MedPAC weighs in on Medicare physician reimbursement, site-neutral payment, alternative payment model incentives

© Medicare Payment Advisory Commission

Inflation could be a driving factor for Medicare to increase reimbursement rates to physicians in coming years, according to the Medicare Payment Advisory Commission (MedPAC).

Meanwhile, site-neutral payment and the sunsetting of incentives for advanced alternative payment models (A-APMs) also will affect how doctors get paid.

MedPAC this month released its annual June “Report to Congress: Medicare and the Health Care Delivery System.” It includes discussion about two methods for updating physician and other clinician payments, how to attract participation in alterative payment models, and the potential for site-neutral payment for procedures performed at physicians’ offices or hospital outpatient departments.

MedPAC acknowledged the pressures of inflation on doctors. It’s something physicians have been saying for years about the reimbursement rates Medicare Physician Fee Schedule (MPFS).

“For many years, the Commission has found that beneficiary access to clinician services has been as good as, or better than, that of privately insured individuals,” MedPAC’s official report announcement said. “Nevertheless, the Commission is concerned about whether payments to clinicians under current law updates will remain adequate in the future.”

By the numbers

Clinician costs, as measured by the Medicare Economic Index (MEI), are expected to rise by an average of 2.3% a year from 2025 to 2033. Payment rates under MPFS will go up by 0.75% a year for qualifying physicians in advanced alternative payment models (A-APMs) and by 0.25% a year for all other physicians and other clinicians.

In short: the increases are “far below the expected growth in the MEI.”

“This gap between the growth in clinician input costs and updates to PFS payment rates could, over time, create incentives for clinicians to reduce the number of Medicare beneficiaries they treat or stop participating in Medicare entirely,” MedPAC said.

Two approaches

The commissioners considered two approaches to increasing physician reimbursement. The preferred measure is to update total fee schedule payment rates by the MEI minus 1 percentage point. MedPAC noted MEI growth has consistently outpaced MPFS payment rate updates, generally at an average of just over one percentage point a year, from 2001 to 2020.

The gap between fee schedule updates and MEI shows that Medicare payments per service “have declined substantially in inflation-adjusted terms over time.” Yet Medicare spending per beneficiary has outpaced growth in MEI, which suggests physician Medicare revenues have grown above the level of inflation, the report said.

“Overall, our long-term measures of access to care are positive: Physician incomes have kept pace with (or exceeded) inflation, the number of applicants to medical schools has grown, and the number of clinicians billing the fee schedule has increased substantially,” the report said. “These data suggest that two decades of fee schedule updates below MEI growth have not hurt the long-term supply of clinicians.”

Another approach to increase physician reimbursement would be to update the practice expense portion of the fee schedule payment rates by the hospital market basket, adjusted for productivity. That would be more complex than the other approach based on MEI, and is not MedPAC’s preferred approach, the report said.

Doctors respond

Either payment method would be better than the current form, American Medical Association (AMA) President Bruce Scott, MD, said in a news release.

“We commend MedPAC for recognizing an unsustainable combination: an inadequate baseline and a lack of an inflation-based update,” he said. “In exploring ways to strengthen Medicare for patients and physicians, MedPAC has alerted Congress that Medicare needs to be put on a healthier path.”

Scott endorsed MedPAC’s concern that without change, physicians may stop participating in Medicare, which ultimately affects patient access to health care.

But AMA and MedPAC split on updating physician reimbursement based on the full inflation rate, according to AMA, or the full amount of MEI, according to MedPAC.

An update less than the full inflation rate “would force physicians to make difficult choices about how to keep the lights on and care for America’s seniors and persons with disabilities,” Scott said. “This would be even more problematic following years of declining payment rates and rising inflation.”

AMA is endorsing the Strengthening Medicare for Patients and Providers Act, which would update physician payment by 100% of the MEI.

“Such an update would allow physicians to keep pace with rising practice costs so they can continue to invest in their practices and implement innovative strategies to provide high-value, patient-centered care,” Scott said. Accounting for inflation, Medicare physician payment has dropped 29% from 2001 to 2024, or an average of 1.5% a year, according to AMA.

But over 20 years, there is no evidence that full MEI reimbursement is needed to keep physicians participating in Medicare, according to MedPAC.

“Indeed, the fact that beneficiary access-to-care measures have remained relatively positive even as fee schedule payment rates have increased more slowly than MEI growth suggests that policymakers should be skeptical of claims that full-inflation updates are necessary to ensure beneficiary access to care,” the MedPAC report said. “Instead of hindering access, historical payment rate updates appear to have served to slow spending growth related to increased volume and intensity.”

Site-neutral payment

MedPAC noted at least two other elements affecting physician pay.

Regarding site-neutral payment, “the growing differential between payment rates for clinician services billed in freestanding clinician offices versus HOPDs could further encourage services to be billed in the higher paid HOPD setting and spur additional vertical consolidation in the health care industry,” the report said. Research suggests the effects may be modest and may vary by clinician specialty or type of service.

Hospitals are paid more because the intention is to cover the costs that a hospital incurs. Even so, paying hospitals more than if the same services were provided at a clinician’s office, distorts market competition and could cost more for Medicare beneficiaries and taxpayers, according to the MedPAC report.

A-APMs

The A-APM participation bonus is set to expire after 2026. About 265,000 clinicians qualified for it in 2023, or about one if five who billed fee-for-service Medicare. Another 62,000 clinicians participated in A-APMs in the 2023 payment year but did not qualify for the bonus due to an insufficient numer of payments or patients being in A-APMs, according to MedPAC.

The Commission noted most A-APMs have not been money-savers for Medicare. But they have led to changes in the mix or quantities of services that physicians and other clinicians deliver.

They “hold great promise,” and MedPAC affirmed its recommendation to use A-APMs and repeal the Merit-based Incentive Payment System (MIPS) pay-for-performance program. MIPS “does not meaningfully differentiate among clinicians’ quality of care since clinicians report on different sets of measures.” It also is a burden due to complex reporting requirements and arbitrary payment adjustments that create financial uncertainty for doctors and other clinicians.

However, clinicians may be drawn to MIPS in coming years because in 2027, payment rates for clinicians in A-APMs will be just one percentage point greater than those of other clinicians, according to MedPAC.

The Commission said extending the A-APM participation bonus through 2028 or 2029 would help maintain clinician participation while the future of the MIPS program becomes clearer.

AMA agreed with that part of MedPAC’s analysis.

“In addition, the AMA strongly agrees with MedPAC’s concerns about the expiration of the bonus payments for physicians who participate in alternative payment models (APMs),” Scott’s statement said. “Congress should continue to invest in these payments to provide the funding physicians need to transition to APMs, including carrying this momentum forward into specialties, geographic areas, and patient communities that have not yet had the opportunity to participate in APMs.”