Increase $$ for Physicians, Institute Site-Neutral Payment, MedPAC Report Suggests

Boosting physician fee-for-service (FFS) payment rates and implementing site-neutral payment are among the ideas discussed in the Medicare Payment Assessment Commission’s (MedPAC) June report to Congress, which was released Thursday.

Although Medicare beneficiaries’ access to physicians appears adequate for now, “the commission is concerned about whether payments will remain adequate in the future,” according to the report. “Payment rates are set to be flat in 2025 and, starting in 2026, increase by 0.75% per year for qualifying clinicians participating in A-APMs [advanced alternative payment models] and by 0.25% for all other clinicians.”

“Meanwhile, clinicians’ input costs, as measured by the Medicare Economic Index (MEI), are expected to increase by an average of 2.3% per year from 2025 through 2033 — exceeding the growth in PFS [physician fee schedule] payment rates by more than has been the case over the past two decades,” the authors wrote. “This larger gap could create incentives for clinicians to reduce the number of Medicare beneficiaries they treat or stop participating in Medicare entirely.”

Because of these concerns, “the commission is considering alternatives to current-law updates, such as replacing them with updates based on some measure of inflation and temporarily extending the current A-APM participation bonus,” according to the report.

In terms of the inflation updates, MedPAC looked at two possible approaches. The first would be to update the practice expense portion of fee schedule payment rates by the hospital market basket inflation index, adjusted for productivity. However, the commission noted, this would mean that “certain specialists (e.g., radiation oncologists, vascular surgeons, interventional radiologists, and dermatologists) would receive larger updates than primary care providers, behavioral health clinicians, and certain other types of specialists (e.g., hospitalists, emergency medicine physicians, and hospice and palliative care physicians).”

The second approach would be to “update total fee schedule payment rates (including payments for both practice expense and clinician work) by the MEI (which includes a productivity adjustment) minus 1 percentage point. To avoid updates that are very low or negative, this approach could include an update floor equal to half of MEI.”

Neither idea was popular with the American Medical Association. “We commend MedPAC for recognizing an unsustainable combination: an inadequate baseline and a lack of an inflation-based update,” American Medical Association (AMA) president Bruce Scott, MD, said in a statement Thursday. “However, the AMA remains concerned that an update less than the full inflation rate, as is the case with both approaches under MedPAC’s consideration, would force physicians to make difficult choices about how to keep the lights on and care for America’s seniors and persons with disabilities.”

“Instead, the AMA strongly urges MedPAC to support — and Congress to pass — H.R. 2474, the ‘Strengthening Medicare for Patients and Providers Act,’ which would update Medicare physician payment by 100% of the Medicare Economic Index,” Scott said. “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.”

Another issue regarding physician payment, the report found, is that “Medicare payments are generally higher when the same service is billed in a hospital outpatient department rather than a freestanding clinician office. Research suggests that this site-of-service payment imbalance has contributed to vertical consolidation, though the effect may be modest and vary by clinician specialty or type of service, and other factors may also encourage vertical consolidation.”

“The commission has maintained that Medicare should base payment rates on the resources needed to treat patients in the most efficient setting,” the authors wrote. “If the same service can be safely and appropriately provided in different settings, a prudent purchaser should not pay more for that service in one setting than in another … The commission has published multiple reports analyzing and recommending site-neutral payment rates.”

On the Medicare Advantage (MA) side, “a recent study found that the use of prior authorizations by MA plans increased from 2009 to 2019 for most service categories,” the report noted. “In 2023, nearly all MA enrollees were in plans that required prior authorization for some categories of services … Prior authorization has been identified as a major source of provider administrative burden and can become a health risk for patients if it results in needed care being delayed or denied. Although only a small share of prior authorization requests have been denied, Office of Inspector General (OIG) audits suggest that many denied requests should have been approved.”

The commission has found “that Medicare consistently spends more for beneficiaries enrolled in MA than the program would if the same beneficiaries were in FFS Medicare, by an estimated 22% in 2024,” according to the report. “The commission has made several recommendations to improve the program, including: replacing the quality bonus program with a value incentive program that is budget-neutral and evaluates MA organization performance at a local market level; addressing systematic differences between MA and FFS in the diagnostic coding on which the risk-adjustment model is based; and improving the accuracy and completeness of encounter data” that are used to evaluate plan performance.

Provider directory accuracy was another concern of the commission. “In a 2022 report, GAO [the Government Accountability Office] highlighted a health insurance phenomenon — which stakeholders termed a “ghost network” — in which mental healthcare providers might be listed in a directory but on further investigation were found to be either out of network or not taking new patients. This discrepancy resulted in enrollees being functionally unable to access behavioral health services … The problem of widespread inaccuracies leading to inaccessible service lines has been observed in dermatology as well.”

The commission’s suggestions for addressing the issue include establishing a national provider directory or allowing beneficiaries to search by provider in the Medicare.gov Plan Finder, “to ensure that they are able to make informed plan choices.”

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