Medicare physician payment on the decline: It’s not your imagination

For many surgeons, it may seem like they are being forced to do more with fewer resources just to maintain their practice revenue in an increasingly complex health care environment. This feeling is not a product of your imagination. While a multitude of new mandates and burdensome administrative requirements have been layered on over the past several years, payments to physicians have not only failed to keep pace with inflation, they have, in some cases, decreased in real terms. Unfortunately, continued dire projections from watchdogs, such as the Medicare Payment Advisory Commission (MedPAC) and the Medicare Board of Trustees, continue to keep the focus on overall projected growth in Medicare spending rather than on ensuring access to surgeons and other physicians.

This article looks at some of the longstanding and newer factors that affect or will affect Medicare physician payment in the near future as a result of recent legislative and regulatory changes. It also outlines the American College of Surgeons (ACS) efforts to educate Congress on the need for reasonable, annual updates to Medicare payments moving forward.

The conversion factor and cost containment

For decades, Medicare has used a complex formula to determine physician reimbursement. For a given service or bundle of services, the relative value units (RVUs) assigned to that service are multiplied by a dollar amount referred to as the conversion factor. Many factors come into play in determining payments for a given service, but the conversion factor represents an obvious single target for Congress in legislating updates for physician payments.

The conversion factor used to determine payment for physician services in 2019 is $36.0391, slightly lower than the rate of $36.6873 paid per unit of work in 1998. It is concerning that the conversion factor has remained relatively flat for more than two decades, despite general inflation of more than 50 percent during the same period. In fact, if the conversion factor had merely been indexed for general inflation starting in 1998, its current value would be $57.60 (see Figure 1).1 Keep in mind, this figure is based on general inflation. The contrast would be even greater if the conversion factor had kept pace with medical inflation.

Figure 1. Conversion factor benchmarked against inflation

Figure 1. Conversion factor benchmarked against inflation

Beyond inflation, clinical practice has become increasingly complex because of medical advances, the addition of new treatments, incorporation of electronic health data, new regulations, and growing patient demand for services. Surgeons also are faced with growing administrative burdens, such as prior authorization requirements, which demand an exorbitant amount of time and resources to process. This drop in purchasing power cannot be ignored and creates an adverse incentive to increase volume rather than focus on the quality and value of care.

The Medicare Access and CHIP (Children’s Health Insurance Program) Reauthorization Act (MACRA) of 2015 included legislated updates over the early years of the law’s implementation.2 Table 1 shows how these updates have eroded as a consequence of budget neutrality requirements and other factors.3

Table 1. Medicare conversion factor annual statutory vs. actual percentage increases

Table 1. Medicare conversion factor annual statutory vs. actual percentage increases

Medicare payment rates are about to enter a six-year period of 0 percent updates, during which early MACRA incentives also are set to expire, meaning many physicians will be faced with lower payment rates based on factors out of their control, not on the quality of care they are providing. Over the next several years, the Medicare conversion factor is likely to decrease because of budget neutrality rules and changes in care patterns as the nation’s population ages. A number of factors go into determining overall Medicare physician compensation, such as the number of RVUs assigned to a given service; however, without an overall realistic update in place, payments will continue to lose ground to inflation. Some health care economists see this inflationary pressure as a means to force better value through lower costs, but in practice, it likely will continue to have unintended consequences and may ultimately lead to reduced access or fewer choices for Medicare beneficiaries.

Of note, while a single conversion factor has been in place since 1998, for much of the 1990s when the payment structure was initiated, surgical care, primary care, and other nonsurgical care had differing conversion factors. Under MACRA, Medicare will once again split the conversion factor beginning in 2026. This time, however, payment rates will vary based not on specialty, but on payment model. Physicians who remain in traditional fee-for-service payment arrangements will be paid less for services they provide than physicians who participate in payment models known as Advanced Alternative Payment Models (A-APMs). A-APMs must meet certain requirements related to quality and the use of health information technology and are subject to downside risk for financial losses if they fail to achieve savings or quality targets. These payment rates will diverge over time, creating a growing incentive to move away from fee-for-service payments. The question remains what payment model physicians will be able to use, as A-APMs have yet to materialize as Congress envisioned.

Other factors affecting surgeon compensation

The conversion factor is just one part of the physician compensation equation. Other factors include the Merit-based Incentive Payment System (MIPS), difficulties in developing A-APMs, and ever-evolving evaluation and management (E/M) codes.

