Many physicians dropping out of Medicare. $500 billion cuts in ObamaCare won't help this trend.

President Obama last year praised the Mayo Clinic as a "classic example" of how a health-care provider can offer "better outcomes" at lower cost. Then what should Americans think about the famous Minnesota medical center's decision to take fewer Medicare patients?

Specifically, Mayo said last week it will no longer accept Medicare patients at one of its primary care clinics in Arizona. Mayo said the decision is part of a two-year pilot program to determine if it should also drop Medicare patients at other facilities in Arizona, Florida and Minnesota, which serve more than 500,000 seniors.

Mayo says it lost $840 million last year treating Medicare patients, the result of the program's low reimbursement rates. Its hospital and four clinics in Arizona—including the Glendale facility—lost $120 million. Providers like Mayo swallow some of these Medicare losses, while also shifting the cost by charging more to private patients and insurers.

Of course, only governments can lose that much money and pretend they don't have to change. "Mayo Clinic loses a substantial amount of money every year due to the reimbursement schedule under Medicare," the institution said. "Decades of underfunding and paying for volume rather than value in Medicare have led us to this decision."

Mayo is probably a leading indicator of where other hospitals and doctors are headed. Physicians on average earn 20% to 30% less from Medicare than they do from private patients, and many are dropping out of the program. While about 92% of family physicians participate in Medicare, only about 73% of those are now accepting new patients. In some specialties—neurology, oncology, gynecology—in places like Manhattan and Washington, patients can struggle to find any doctor who'll accept Medicare.

The $500 billion in Medicare cuts planned as part of ObamaCare won't help this trend. The hospital industry agreed earlier this year to chip in $100 billion over the next decade in lower annual payment increases for Medicare. The chief Medicare actuary estimates that up to 20% of hospitals could become unprofitable as a result of the scheme.

The irony is that the Obama Administration has repeatedly praised Mayo as an example of the efficiency and lower cost that will spread everywhere if ObamaCare passes. And it's true that Mayo is a sterling example of the kind of health reform that many economists—notably White House budget chief Peter Orszag—extol. (Continues here)