Medicare physician payment policies: a cost accounting analysis of three internal medicine office practices in South Dakota.

: Medicare financed visits comprise a higher percentage of these solo internal medicine practices than in solo practices of all types in South Dakota or practices of any type in the USA. Investment opportunity costs, not apparently considered in payment reform policies, in the three practices evaluated are greater than professional liability costs which are highlighted in reform systems. Medicare office visit reimbursement under the Customary, Prevailing and Reasonable (CPR) system did not cover economic costs in these three office practices. The 1991 transition year projections predict practice 1 will lose over $7,000. In the unlikely event that budget neutral provisions are implemented in 1992, the three practices could experience an office revenue increase of 49%, still not equal to the economic incentives of non-Medicare visits. However, the direction taken by the Health Care Financing Administration (HCFA) in developing a model Medicare Fee Schedule would permit an average increase of only 19% to the office charges of the three practices. Office practices 1 and 3 will not break even without increasing Medicare office visit volume by 37% and 57% respectively.