Medicare’s Shortfall

This deep-dive analysis is provided for patients who wish to understand the macroeconomic and accounting realities that have forced the federal government to freeze physician payments and restrict outpatient Medicare coverage. As a great Doctor once said:

“With respect to your health and well-being , it’s you me and God against disease and the insurance companies.”

1. Medicare is a Federal Entitlement Program—With Major Statutory Exclusions

Medicare is a federal entitlement program designed to provide baseline medical coverage, but it explicitly excludes a wide range of common foot and ankle conditions from coverage. Under federal guidelines (Medicare Benefit Policy Manual, Chapter 15, § 290 and Social Security Act §1862(a)(13)), Medicare statutorily excludes (never pays for, under any circumstances) the following:

• Routine Foot Care: The cutting, trimming, clipping, or debriding of nails, as well as the removal or debridement of corns and calluses. Hygienic and preventive care—such as cleaning, soaking the feet, or applying skin creams—is completely excluded unless you meet strict medical criteria for advanced, systemic vascular or neurological disease (like diabetic neuropathy) where non-professional care poses a grave hazard.
  
• Subluxations of the Foot: Surgical or non-surgical treatments undertaken for the sole purpose of correcting a partial dislocation, displacement, or structural subluxation of joint surfaces, tendons, ligaments, or muscles of the foot as an isolated entity.
  
• Flat Foot Care & Supportive Devices: Services or devices directed toward the care or correction of flat feet or fallen arches.
  
• Orthotics & Custom Footwear: Non-covered orthopedic shoes, custom arch supports, or routine adjustments to orthotic devices are excluded. Narrow exceptions apply only to specialized therapeutic shoes for qualified diabetic patients or shoes built as an integral component of a leg brace.

2. Excessively Outdated and Reduced Payment Rates

Medicare reimbursement for physician services is governed by the Resource-Based Relative Value Scale (RBRVS). Unlike hospitals, consumer goods, or nearly every other industry, Medicare physician reimbursement rates are not adjusted for inflation, and due to decades of consecutive cuts, are currently at about 1993 payment levels.

• Frozen at 1993 Rates: While institutional hospital fees have escalated rapidly, professional reimbursement rates for independent physicians have effectively remained capped at 1993 levels, completely failing to account for more than three decades of cumulative operational inflation.
  
• Sharp Decline in Professional Reimbursement: Data from the American Medical Association (AMA) indicates that real Medicare physician payment rates fell by 29% to 33% between 2001 and the present when adjusted for inflation. Over that same timeframe, the operational overhead for running a medical practice rose by more than 47%.
  
• Persistent Annual Payment Reductions: Even as essential overhead costs—such as staff salaries, clinical supplies, and facility leases—continue to climb, Medicare payment rates to physicians have experienced steady, inflation-adjusted decreases year after year.
  
• Medicare’s messaging has been focused on commoditizing and decreasing medical and physician work reimbursement to levels that are simply insolvent.
  
• The Deficit in Care Funding: To accurately align reimbursement with the actual, inflation-adjusted cost of providing high-quality modern care, current Medicare physician rates would need to approximately double.

3. The Multi-Trillion-Dollar Insolvency Reality

The true financial exposure of the United States healthcare program is staggering:

• In GAAP terms, the US Federal Government faces over $78 trillion in unfunded liabilities for Medicare and Social Security, with some economic estimates placing the true fiscal gap as high as $136 trillion.
  
• In 2002, Treasury Secretary Paul O’Neill commissioned a comprehensive study on these long-term structural deficits. The findings were so politically explosive that O’Neill was fired, and the report was entirely suppressed from the official federal budget.
  
  • Co-authors—economists Jagadeesh Gokhale and Kent Smetters—took their exact data, methodology, and findings and published them externally immediately after being ousted. You can access the complete original text in the following ways:
    
    • The Academic/Think-Tank Monograph: It was published in early 2003 by the American Enterprise Institute (AEI) under the title “Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities“. Physical and digital copies remain available directly via AEI or academic retailers.
      
    • The Secondary Academic Release: The full economic breakdown and political backstory were co-published with economist Laurence Kotlikoff in his heavily cited paper, “Is the United States Bankrupt?“, which is free to read online through Boston University.
      
• The Medicare Hospital Insurance Trust Fund (Part A) is projected to be fully depleted by 2033, which by law will trigger automatic, across-the-board cuts to hospital reimbursements unless massive tax increases are passed.