MIPS

For surgeons and their patients, MACRA implementation has failed to deliver on its promise of tying payment more closely to the value of care, typically described as the quality of care received for the cost to produce that care. As implemented, MIPS does not assess the quality of care provided by most surgeons or reflect their patients’ outcomes. Instead, scores are assessed on broad, primary care-focused quality measures that have no bearing on the outcomes of surgical care and provide no means for improvement.

Similar problems can be found in the methodology used for cost measurement in MIPS, and the information gathered about both cost and quality cannot be compared over the course of treatment for the same patient(s) or the same episode of care. Furthermore, neither the cost nor quality category of MIPS looks at the entire team involved in the care of a given patient. In general, MIPS has failed to provide the opportunity for physicians to be rewarded for improving the value of care to the patient. Despite being of limited clinical value, these reporting programs also are costly to implement.

This mismatch of what is being measured becomes problematic because these two factors of cost and quality constitute 60 percent of the MIPS score used to determine payment adjustments under the program. Physician performance on these measures, along with improvement activities and use of electronic health records (EHRs) in 2019, will result in positive or negative payment adjustment of up to 7 percent in 2021. Next year, the maximum payment update is phased in, meaning that performance in 2020 will result in payment increases or reductions of up to 9 percent in 2022. Compounded by the lack of increases for the underlying conversion factor in the Medicare fee schedule, physicians who are struggling to meet the requirements of MIPS, particularly the smaller practices not in the web interface group reporting system, could be paid significantly less per unit of work than they were more than two decades ago.

To be clear, MACRA did improve some aspects of physician payments. Foremost among these was the repeal of the sustainable growth rate (SGR) formula.3 The SGR was a blunt attempt to reduce Medicare spending through aggregate caps. It resulted in a cut to the conversion factor in 2002 and called for additional, deeper cuts each subsequent year. Congress ultimately patched or blocked these slashes; however, these fixes were expensive and contributed to a growing debt that left little political will or funding for positive updates in most years.

In addition, MACRA eliminated penalties associated with prior Medicare quality programs, such as the Physician Quality Reporting System (PQRS), the EHR Incentive Program, and the Value-based Payment Modifier. In 2018, the last year these programs were in place, poor performance or failure to participate could have resulted in penalties of more than 10 percent to physician payments with little opportunity for positive adjustments.3

MACRA also included payment adjustments for early adopters of A-APMs and the highest performers in the MIPS program. Unfortunately, both of these payment incentives are set to expire after 2024, in the middle of the six-year period of 0 percent updates. These incentives were meant to be temporary, but their disappearance in the middle of a period of otherwise stagnant payments will be experienced as a cut by some of the highest-performing physicians in Medicare.3

A-APM development hits a roadblock

The Centers for Medicare & Medicaid Services (CMS) has yet to test or implement a single A-APM recommended by the Physician-focused Payment Model Technical Advisory Committee, counter to the intent of Congress. Consequently, many surgeons have no option but to continue participation in the flawed MIPS program. Innovation requires testing many options to see what works, and it is becoming apparent that CMS will require additional urging or direction from Congress if the agency is to test physician-developed models. Furthermore, as time passes, MACRA requirements for A-APM participation continue to become increasingly difficult to achieve and incentives to attract early participants into APMs are set to expire in 2024. These combined factors will ultimately close the door for individuals in many specialties from becoming qualified participants in an A-APM.

Inflationary pressures continue to weigh on physician practices, yet for the reasons described previously, physicians lack the opportunity intended by MACRA to be rewarded based on improving the quality and value of care they provide. Now is the time for Congress and stakeholders to collaborate to develop solutions.

Changes to E/M codes

Another factor that could affect physician payment is potential changes to office/outpatient E/M codes. In the calendar year (CY) 2019 Medicare Physician Fee Schedule (MPFS) final rule, CMS set forth a policy that would have combined levels 2–4 new E/M codes, and paid physicians at a blended rate of the previous E/M code levels starting in CY 2021. But in the CY 2020 MPFS proposed rule, CMS proposed a dramatically different change to E/Ms that would instead maintain the separate levels, but increase the values of E/Ms, again starting in CY 2021. Unfortunately, this current proposal will not apply the increased E/M values to the E/M values incorporated into global codes. At this time there is great uncertainty regarding how CMS will move forward, but there is a strong likelihood that potential increased payments for E/Ms will shift payment from surgery to primary care, given budget neutrality requirements for physician payment.

