MEDICARE PHYSICIAN PAY CUTS ARE IN EFFECT: Congress Needs to Respond
On November 2, 2023, The Centers for Medicare & Medicaid Services (CMS) released its calendar year 2024 final rule for the physician fee schedule. The rule, which went into effect on January 1, of this year, cut physician reimbursement by 3.4%. This is the 4th straight year that physicians will have to endure a cut. By contrast, most of the other Medicare providers will again anticipate sizeable increases in their 2024 payments (e.g., inpatient hospitals (3.1%); inpatient rehabilitation facilities (3.4%); hospices (3.1%); hospital outpatient departments (2.8%); and Medicare Advantage plans (3.32%)).
Labor prices, rent, medical equipment, and supplies have increased rapidly over the past several years. Inflation impacts physician practices as much as it affects other Medicare providers, but the Medicare Physician Fee Schedule (MPFS) is the only Medicare payment system that lacks a mechanism to reflect annual inflation.
Medicare reimbursement volatility has system-wide impacts. One such consequence is that the increasing financial pressure on physicians continues to result in them being forced to sell their practices to larger, better-resourced entities. According to an American Medical Association survey of physicians, horizontal or vertical practice integration is driven by the need to reduce administrative burden and associated costs, improve access and lower the cost of needed practice resources, and improve negotiating power with private plans.[1] Consolidation remains a concern due to its impact on program spending. For example, recent research shows that hospital outpatient department charges can be more than double for the same service in the office setting.[2]Potential Medicare savings resulting from payment parity between the two settings have been predicted by the Congressional Budget Office (CBO).[3]Additionally, MedPAC has observed that “Physician–hospital integration, specifically hospital acquisition of physician practices, has caused an increase in Medicare spending and beneficiary cost-sharing due to the introduction of hospital facility fees for physician office services that are provided in hospital outpatient departments. Taxpayer and beneficiary costs can double when certain services are provided in a physician office that is deemed part of a hospital outpatient department.”[4]
Thus, a domino effect results from Medicare’s reimbursement instability for physicians: fewer physicians participate in the program, more physicians are forced to sell their practices, and as noted above, costs for both the program and beneficiaries increase due to consolidation. This dynamic directly impacts access to care, especially for low-income beneficiaries and those living in rural or underserved areas.
Despite the physician community’s persistent advocacy to stop these cuts from going into effect, Congressional response to this cut has been slow. While the various committees of jurisdiction have passed or are considering bills to reform Medicare physician reimbursement, there has been no consensus on a way forward to alleviate or reverse the cuts, which are now in effect. The timeline by which the Medicare program processes claims for payment meant that physicians did not feel the impact of the reduction right away in the new year. However, once the program began sending out payment for services provided in January, reimbursements began to reflect the reduction — and will continue to reflect it, unless and until Congress acts to reverse the cut.
To that end, Congress is negotiating a bipartisan package of health policy provisions with the goal of having that ready by the March 8 deadline when a new batch of federal spending bills must be passed. Reversing the MPFS cut is on the table as one of the provisions that could be included in that package. If that happens, Congress may seek to avoid the expensive and complicated process of reprocessing claims from January and February. This could mean that a potential fix might not be retroactive and could instead provide a larger increase for the remaining ten months of the year. Whether this package comes together remains questionable, as there is a large list of other healthcare priorities to be negotiated, including pharmacy benefit manager reform, mental health funding, certain Medicaid policies, and more.
[1] https://www.ama-assn.org/system/files/2022-prp-practice-arrangement.pdf
[2] EBRI Issue Brief №525: “Location, Location, Location: Cost Differences in Health Care Services by Site of Treatment — A Closer Look at Lab, Imaging, and Specialty Medications” by Paul Fronstin, Ph.D., Employee Benefit Research Institute, and M. Christopher Roebuck, Ph.D., RxEconomics, LLC (Feb. 18, 2021).
[3] See, e.g., Congressional Budget Office cost estimate for H.R. 5378, the Lower Costs, More Transparency Act, section 203 (“Parity in Medicare Payments for Hospital Outpatient Department Services Furnished Off-Campus”).
[4] MedPAC, March 2020 Report to the Congress, Chapter 15 (“Congressional request on health care provider consolidation”).
