MedPAC: Congress should tie Medicare physician reimbursement to inflation

© Medicare Payment Advisory Commission

Medicare physician reimbursement could reflect inflation under a new formula recommended by the Medicare Payment Advisory Commission (MedPAC).

On April 10, MedPAC members voted unanimously to send Congress two draft recommendations that have been in discussion for months. They are:

• Congress should replace the current-law updates to the physician fee schedule with an annual update based on a portion of the growth in the Medicare Economic Index (MEI) (such as MEI minus 1 percentage point.)
• Congress should direct the Secretary to improve the accuracy of Medicare’s relative payment rates for clinician services by collecting and using timely data that reflects the costs of delivering care.

In the opening session of the two-day meeting, MedPAC members had relatively little discussion. Chair Michael E. Chernew, PhD, noted the panel had deliberated on the issues extensively in March and other earlier meetings. Additional details also will be in MedPAC’s June 2025 report to Congress, he said.

What will reaction be?

The vote drew prompt praise from the American Medical Association, with President Bruce A. Scott, MD, issuing a statement of support.

“It’s been said that a crisis is a terrible thing to waste. Sadly, we are in a crisis,” he said. “We hope lawmakers listen to MedPAC about the need to stop doing the same thing while expecting different results. Let MedPAC be a catalyst for change.”

Paying doctors more will have a price tag: an estimated $15 billion or more over five years, according to MedPAC staff. It was unclear how Congress would react in light of efforts to reduce government spending under the new administration of President Donald J. Trump. So far the administration has overseen a restructuring of the U.S. Department of Health and Human Services, which oversees the U.S. Centers for Medicare & Medicaid Services. Lawmakers and critics of the current federal spending direction have warned of major spending cuts coming to Medicaid.

The situation so far

MedPAC Principal Policy Analysts Brian O’Donnell, MPP, and Geoff Gerhardt, MPP, presented findings about Medicare beneficiary access, costs of changing physician reimbursement, and potential new ways to analyze the relative value units of medical care and services.

For access, MedPAC generally has found that Medicare beneficiaries and those using private insurance report similar problems finding a new clinician. Physicians and other clinicians accept Medicare at rates similar to commercial insurance, although Medicare tends to reimburse less than commercial payers.

Volume and intensity of care per beneficiary are increasing, as are the numbers of applicants to medical schools and the number of clinicians billing Medicare. Clinician incomes have kept pace with inflation over the long term, according to the MedPAC report.

As for the MEI, it is projected to outpace Medicare Physician Fee Schedule updates by more in coming years than it did in the past. “This larger gap between MEI growth and PFS updates could negatively affect access to clinician care in the future,” the MedPAC presentation said.

Changing reimbursement

Revising the formula for physician reimbursement will have implications — including $15 billion to $30 billion more spent over five years. Greater reimbursement should maintain beneficiary access to care because physicians and other clinicians will be willing and able to treat them.

But beneficiary cost sharing and premiums also will cost more, according to MedPAC.

Language too soft?

In discussion, MedPAC members generally agreed on two points:

• The recommendation language “such as” is not as strong as overtly supporting the formula MEI minus 1 %.
• MedPAC and Congress should consider a formula floor and ceiling to avoid the reimbursement change being too low or too large, based on inflation and economic conditions.

Commissioners Lawrence Casalino, MD, PhD; R. Tamara Konetzka, PhD; Brian Miller, MD, MBA, MPH; Betty Rambur, PhD, RN, FAAN; and Cheryl L. Damberg, PhD, spoke about those points.

What is valuable?

As part of the second recommendation, MedPAC commissioners considered accuracy of relative value units (RVUs) of medical care. Accurate values are crucial because misvaluation can incentive oversupply or undersupply of services in Medicare. The values influence decisions about vertical consolidation in health care, and influence payments by commercial insurers, according to the staff presentation.

MedPAC in 2006 and 2011 recommended Congress establish an expert panel to assist Medicare leaders in evaluating RVU recommendations by the Relative Value Update Committee, known as the RUC.

More examples

The staff offered three examples of concerns about relative values, though they noted their list was not exhaustive.

• Medicare uses 2006 data to determine RVUs of work, practice expenses and malpractice insurance. More recent data would reflect accurate costs of running a practice and avoid large changes each time MEI is updated.
• Global surgical codes are intended to pay for care that a physician provides on the day of a procedure and in postoperative follow-ups. But studies show physicians and other clinicians furnish fewer postoperative visit than are assumed. Staff recommended changing or revaluing those codes.
• When physicians provide services in hospital outpatient departments, Medicare pays indirect practice expense costs to both physicians and facilities. That can result in overpayment and encourage vertical consolidation, so policymakers could revalue those fees.

Medicare spending is budget-neutral, so revised rules would not be expected to change total program spending. However, those changes could improve care for beneficiaries by reducing incentives for physicians and other clinicians to overprovide or underprovide services. New rules also could have redistributive effects on payments to providers.