Prescription: Reform Medicare Physician Payments


Prescription: Reform Medicare Physician Payments

Jun 6, 2024 7 min read

Commentary By

Caleb Keng

Graduate Fellow, Center for Health and Welfare Policy

Robert E. Moffit, PhD

Senior Research Fellow, Center for Health and Welfare Policy

Instead of reducing administrative burdens on America’s physicians, Congress has a record of adding even more layers of burdensome administration. shapecharge / Getty Images

Key Takeaways

The program’s trustees warned again this year that the availability and quality of healthcare services for Medicare beneficiaries would fall over time.

Congress should look beyond Medicare’s MIPS program and make advanced “alternative payment models” (APMs) a more attractive option for clinicians.

Providing Medicare doctors fair compensation for their services would have a positive spill-over effect on the private health markets.

It is well past time for Congress to reform Medicare physician payments. Current law is not only failing the hundreds of thousands of doctors who participate in the giant program, but also the nearly 67 million senior and disabled Americans who depend on Medicare for continued access to high-quality medical care.

While physician costs for overhead, medical equipment and supplies, as well as administrative staff, have soared, inflation-adjusted Medicare payments to physicians have dropped by over 25 percent over the past two decades.

Among their routine pleas to take Medicare’s fiscal challenges seriously, the program’s trustees warned again this year that when “the cumulative gap between the price updates and physician costs becomes large,” the availability and quality of healthcare services for Medicare beneficiaries would fall over time compared to those with private health insurance.

This is because the physician payment updates specified under current law “do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases.” Worse, these deteriorating Medicare payment conditions are persisting in a healthcare system already threatened with physician shortages.

There is, however, some good news.

>>> A Triage Plan for Medicare

Even in Washington’s polarized political environment, Senate Democrats and Republicans realize that the flawed status quo, amid a pending physician shortage, cannot continue. For example, during a recent hearing, members of the Senate Finance Committee came to a consensus on the need to reform Medicare physician payment to bolster primary care, reduce administrative burdens among doctors, and accelerate the transition to alternative payment models.

Sen. Ron Wyden (D-Ore.), the chairman of the committee, argued that “there are out-of-whack payment rules that make primary care a less appealing specialty than other fields. Primary care providers need to be valued and compensated more fully by Medicare.”

Well, of course. The problem, however, is that the government’s complex system of administrative payments—a combination of price controls, complex procedural coding requirements, and inflexible budgeting rules—can and do result in arbitrary cuts in some specialties and payment increases in others. Obviously, the sanguine influence of free market forces is absent in these cases. And even within the flawed framework of bureaucratically-driven administrative payment, such reimbursement disparities are not justified by empirical analysis or evidence.

Failed Reforms. Instead of reducing administrative burdens on America’s physicians, Congress has a record of adding even more layers of burdensome administration. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) is a case in point. Designed to replace an unworkable Medicare payment update system, the 2015 law created, among other things, the Merit-Based Incentive Program (MIPS) to “improve the health of all Americans by providing incentives and policies to improve patient health outcomes.” MIPS adjusts a clinician’s Medicare fee-for-service (FFS) payments based on their reported performance on quality and cost measures. High-performing clinicians are rewarded with pay bonuses, while those who lag behind these metrics face penalties in their reimbursements.

Despite its intended goal of incentivizing value-based care, MIPS payment adjustments are not providing the financial incentives to improve patients’ medical outcomes. In fact, the financial incentives are often insufficient to make its burdensome compliance requirements worthwhile, and many medical practices primarily participate in MIPS to avoid the financial penalties for not participating rather than to earn rewards.

During the Senate hearing, Dr. Amol Navathe, an internist and health economist at the University of Pennsylvania, told the panel that MIPS has been relatively ineffective. He noted that the additional “operational administrative burden that comes along with the type of reporting” required by the law was a powerful deterrent to physician participation. Moreover, he argued that it is unclear whether the measures physicians are required to report are “actually in keeping with what beneficiaries really care about.”