Medicare solvency and effects on future physician reimbursement

In April 2019, Medicare released its 2019 Annual Report of the Boards of Trustees of the Federal Hospital Insurance (HI) and Federal Supplementary Medical Insurance Trust Funds, which analyzed the long-term solvency of Medicare and how depletion of the HI trust fund could affect physician reimbursement over time. The report projects that, based on current law, Medicare still faces a substantial financial shortfall that will need to be addressed legislatively and recommends that this situation be resolved soon to minimize the impact on beneficiaries, providers, and taxpayers. For example, the report projects that in 2026, revenues to the HI trust fund that finances Medicare Part A payments to hospitals will cover 89 percent of the program costs. The current law expenditure projections reflect physician payment levels expected under today’s MACRA payment rates, along with payment reductions in other Medicare rates mandated by the Affordable Care Act. However, it does not include the payment reductions or delays that would result from the depletion of the HI trust fund.4 Unless the government acts to extend the solvency of the HI trust fund, physicians could see additional cuts to reimbursement following a period of stagnant physician payment. However, such intervention must be carefully structured in order to avoid unintended consequences that might be harmful to physicians.

The report recognizes that the lack of payment adjustments combined with increasing physician costs could become problematic, and further acknowledges that future physician payment updates are invariable based on underlying economic conditions and are expected to lag behind the average rate of physician cost increases. The report specifically states, “These rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large.” 4

Not only does the report highlight the difficulty physicians face with stagnant reimbursement and rising expenses, it goes a step further to acknowledge that Medicare program shortcomings could negatively affect patient care for Medicare beneficiaries, stating, “If the health sector cannot transition to more efficient models of care delivery and if the provider reimbursement rates paid by commercial insurers continue to be based on the same negotiated process used to date, then the availability, particularly with respect to physician services, and quality of health care received by Medicare beneficiaries would, under current law, fall over time compared to that received by those with private health insurance.”4 This acknowledgment emphasizes the importance of developing meaningful performance measures in MIPS, along with implementing innovative A-APMs.

MedPAC report to Congress

In apparent recognition that a system in which payments consistently grow at a lower rate than inflation is unsustainable, Congress included a provision in MACRA that called for a study on the adequacy of early payment updates.2 The results were due to Congress by July 1, 2019, and were included in MedPAC’s June report. Rather than supporting the need for regular updates, MedPAC reported that Medicare beneficiaries have had stable access to clinician services over the last decade and that their access was equal to or better than that of privately insured individuals. Furthermore, MedPAC updates in the range of 0 percent to 1 percent over the last 10 years have been sufficient to ensure beneficiary access to care. This conclusion reinforces the commission’s March 2019 recommendation of no update for clinician services in 2020. The statutory mandate for this study directed MedPAC to provide recommendations for any future payment updates for professional services to ensure adequate access to care; however, MedPAC refrained from mapping out future updates and instead will continue to provide guidance to Congress by conducting an annual payment adequacy assessment.5

The report further highlights that even though commercial payment rates for clinician services are higher than Medicare’s fee schedule rates, privately insured patients report access to care that is generally comparable or slightly worse than that of Medicare beneficiaries. In MedPAC’s view, this raises questions about the relationship between payment rates and access, suggesting factors other than reimbursement may influence access to clinician services. One conclusion MedPAC draws from its review of payment updates is the need to address “persistent disparities” in physician compensation by specialty, which may lead to issues in the future supply of primary care.5 This finding has the potential to set up future battles among physicians for their share of the shrinking payment pool.

In its congressionally mandated report, MedPAC highlights deficiencies in quality measurement under MIPS, recognizing that the program relies on many of the measures and processes used previously, such as the PQRS. Although the commission notes substantial use of low-value care in fee-for-service Medicare, it states that assessment of clinician quality has been indeterminate.5 The ACS described the problems associated with quality measurement in MIPS in a previous article and continues to advocate for more meaningful quality measurement to result in higher value care.6

ACS advocacy efforts

The ACS and other physician and health care professional groups spent the first several years of the Quality Payment Program, which is the name CMS gave to the implementation of MIPS and A-APMs, seeking to influence the thousands of pages of regulations needed to implement the law. The need for sustainable updates in later years has now come to the forefront.

