Senate Budget Committee Chairman Kent Conrad, D-N.D., “This year, for the first time since World War II, gross federal debt will exceed 100% of GDP, well above the 90% threshold that many economists regard as the danger zone. That has to be a wake-up call for all of us.”
• Because of this, both Democrats and Republicans have put Medicare on the table for examination. And Medicare represents 60% of the average ophthalmic practice’s revenue stream and sets the benchmark by which private payers reimburse for patient care.

The big chill

If you simply focus on the gross figures, it is clear that our current 18% spending rate has to fall to something like 12%, which approximates our spending rates 20 years ago. That is a 33% cut, achieved in some combination of reduced fees or rationed care, with perhaps a bit of the slack picked up by patients themselves.

How soon might this happen? A lot faster than global warming, to be sure, but not as slowly as you would like. I would give the big chill until about 2014 to get here, 3 years or so from now, when the next crop of leaders in Washington finally get a grip and, with the political cover of continuing deficit spending, stubbornly high unemployment and rising energy costs, take draconian measures that have been sidestepped until now.

Of course, faced with the obvious near-term math — a prospective 33% cut in cash flow — the basic human nature of even the smartest and most foresighted eye surgeon reading this veers toward inertia: “Let’s wait and see.”

If you are motivated to do more than wait for the big health care chill of 2014, here are a few pathways to consider depending on your personal situation.

Still in training or a recent grad

Polls typically show that you would prefer to join a private practice on a partnership track. The big chill may frost your ambitions a bit.

• Private practice is not going away, and the most satisfying, controlled environment will likely continue to be ownership of your own practice. But do not join a vulnerable practice — one with low profit margins, high competition or poor leadership to get through the period ahead of us.
• Consider locating to underserved markets in which fee reductions may be curtailed and managed care intrusion will come later than in the coastal hot spots.
• Choose well-run, low-tax states (eg, Texas, North Dakota and Florida) over states with political gridlock and rising taxes (eg, Illinois and California).
• If you are business-savvy and financially motivated, steer toward a closely held practice context in which you will employ many durable associates providing passive income to a smaller core of owners.
• If you are not ready for the rising rigors of business ownership, choose a strong institution to join — a health system or staff model HMO — with control over its market, ideally one that grants its provider a higher degree of autonomy.
• Do not look over your shoulder at the lifestyle the last few generations of eye surgeons enjoyed. You will still earn in the top 5% of the nation, but not in the top 1%.
• Do not jump off a bridge. In 15 years there will be a dearth of ophthalmic surgeons and a swelling senior population. In ordinary economic markets that spells “p-r-i-c-i-n-g p-o-w-e-r,” and private surgical boutiques may well proliferate.

Dr. Average, the mid-career practitioner

You are in your 40s or 50s. You practice with one or two colleagues in one or two office locations. You have a 40% profit margin (which would fall to a 6% margin with a full 33% pay cut).

• Deeply review your assumptions about retirement timelines and the funds you will need for financial independence.
• Be flexible. When the big chill comes, you may no longer be able to sustain your accustomed lifestyle and pace of saving for retirement.
• Boost your personal productivity. If you are now seeing 40 patients per day, learn how to see 50; 60 would be even better.
• Reassess the meaning of work in your life. Many mid-career surgeons, having unconsciously adopted a high cost of living, will be trapped on a treadmill they can no longer keep up with after the big chill hits.
• Work hard every day to improve the revenue and cost structure of your practice. Boost the proportion of self-paid payments (eg, elective care and optical dispensing). Gain access to ASC equity, and pare costs intelligently.
• Build larger personal and practice savings to use as a shock absorber in case the big chill arrives abruptly.

Late-career surgeon

You are in the last decade of your career and are probably busier than ever. When you read an article like this, your thinking is in line with the T-shirt slogan “Old guys rule!”

• You won the trifecta — high fees and low competition at the start of your career, fast-rising procedure volumes with the overlap of technology and an aging market, and an investment portfolio nurtured during Wall Street’s former fat years — and now you are dodging the worst of the big chill.
• Do not get too cocky. Re-examine your financial planning, because the majority of 60-something surgeons I meet are still well short of achieving a conservative retirement nest egg.
• When the big chill comes, count to 100 before throwing your hands up, quitting and saying, “I’d never work for what they’re planning to pay us now!” You are paid more than a financial reward as an eye surgeon. This is still the role in which you are likely to be most gratified in life. Give it up only after sober consideration of the options should you retire early.

Of course, when the cuts and/or care rationing inevitably come, it will not be all at once. Governmental and private payers know that an abrupt 33% revenue cut would bankrupt the average eye surgeon. The big chill will arrive by degrees but much more briskly than past fee adjustments. Even so, take heed today and you will give yourself, your colleagues and your staff the additional time to adjust gracefully to what lies ahead.

• John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. He is the author of John Pinto’s Little Green Book of Ophthalmology; Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement; Cash Flow: The Practical Art of Earning More From Your Ophthalmology Practice; The Efficient Ophthalmologist: How to See More Patients, Provide Better Care and Prosper in an Era of Falling Fees; The Women of Ophthalmology; and his new book, Legal Issues in Ophthalmology: A Review for Surgeons and Administrators. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.
• Disclosure: No products or companies are mentioned that would require financial disclosure.