Addressing Physician Compensation: Senate Finance Committee Explores Policy Solutions for Medicare’s Physician Fee Schedule

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Co-Authored by: Lizz Campbell, Law Clerk

On April 11, 2024, the Senate Finance Committee met to address declining doctors’ pay related to Medicare’s Physician Fee Schedule (“PFS”) and Medicare fee-for-service. Physician groups have estimated physicians “were effectively paid 26% less in 2023 than in 2001 because the fee schedule is not adjusted for inflation.” This declining pay appears during a time of widespread concern for “overall provider burnout, heightened practice and input costs, increased administrative burden, and an aging population.” The Finance Committee’s white paper identifies key issues and explores “potential policy solutions” to aid in conducting outreach to stakeholders and experts to inform a push for bipartisan legislation.

There has been increased consolidation in the physician space over the last 15 plus years, much of which has been driven by the ever changing (and often declining) reimbursement environment for physicians.  A policy change that increases (or at least stabilizes) physician pay could have an impact on future consolidation.

Conversion Factor update. The Finance Committee expressed interest in policy options to update the statutorily-derived conversion factor (“CF”), with an effort to more accurately factor in rising costs related to inflation. Currently, the Consolidated Appropriations Act, 2023 (“CAA”) establishes a temporary, “one-time” CF payment bump of 2.93%, resulting in a $33.29 CF through the end of 2024. This temporary payment increase does not provide any compounding effects or long-term benefits. In addition, the statutorily defined CF experiences dramatic adjustments annually, making long-term planning and predictability more difficult.

Alternatively, stakeholders and experts have suggested that Congress adopt an adjustment system for PFS payments that account for shifts in cost inputs over time. The Finance Committee has also suggested tying the annual CF update to the Medicare Economic Index, which “like market-basket and inflation-based adjustments” mitigates the risk of “explosive cost hikes” because it has included a productivity adjustment since its creation. These suggestions are balanced by critics who share concern against risking unsustainable spending growth as Medicare Part B continues to account for a rising share of FFS spending.

Budget Neutrality in the PFS. The PFS statute currently requires Centers for Medicare & Medicaid Services (“CMS”) to make budget neutrality adjustments for policy updates that are projected to produce an increase in spending exceeding $20 million in a calendar year. When a specialty has an increased payment adjustment, other specialties will necessarily decrease. Therefore, physician organizations have advocated for a higher threshold with automatic adjustments to “to allow for greater flexibility in determining pricing and policy changes for services without triggering across-the-board cuts.” The Committee believes that without budget-neutrality requirements, any policy change within the PFS could result in increased spending.

Incentive for Alternative payment methods. The Finance Committee also expressed interest in expanding incentives for participating in alternative payment methods (“APMs”) that reward value-based service versus volume based service. The Quality Payment Program (QPP) consolidated previous efforts into two programs: Advanced alternative payment models (“A-APMs”) and Merit-based Incentive Payment System (MIPS). The QPP aims to “to reward high-value, high-quality Medicare clinicians with payment increases – while at the same time reducing payments to those clinicians who [a]ren’t meeting performance standards.” According to MedPAC, in 2023, more than 460,000 clinicians were ineligible for either program due to insufficient Medicare patient volume. The temporary nature of the A-APM incentive bonus combined with the likelihood that much of the benefit will take more than 10 years to be realized means these programs may be ineffective at providing incentives that will move the needle.

Therefore, with the goal of increasing physician participation in accountable care organization models, the committee examined several concerns with the current model and identified points of research and goals for improving this system. The committee cited researchers’ suggestions that more diverse payment models, better-tailored quality measures, and “per-member-per-month” payments may support primary and specialty care coordination. They also suggested that “financial opacity” through “appropriate data and analytic tools” may manage “actuarial risk.”

The Committee has not announced any specific legislation. We will monitor development of these initiatives in 2024. If you have questions regarding this announcement or other questions pertaining to physician payment structures, please call the Maynard Nexsen Health Care team.