4. The Federal “Three Sets of Books” Accounting Deception

The federal government maintains extraordinary accounting standards that would be classed as corporate fraud in the private sector. As outlined by former US Comptroller General David Walker during the “Fiscal Wake-Up Tour,” the federal government effectively keeps “three sets of books” to manage public perception:

• The Cash-Basis Budget (The Headline Deficit)
  
  • The Concept: Measures short-term physical cash entering and leaving Treasury accounts in a fiscal year, completely ignoring future liabilities.
  • Current Projection: The CBO projects a cash-basis federal deficit of $1.9 trillion for FY 2026 (5.8% of GDP), driven by $7.4 trillion in outlays against $5.6 trillion in total revenues.
  • Source: Congressional Budget Office (CBO), The Budget and Economic Outlook: 2026 to 2036.
    
• The Treasury Financial Report (The Accrual Reality)
  
  • The Concept: Uses corporate-style accrual accounting (GAAP principles) to record liabilities—such as military pensions, environmental cleanup, and veteran care—the moment the legal obligation is created rather than when cash is paid out years later.
  • Current Projection: The Treasury’s net operating cost (accrual deficit) sits at $2.1 trillion against total gross operating costs of $7.3 trillion, regularly exceeding cash-basis figures as accrued retirement and healthcare obligations compound.
  • Source: U.S. Department of the Treasury / GAO, Financial Report of the United States Government.
    
• The Statement of Social Insurance (The Off-Balance-Sheet Liabilities)
  
  • The Concept: Tracks the 75-year present value of dedicated tax revenues versus scheduled benefit outlays for entitlement programs. Governed by Federal Accounting Standards Advisory Board (FASAB) standards—specifically SFFAS No. 17 and SFFAS No. 36—the Statement of Social Insurance (SOSI) tracks the 75-year present value of dedicated future revenues versus scheduled benefit outlays for Medicare and Social Security.
    
    • Under FASB rules, these massive structural unfunded liabilities are kept entirely off the main federal balance sheet.
      
    • The legal distinction relies on sovereign power: because social insurance programs are statutory provisions rather than contractual debt, Federal courts hold that beneficiaries do not possess enforceable property rights to their benefits.
      
      • Because Congress holds the unilateral power to reduce benefit formulas, alter eligibility ages, or increase tax rates at any time, federal accounting rules permit these entitlement commitments to be reported as non-binding off-balance-sheet schedules rather than formal statutory liabilities.
        
        • 1. “Mandatory Spending” is a Budget Procedure, Not a Contract In federal budgeting, “mandatory spending” does not mean a legally binding debt. It simply means the money flows on procedural auto-pilot under permanent law without requiring an annual vote from Congress (unlike discretionary spending for defense or education).
          
        • 2. The Supreme Court Precedent (Flemming v. Nestor, 1960) The Supreme Court explicitly ruled that Social Security and Medicare benefits are not accrued property rights. Even though workers pay mandatory FICA payroll taxes, paying into the system creates no legal contract or enforceable claim on future benefits. The Court affirmed that Congress retains the unilateral right to alter, reduce, or eliminate entitlement benefits at any time.
          
• Current Projection:
  • According to the 2026 Medicare Trustees Report and Statement of Social Insurance, Medicare carries a total 75-year unfunded liability of approximately $52.8 trillion in net present value across Parts A, B, and D.
    
    • The Part A Hospital Insurance Trust Fund accounts for a $4.2 trillion shortfall over the 75-year actuarial window, representing an actuarial deficit equal to 0.56% of taxable payroll. Under current law, the Part A Trust Fund will completely exhaust its cash reserves in 2033. Because federal statute prohibits Part A from spending money beyond its direct payroll tax collections, this reserve depletion will trigger an automatic, immediate 11% statutory benefit and provider payment cut in 2033, escalating to a 16% reduction as annual operating deficits expand.
      
    • In contrast to Part A, Medicare Parts B and D cannot technically go insolvent on paper because federal law mandates that general Treasury borrowing automatically backfills their funding shortfalls, covering approximately 74% of total costs while beneficiary premiums cover the remainder.
      • However, this automatic mechanism creates a massive $48.4 trillion net present value drain on general revenues over the 75-year horizon. This mandatory Treasury transfer acts as an ever-expanding structural deficit driver, requiring general taxpayers to perpetually finance physician services and prescription drug benefits through continuous federal borrowing.
        