Taking the message to Congress

As part of the 2019 Leadership & Advocacy Summit, the ACS convened a panel of experts April 1 to discuss the issue of physician compensation in Medicare. Panelists included Linda M. Barney, MD, FACS, Chair, ACS General Surgery Coding and Reimbursement Committee; Robert Horne, principal partner at the Washington, DC, consulting firm Leavitt Partners, and a former professional staff member of the House Energy and Commerce Committee; and Brett Baker, Senior Health Policy Advisor to Senate Finance Committee Chairman Chuck Grassley (R-IA). Moderated by ACS Manager of Policy Development Matthew Coffron, MA, co-author of this article, the panel covered a range of issues, including the failure of the conversion factor to keep pace with inflation, the lack of updates under MACRA over the next six years, and the uphill battle needed to make substantive changes to a law that had overwhelming bipartisan congressional support.

The following day, nearly 300 surgeons took this message to Capitol Hill, meeting with 159 representatives and 94 senators or their staff. Because no viable legislation has been introduced to provide consistent updates to the physician fee schedule, the goal of these meetings was to educate members of Congress and their staffs on the present challenges and to propose courses of action they might take to improve the situation. Examples include creating an inflationary update mechanism for the Medicare conversion factor formula, partnering with physicians and other experts to improve aspects of the MIPS program such as quality measurement, and extending the A-APM incentive payment beyond 2024 and removing barriers for surgeons and others to participate.

The panel discussion and meetings appear to have been effective in getting the message to key decision makers in Congress. Soon after the Leadership & Advocacy Summit, the ACS had the opportunity to share our members’ concerns and solutions regarding MACRA and broader Medicare physician payment issues with a larger audience. On May 8, ACS Medical Director for Quality and Health Policy, Frank Opelka, MD, FACS, testified at a Senate Committee on Finance hearing that focused on MACRA two years after implementation began. Dr. Opelka noted that the ACS has “great concerns about the structure of payments under MACRA in the years ahead. The modest statutory updates included in the law are now finished, and we will soon enter a six-year period with no updates. This will likely result in real reductions to payments due to inflation and budget neutrality requirements. Additional incentives for high performers and qualified APM participants also disappear during this time, which will be experienced as reductions by many of the highest-performing physicians in Medicare.”7 Although the testimony focused on improving incentives for quality and value, the ACS urged Congress to consider current and future reimbursement factors as well. The testimony also highlighted the College’s willingness to further discuss with the committee the physician payment landscape from the surgical perspective and how declining reimbursement might affect access to care in the future.

With Medicare playing a vital role in the delivery of health care in the U.S., Congress must take steps to ensure that Medicare payment keeps pace with innovation and inflation and is reflective of the cost of medical care and the value of services provided to beneficiaries.

The ACS will continue to pursue improvements to quality and value in MACRA. However, it is time for Congress to examine physician reimbursement to ensure that it is fair and incentivizes physicians to continue to take on risk, innovate in care delivery, and provide high-quality care to patients. The ACS continues its work to educate members of Congress and their staffs on physician payment and challenging the assertions of the MedPAC report that dispute the need for regular payment updates.

Acknowledgment

Vinita M. Ollapally, JD, contributed to this article. Ms. Ollapally is Regulatory Affairs Manager, ACS Division of Advocacy and Health Policy, Washington, DC.


References

  1. U.S. Department of Labor. Bureau of Labor Statistics, Historical Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, all items, by month. Available at: www.bls.gov/cpi/tables/supplemental-files/historical-cpi-u-201901.pdf. Accessed July 11, 2019.
  2. Government Printing Office. Public Law 114-10. Available at: www.congress.gov/114/plaws/publ10/PLAW-114publ10.pdf. Accessed July 11, 2019.
  3. American Medical Association. Historic conversion factor updates. Available at: www.ama-assn.org/sites/ama-assn.org/files/corp/media-browser/public/physicians/practice-management/cf-history.pdf. Accessed July 11, 2019.
  4. The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2019 Medicare Trustees Report. Available at: www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf. Accessed July 11, 2019.
  5. Medicare Payment Advisory Commission. Report to the Congress: Medicare Payment Policy. Available at: www.medpac.gov/docs/default-source/reports/mar19_medpac_entirereport_sec.pdf?sfvrsn=0. Accessed July 14, 2019.
  6. Zlatos C, Coffron M, Opelka FG, Sage J. Redefining surgical value in the Quality Payment Program. Bull Am Coll Surg. 2019;104(7):15-20. Available at: bulletin.facs.org/2019/07/redefining-surgical-value-in-the-quality-payment-program/. Accessed July 11, 2019.
  7. American College of Surgeons. Statement of the American College of Surgeons before the Senate Committee on Finance. Available at: facs.org/~/media/files/advocacy/federal/acs_testimony_senate_finance_hearing050819.ashx. Accessed July 11, 2019.

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