MedPAC hammers out recommendation on doctors’ reimbursement in Medicare Physician Fee Schedule

© MedPAC

The Medicare Payment Advisory Commission (MedPAC) is inching closer to a recommendation on revising how doctors get paid through the Medicare Physician Fee Schedule.

On March 6, MedPAC opened its latest two-day meeting with almost 90 minutes of discussion of the best ways to balance beneficiary access and costs, physician pay, taxpayer resources, and overall costs to the U.S. Department of Health and Human Services (HHS).

Draft recommendations

While the members had suggestions about the nuances of physician pay and the language to describe it, there was general agreement on two draft recommendations to Congress:

• 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). An example could be: MEI minus 1 percentage point.
• Congress should direct the HHS secretary to improve the accuracy of relative payment rates for clinician services by updated costs data regularly, and ensuring the methodology used to determine payment rates for different services reflects the settings in which clinicians practice medicine.

Depending on commissioner feedback, MedPAC could vote on the recommendations in April to be included in its June 2025 report to Congress.

PFS and MEI

The discussion was a continuation of deliberations on MedPAC’s June 2024 Report to Congress and of the Commission meeting of November 2024. It opened with a presentation of the report by principal policy analysts Geoffrey Gerhardt, MPP, and Brian O’Donnell, MPP, with O’Donnel and Prinicipal Policy Analyst Rachel Burton.

Regarding the first recommendation, the Medicare Physician Fee Schedule pays for approximately 9,000 different clinician services, provided in settings such as physicians’ offices and hospitals. The services may be discrete or bundled, such as a patient undergoing surgery and postoperative visits, Burton said.

Payment rates for fee schedule services are based on relative value units (RVUs), the conversion factor, and other adjustments. RVUs can change based on location, and broken down into three components:

• Work
• Direct and indirect practice expenses
• Malpractice

MACRA, the 2015 Medicare Access and CHIP Reauthorization Act, provides specified updates to physician fee schedule payment rates. Those have ranged from 0.5% in 2016, 2017 and 2018, to a high of 3.75% in 2021. For 2026 and beyond, rates will increase by 0.25%, or by 0.75% if the physician is using an advanced alternative payment model (A-APM), Burton said.

MedPAC assess the adequacy of payment by evaluating care access, efficiency and quality, while remaining a good steward of taxpayer resources.

Recent history suggests a full MEI update has not been needed to maintain access to care, Burton said. However, MedPAC has contemplated replacing the dual A-APM fee schedule updates with a single update based on a portion of MEI, such as MEI minus 1%.

That method would improve predictability for clinicians, beneficiaries and policy makers. It would balance beneficiary access with beneficiary and taxpayer financial burden, while being simple to administer, Burton said. She noted it would increase program spending relative to current law.

Misvalued RVUs

O’Donnell summarized prior MedPAC work on the accuracy of fee schedule RVUs, relating to the second recommendation. That is important because misvaluation can lead to incentives to oversupply or undersupply services. It also could influence decisions about vertical consolidation in the sector, and non-Medicare insurers could base payment decisions on misvalued codes, he said.

The Commission saw three illustrative examples of potentially misvalued codes, and policies that could address concerns. Those examples are not an exhaustive list, O’Donnell said.

One example: MEI uses 2017 data, but CMS uses MEI based on 2006 data to allocate RVUs. Another example: Global surgical codes may be overpaid due to assumptions about post-operative visits; studies have show that for most global codes, the payment rates assume more post-operative visits than actually happen, O’Donnell said.

The third example is accuracy of relative payment rates for indirect practice expenses. When health services are furnished in hospital out-patient departments, the hospital and the clinician both collect payment for indirect practice expenses. That could result in double payment and encourage vertical consolidation. As a result, continued growth in physician and hospital affiliations may necessitate a new approach to payment for indirect practice expenses, the presentation said.

Revising and refining

The commissioners offered their responses to the presentation, with questions about a variety of issues.

Commissioners generally talked positively about creating a floor and ceiling for changes to physician reimbursement, and they discussed the method for calculating it.

A floor could be zero, or no annual increase. “A floor of, like, don’t let it go negative, seems to make sense to people, like, we don’t want to cut your fees,” said MedPAC Chair Michael E. Chernew, PhD.

Calculating a ceiling is more challenging, “not that there shouldn’t be a ceiling,” he said. There has been a suggestion of calculating the physician reimbursement amount by multiplying the MEI inflation rate by 0.5. But that becomes problematic in times of high inflation, Chernew said. Using the example of an 8% inflation rate, that formula would lead to just 4% reimbursement. The MEI minus 1% tracks inflation better, he said.

Commissioner Brian Miller, MD, MBA, MPH, said he agreed with the concept of a ceiling and floor, but suggested the legislative process and budget constraints would dictate those. Commissioner Betty Rambur, PhD, RN, FAAN, noted the members should consider deflation, as technology improves and prices on some goods and services comes down.

Site-neutral payment

Commissioner Robert Cherry, MD, MS, and Rambur questioned whether the second recommendation would conflict with MedPAC’s earlier recommendations on site neutral payments for the same services performed in hospitals, ambulatory surgical centers or physicians’ offices. The Commission in June 2023 voted that Medicare could save money by better aligning payment rates across ambulatory services when doing so does not pose a risk to access.

The MedPAC staff had additional anaylsis about how the recommendation would interact with the site-neutral recommendation. “And I definitely think that this does not conflict with any of our site-neutral recommendations,” O’Donnell said, and staff could clarify that language.

Changing the market

Commissioner Lynn Barr, MPH, asked about the effects of reducing facility indirect practice expenses for certain clinicians or services. Depending on how that policy is implemented, practice expense payments would decline by an estimated $1 billion to $4.5 billion, O’Donnell said.

Due to budget neutrality, there may be a shift in payment, but not real savings. Barr questioned whether the magnitude of such a shift would be enough to change behavior at the individual level for physicians.

A-APM incentives

Under the current payment structure, physicians using A-APMs would see an incentive growing exponentially over time, from 1% greater payment in 2027, to a 10.5% greater payment by 2045, according to the MedPAC figures.

In the past, the commissioners have noted that is troubling, although it does have a benefit by creating an incentive, said Commissioner Gregory Poulson, MBA.

“What I would like to not do, though, is to implicitly throw out an incentive to participate in the A-APMs altogether without having a good solid discussion on that, which I don't think we've had,” Poulson said. He suggested encouraging physicians to participate in A-APMs through yearly add-ons that do not accumulate or compound over time.

Chernew clarified for online participants: “I will say this explicitly, we are not implicitly trying to say, get rid of the AAPM bonus. Nor are we implicitly trying to say, keep it in some other form. We are simply trying to say that is a different issue, and so we'll deal with that differently.”