When Sen. Marsha Blackburn (R-Tenn.) pressed Navathe on potential remedies, he responded that the program should be “completely” reimagined: “I would say replace it.”

Meanwhile, the survival of independent medical practices is under threat.

Today, nearly three out of four physicians work for a hospital or a corporate owner rather than for themselves. Current policies are thus contributing to a steady decline in independent physician practices, with the share of physicians in private practices dropping from 60.1 percent in 2012 to 46.7 percent in 2022.

At the same time, the practice environment continues to deteriorate. During the hearing, Sen. Ron Johnson (R-Wisc.) highlighted the challenges America’s physicians face: “Forget the medical innovations... just the practice of medicine—is it better today or worse?” Dr. Steven Furr, a primary care physician, responded, “as far as the stress of practicing, it’s much more difficult now than it’s ever been. Physicians used to work hard, but they spent their time taking care of patients. They don't feel like they're spending time taking care of patients now. They're doing prior authorizations and other things to get those innovations there, but there's not as much enjoyment.”

Stronger Reforms Needed. As Congress works on a comprehensive solution, there are some practical changes that could be made to provide some immediate relief.

For example, Congress should look beyond Medicare’s MIPS program and make advanced “alternative payment models” (APMs) a more attractive option for clinicians. As Dr. Navathe stated in the hearing, it would be “very challenging to improve MIPS.”

Under MACRA, as an alternative to participation in MIPS, the law provides physicians opportunities to participate in “advanced” APMs and reap their financial bonuses if they meet certain qualifications. Congress could authorize CMS to designate in Medicare Advantage (MA), Medicare’s system of competing private plans, as participation in an advanced APM. This change would allow more clinicians to become eligible for advanced APM financial incentives and provide doctors an alternative to MIPS and its administrative burdens.

MA, while far from perfect, at least provides another option; privately negotiated physician payment contracts are far more flexible than the rigid Medicare FFS model. MA plans vary, of course, but they have the ability to negotiate contracts with clinicians that offer bonuses for meeting quality and cost targets, shared savings opportunities, and other incentives that reward value.

This flexibility allows physicians to be compensated for care coordination, preventive services, and other activities that are not adequately reimbursed under FFS. By encouraging more physicians to participate in MA, policymakers can facilitate a shift away from the constraints of an outdated FFS system towards more “value-oriented” payment arrangements.

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Congress should also enact site-neutral Medicare payment for medical professionals. This means that Medicare would reimburse a physician the same amount for the same services, whether it is provided in a hospital or a freestanding physician office.

Hospital-based payments are much higher. As Michael Chernow, Chairman of the Medicare Payment Advisory Commission, recently told Congress, “These payment differences encourage arrangements among providers, such as consolidation of physician practices with hospitals, that result in care being billed from settings with the highest payment rates, which increases total Medicare spending and beneficiary cost-sharing without significant improvement in patient outcomes.”

Not only would such a measure rectify a major imbalance between hospital and physician payment, but it would also generate significant savings for patients and taxpayers. Citing previous Congressional Budget Office (CBO) estimates, Gene Dodaro, Comptroller General of the United States, also told Congress that equalizing payments between hospital and physician office visits could generate savings of $141 billion over 10 years.

Providing Medicare doctors fair compensation for their services, regardless of the setting, would not only reduce the current discrepancies in Medicare payment rates but would also level the playing field between hospital corporations and independent medical practices and stimulate a new level of robust competition that would have a positive spill-over effect on the private health markets.

Beyond temporary relief, Congress should start the hard task of hammering out a comprehensive reform of Medicare physician payment that can stabilize physician reimbursement, guarantee seniors unbroken access to high-quality care, and meet the complex and growing medical needs of a rapidly accelerating aging American population.

Congress can and should break the old cycle of Medicare physician payment cuts and congressional overrides to cuts required by their own legislative handiwork. Hopefully, this can be accomplished on a bipartisan basis.

This piece originally appeared in RealClear Health

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