The Medicare physician payment system is becoming increasingly unsustainable, threatening the stability of both physicians and their patients. Despite years of advocacy for reform, physicians remain the only Medicare providers who do not receive an annual inflationary update. This lack of adjustment means that payment rates fall behind inflation, putting physicians at risk financially and making it difficult for them to manage rising medical costs. Without intervention, many physician practices may be forced to close, resulting in fewer options for all patients, not just those on Medicare, to receive high-quality care.
Reforming this system is urgently needed. Strong action from Congress is essential to establishing a fair and logical Medicare payment system that links compensation more closely to the quality of care provided. Such reforms would also eliminate the need for Congress to annually assess and prevent scheduled pay cuts. The Strengthening Medicare for Patients and Providers Act (H.R. 2474) proposes an annual inflationary update to Medicare physician payments, calculated using the Medicare Economic Index. Support for this bill from policymakers would help correct systemic flaws, protect physician practices, and ensure patients retain access to quality care.
Further reforms could also make the Medicare physician payment system more reflective of the current realities faced by medical practices. These changes could include revising the rules around budget neutrality calculations to prevent errors in future projections and reducing the financial and reporting burdens imposed by the Merit-based Incentive Payment System (MIPS). Additionally, reforms could encourage participation in alternative payment models (APMs), which reward providers for delivering high-quality, coordinated care.
There are several critical reasons why Congress needs to address this issue immediately:
Rising Practice Costs and Declining Physician Pay:
Since 2001, Medicare physician pay has fallen 29 percent behind inflation. During the same period, the cost of running a medical practice has increased by nearly 50 percent. This discrepancy has resulted in over two decades of stagnant payments in the face of rising costs.
Incorrect Assumptions Reduce Available Payment Funds:
When new services are added to the physician fee schedule, projections about the future workload of practices are made to comply with the Centers for Medicare & Medicaid Services (CMS) budget neutrality rules. However, these projections are often inaccurate, leading to billions of dollars being permanently removed from the payment pool.
Temporary Fixes Are Not Sustainable:
At the beginning of 2024, Medicare physicians faced a 3.37 percent payment cut. While Congress intervened to limit the reduction, they only managed to reverse 1.68 percent of the cut. This action left physicians struggling to manage practice costs and consumer prices. This reduction followed a 2 percent pay cut in 2023.
Ongoing Pay Cuts Limit Options for Medicare Patients:
The U.S. is already seeing delays in access to care and challenges in scheduling appointments. With a projected shortage of up to 86,000 physicians by 2036, Medicare patients cannot afford to lose more options for care.
All Americans Risk Losing Access to Quality Care Without Reform:
Without significant long-term changes, physicians will struggle to afford staff salaries, purchase new equipment, or invest in their practices. If Medicare physicians are forced to close their doors, all Americans, not just Medicare beneficiaries, will be at risk.
APM Development Has Stalled:
While both Congress and the physician community have advocated for APMs to enable better care delivery at lower costs, most physicians still lack the opportunity to participate in these models. This lack of participation deprives both patients and physicians of the advantages offered by innovative healthcare delivery systems.
Healthcare Access in Rural and Underserved Areas Will Decline:
The annual cost of participating in MIPS is approximately $12,800 per physician. This cost is challenging for rural and small practices with limited resources to absorb. If Medicare physicians in these areas close, residents may struggle to find care at all.
A Rational Payment System Would Better Meet the Needs of Americans:
Reforming the current system would benefit both patients and physicians. It would provide financial stability and predictability, promote value-based care, and safeguard access to high-quality care. Additionally, it would allow practices of all sizes, in both rural and urban areas, to thrive.
Physicians have been pushing for reform for over a decade, but the system remains unchanged. The current situation has placed significant strain on the healthcare system, particularly for those on Medicare. As healthcare costs continue to rise, the lack of an inflationary update has put many practices at risk of closure, which in turn threatens the quality of care available to patients across the country.
One of the most significant issues is the failure to provide physicians with an annual inflationary adjustment. While other Medicare providers receive such updates, physicians are left behind, struggling to keep up with increasing costs. This gap between rising expenses and stagnant payments creates a precarious situation for many practices, especially smaller ones that lack the financial buffer to absorb these costs.
The Strengthening Medicare for Patients and Providers Act (H.R. 2474) offers a potential solution by proposing an annual update to Medicare physician payments based on the Medicare Economic Index. This adjustment would help align payments more closely with the realities of medical practice today, providing a much-needed lifeline for struggling physicians.
Moreover, addressing the systemic flaws that lead to inaccurate budget projections is crucial. When new services are added to the fee schedule, the assumptions made about future usage can lead to significant errors. These errors can result in billions of dollars being unnecessarily removed from the payment pool, exacerbating the financial challenges faced by physicians.
The temporary patches that have been applied to the payment system are no longer sustainable. At the start of 2024, physicians were confronted with a 3.37 percent payment cut. Although Congress intervened, they could only reverse a portion of the cut, leaving physicians unable to fully cover their rising costs. This situation is not new; it follows a similar reduction in 2023, highlighting the ongoing instability of the current system.
The continued decline in payment rates has broader implications for patient care. The U.S. is already grappling with delays in access to care, and with a projected shortage of up to 86,000 physicians by 2036, the situation could worsen significantly. Medicare patients, in particular, are at risk of having fewer options for care, which could lead to longer wait times and reduced access to the services they need.
Without comprehensive reform, all Americans stand to lose. Physicians will find it increasingly difficult to maintain their practices, particularly in rural and underserved areas where resources are already stretched thin. The high cost of participating in programs like MIPS further exacerbates these challenges, making it even harder for these practices to survive.
Reforming the payment system is not just about ensuring fair compensation for physicians; it is about protecting the healthcare infrastructure that millions of Americans rely on. A rational, stable payment system would support practices in providing high-quality care, encourage innovation through APMs, and ensure that patients, regardless of where they live, have access to the services they need.
Congress must act now to reform the Medicare physician payment system. The current system is unsustainable, and without change, both physicians and patients will continue to suffer. The Strengthening Medicare for Patients and Providers Act (H.R. 2474) and other proposed reforms offer a pathway to a more stable, equitable system that benefits everyone involved.
