The American Medical Association is advocating for physician reimbursements to be tied to the Medicare Economic Index, a measure developed in 1975 to track annual changes in physicians’ operating costs, according to a recent report from the organization.
Here are 10 things to know:
1. When the Medicare Fee Schedule was introduced in 1992, the MEI was no longer the primary factor in determining physician payment updates. Instead, payment updates were linked to overall Medicare spending targets.
2. Initially, the Medicare Volume Performance Standards adjusted payments based on whether aggregate physician spending exceeded or fell below a set target. Later, the Sustainable Growth Rate replaced MVPS but maintained this expenditure-based system.
3. The AMA argues that this expenditure-target system caused significant volatility in physician payments. Physicians faced payment cuts whenever spending surpassed targets. Although Congress often intervened to prevent severe cuts, these temporary fixes created larger future reductions by building up “debt.” By 2015, physicians were facing a potential 21% cut under the SGR formula.
4. The Medicare Access and CHIP Reauthorization Act of 2015 eliminated the SGR and erased the accumulated debt from years of payment patches. However, under MACRA, physician payment updates were no longer linked to inflation or actual spending. Instead, they were set at fixed rates by law.
5. MACRA established this payment update schedule:
- A 0.5% annual increase from 2016 to 2019.
- 0% increases from 2020 to 2025.
- Beginning in 2026, a 0.25% annual increase for physicians in traditional fee-for-service Medicare.
- A 0.75% annual increase for physicians participating in Advanced Alternative Payment Models.
6. According to the AMA, MACRA’s fixed statutory updates do not adjust for inflation or economic changes. As a result, physician reimbursement rates have failed to keep pace with rising practice costs.
7. The MEI reflects the resources required to operate a medical practice and includes two major categories:
- Physician practice costs: Covering non-physician compensation, medical supplies, professional liability insurance and other expenses.
- Physician compensation: Reflecting changes in general earnings, based on wage and benefit trends for professional occupations.
8. According to the AMA, the combined change in practice costs and physician compensation is adjusted downward by the 10-year average of economy-wide multi-factor productivity.
9. From 2001 to 2024, Medicare physician payment rates have declined by 29% when adjusted for inflation in practice costs, according to the AMA, which underscores the growing mismatch between reimbursements and actual expenses.
10. The AMA argues that tying physician payments to the MEI would bring Medicare physician payment updates in line with those provided to nearly all other Medicare providers.
The post Why Medicare pay can’t keep pace with rising practice costs: 10 notes appeared first on Becker’s ASC.
