House Speaker
Mike Johnson
(R-LA) was able to keep the government funded through the first few weeks of January, but a possible cut in
Medicare
payments to doctors is still a live matter for the healthcare industry. As lawmakers face pressure from the Left and Right to take action, the question is whether to apply a Band-Aid, as they did
last year
, or take up more substantial Medicare reforms.
Many physicians feel that Medicare’s payments are inadequate and have gotten worse over time. Doctors face a 3.4% cut this year under the law, and the fear is they will eventually decide to stop taking Medicare patients. This could make it harder for seniors to access care.
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Since 2017, the main ways doctors have been able to earn a pay raise in Medicare are either by performing well on quality metrics or by receiving bonuses to participate in “value-based” reimbursement arrangements called alternative payment models, or APMs. These include policies such as shared savings for doctors who reduce healthcare costs. While the complex quality metrics are an administrative headache for doctors to report and
do not actually improve the quality of care
, many analysts and industry groups are more optimistic about APMs and want to prevent the expiration of bonuses at the end of this year.
Last month, the Senate Finance Committee
advanced a bill
to reduce physician cuts and extend smaller APM bonuses for another year, and the House Energy and Commerce Committee
did the same
earlier this week. Many doctors would like to go further by automatically indexing physician pay to inflation and beefing up value-based care incentives.
It is true that physician rates in Medicare, on average, are
lower this year
than 25 years ago. But this was by design to address a long-standing problem of growing costs.
In the first three decades of the Medicare program, spending on physician services often increased by double-digit percentages each year. Starting in the 1990s, Congress set limits on payment growth. This often called for automatic pay cuts for doctors, which lawmakers continually delayed. Finally, Congress passed
major legislation
in 2015 to eliminate these possible cuts in exchange for a new system with much lower pay updates, including a freeze from 2020 to 2025, and the new value-based care requirements.
While payment rates stagnated, per capita spending on physician services still rose as doctors performed more complex services, which compensated for the rate reductions. And doctors have not been dropping out of Medicare. In fact, more are participating in Medicare than ever before. From 1999 to 2021, the clinician participation rate
rose from 85% to 98%
, and the share of physicians accepting new Medicare patients has
remained steady
.
While an exodus of doctors from Medicare has not come to pass, what has materialized is a growing crisis of Medicare’s fiscal sustainability. Medicare Part B, which covers physician and outpatient services, is now the fastest-growing part of the program, and Medicare spending overall has
surpassed national defense
as the second largest budget item. Over the next decade, it is expected to grow by another $1 trillion.
Simply boosting doctors’ pay without making other changes will worsen this already dire situation. It would also increase expenses for seniors since they pay about 20% of the cost of physician services and their monthly premiums are calculated based on total program spending.
Freezing doctors’ pay indefinitely is not sustainable, but Medicare’s conspicuously bloated finances demand a balanced approach, which I discuss in a
new paper published by Paragon Health Institute
.
First, any changes to physician pay should be offset by other Part B savings. Overpayments for hospital services and outpatient drugs have grown rapidly, and
reforms
such as site neutrality (paying the same rate for the same service regardless of whether it is performed in a physician’s office or a hospital) would be sensible.
Second, payment incentives for APM participation should not continue, at least not in their current form. Despite the
bullish attitude
about value-based care programs among policy experts, they have had a
mixed record
and do not warrant their continued expense unless they can deliver better results, such as lower taxpayer exposure.
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Finally, Medicare should change the way it pays for doctors. There are numerous possible incremental improvements, but relying on government agencies to calculate healthcare prices will always reveal flaws that force policymakers back to the drawing board after a few years. A better approach would be to adopt the advantages of market competition by using private pricing data in traditional Medicare or ensuring that more seniors have the ability to choose private coverage options in Medicare Advantage.
A long-term approach to paying doctors appropriately, protecting seniors’ access to care, and minimizing costs for patients and taxpayers is possible. However, lawmakers should learn from past policy efforts and failures and take care that by addressing one problem, they do not create new ones.
Joe Albanese
is a senior policy analyst at Paragon Health Institute.