  • The 2026 Trustees Report calculates the 75-year open-group unfunded liability for Social Security (OASDI) at $29.3 trillion. Social Security (OASI) trust fund reserves face depletion in 2032 and Medicare Part A (HI) in 2033, which would trigger automatic, statutory payment cuts of 11% to 22% absent congressional reform.
    
• Source: Social Security and Medicare Boards of Trustees, 2026 Annual Reports.

5. The Hospital Arbitrage System (HOPD)

To survive these frozen professional fees, many private medical practices have been forced to sell out to massive hospital conglomerates. This has triggered the Hospital Outpatient Department (HOPD) arbitrage system:

• When a hospital buys a private clinic, they legally re-classify the clinic as an HOPD.
  
• Under Medicare rules, hospitals are allowed to charge a separate, massive “facility fee” for outpatient services that a private doctor is banned from charging.
  
• A routine injection that costs $200 in an independent, private specialist’s office suddenly bills at $1,500 to $2,500 the moment a hospital logo is placed on the door, skyrocketing the patient’s out-of-pocket 20% coinsurance cost-share.

Our practice refuses to participate in this consolidation. By remaining independent and selectively offering transparent, direct-pay specialized services, we protect you from hospital facility fee arbitrage while ensuring our clinical standards are never compromised.

6. Proposed 2027 Rule: Forced Split Visits (Modifier -25 Cuts)

Under proposed CY 2027 Medicare Physician Fee Schedule regulations, CMS plans to unilaterally cut physician reimbursement by 50% for procedures performed on the same day as an evaluation and management (E/M) office visit. The proposed solution: Medicare is suggesting that patients come back for separate visits for procedures in order to preserve it’s already decreased fee schedule.

• What this means for Doctors: Medicare is declaring that it is willing to bundle and under-reimburse Doctor’s services, which demonstrates a disregard for Physician work and reimbursement.
  
  • Medicare and other insurance companies already “bundle” multiple procedures performed at the same time to discount and commoditize Physician work and time.
    
• What this means for patients: Under this 50% penalty, Medicare is asking practices to unbundle care and bring patients in more frequently.
  
• The Result: Patients will be required to make two separate office visits—one day for the evaluation and a second day for the procedure—increasing your travel costs, time, and inconvenience. This is of course disingenuous; the goal is another barrier to your care.

7. The Broader Healthcare Impact: “Pull Forward To The Next Window, Please”

The severe gap between rising medical overhead and falling Medicare reimbursement affects surgeons across all medical specialties. Data presented at the 2024 American Academy of Orthopedic Surgeons (AAOS) annual meeting highlights the unsustainable trajectory of physician reimbursement:

• Falling Per-Hour Compensation: When factoring in the total time spent per case—including pre-operative planning, surgical execution, charting, and post-operative follow-up visits—early-career surgeons earn approximately $88 to $89 per hour from Medicare for major joint procedures. This rate is equivalent to average pay for dentists and travel nurses.
  
• Projected Decline Below Entry-Level Service Pay: Predictive modeling based on historical Medicare payment data shows an accelerating downward trend. If current cuts continue, inflation-adjusted Medicare reimbursements for complex surgical procedures are on track to drop below $11 per hour—less than the hourly wage earned by entry-level fast-food cashiers.
  
• This means that after a dozen years of rigorous medical education, residency, and fellowship training, a specialist performing complex surgery would earn less per hour from Medicare than an entry-level cashier at a fast-food restaurant.
  
• Hospital vs. Surgeon Payment Disparity: While commercial and Medicare payments to hospital facilities for surgical procedures have increased over time, physician professional fees for performing the same surgeries have steadily declined.
  
• Impact on Patient Access: As reimbursement rates fall drastically below operational overhead costs, specialist practices are increasingly forced to cap their Medicare panels, limit new Medicare intake, or transition to cash-based care models to remain financially viable.

8. Our Commitment to Your Care

At San Mateo Podiatry Group, we believe in complete financial transparency. We work directly for our patients—not insurance companies—to ensure you receive the highest quality diagnostic and surgical care without compromising on time, technology, or safety.

As a great Doctor once said: “With respect to your health and well-being , it’s you me and God against disease and the insurance companies.”

Your health is an investment into your greatest asset, not an expense. Take the next step; contact us to schedule your specialist consultation today.