MedPAC’s Physician Pay Recommendations Insufficient, Provider Groups Say

Dive Brief:

• The Medicare Advisory Payment Commission, which advises Congress on Medicare policy, is recommending boosting hospital payment rates by 1.5% in 2025 and base physician payment rates by 1.3% above current law, according to its annual report released Friday. 
• MedPAC suggested tying the rate of physician payment increases moving forward to the Medicare Economic Index, an annual measure of practice cost inflation. MedPAC suggested payments increase “by the amount specified in current law plus 50% of the projected increase in the MEI.”
• Provider groups, including the Medical Group Management Association and American Medical Association, have said the proposed payment increases are inadequate.

Dive Insight:

MedPAC updates its payment recommendations annually by assessing care access, supply and quality, as well as providers’ costs and Medicare’s payments.

In a press release accompanying the report, the commission said this year it was “acutely aware” of broader economic conditions, like inflation, when creating payment rate recommendations. 

“Input cost growth exceeded payment updates for most health care sectors in 2022 and 2023, a deviation from the historical trend that placed strain on many providers,” MedPAC said.

The commission also suggested establishing safety-net add-on payments under the physician fee schedule for services delivered to low-income Medicare members. The commission estimated that, with the safety-net add on in addition to the recommended base rate increases, physicians can expect an average of 3% higher Medicare payments.

The American Hospital Association recognized the recommended payment rate increase for hospitals as an attempt to improve Medicare’s “chronic underpayments to hospitals and health systems.” However, the lobbyist organization clarified the increase would only improve the problem of underpayments to a “small” degree.

MedPAC’s recommendation to tie payment increases to the MEI garnered some support from provider groups, including the AMA. 

The AMA said MedPAC’s decision to tie payments to the MEI was “smart policy and desperately needed” in a statement on Friday. However, the group said updates linked to 50% of MEI, as MedPAC recommended, would be insufficient to keep up with the cost of providing care.

Other groups, including the MGMA, dismissed the recommendations as inadequate — particularly in context of other cuts to physician payment rates.

“I am mystified why MedPAC even bothers to make an annual recommendation while it ignores the significant Medicare cuts to physicians in 2024 and recent years,” said Anders Gilberg, senior vice president of government affairs for the MGMA, in a statement on Friday. 

In November, the government released the 2024 Medicare Physician Fee Schedule final rule, cutting doctors’ pay by nearly 1.3%. Physicians clawed back some ground under the Consolidated Appropriations Act of 2024, which raised the conversion factor by 2.93% through the end of the year compared to 2023. However, the boost did not fully reverse the 3.37% Medicare cuts for physician services that went into effect Jan. 1.

In its report, MedPAC also expressed concerns about favorable selection and coding intensity in Medicare Advantage plans. 

In MA, the federal government contracts with private insurers to manage care for seniors. The program has become increasingly popular, as seniors are drawn to insurers’ supplemental benefits plans. Half of eligible Medicare beneficiaries are now enrolled in MA plans.

However, MedPAC estimates the federal government is paying approximately 22% more for MA beneficiaries than seniors in traditional Medicare, a difference that’s projected to cost $83 billion in 2024. MedPAC said that high coding intensity and favorable selection could influence the higher spending because MA insurers attract healthier and lower-cost beneficiaries and upcode the medical needs of enrollees to seek higher reimbursement.

A “major overhaul of MA policies” is needed to address MA coding intensity and enhance data quality, as well as to establish fair benchmarks, MedPAC said.

Insurance groups pushed back against MedPAC’s MA analysis. Lobby group America’s Health Insurance Plans CEO Mike Tuffin said MedPAC’s analysis was based on speculative assumptions. AHIP has previously argued that MA plans serve individuals with greater healthcare needs and offer superior value compared to traditional Medicare.

“At a time when more than 33 million Medicare Advantage beneficiaries are counting on stability in their costs and benefits, policymakers should seek to strengthen and build on the value of the program – not undermine it,” Tuffin said in a statement.