Medicare Physician Payments: Where Did All the Money Go?

The federal government probably won’t be raising Medicare reimbursements next year, and physician organizations are strongly objecting.

At its Jan. 13 meeting, the Medicare Payment Advisory Commission (MedPAC), which advises Congress on financial issues pertaining to Medicare, recommended against increasing base payment rates to doctors in 2023. It justified its decision in part by noting that Congress temporarily raised Physician Fee Schedule Payment rates for the period 2020-2022, and that doctors have benefitted from “tens of billions of dollars in pandemic relief funds and more flexibility to provide telehealth.”

Also, according to Daniel Zabinski, a MedPac staff member, “Despite the public health emergency (PHE), the number of ASCs (ambulatory surgical centers) increased by 2 percent in 2020, and the growth that we saw in the number of ASCs also suggests access to capital remains adequate.”

What was skewed in their interpretation of Congress’s actions on Medicare reimbursement wasn’t that they gave physicians a raise, but that they thwarted mandated cuts that come from the Budget Control Act of 2011. These “fixes” were temporary, due to the pandemic.

Physician Fee Schedule Recommendation

MedPAC decided to take a similar assessment with the Physician Fee Schedule for 2023, calling for any update to be tied to current law, which is estimated to have no change in spending. It’s a decision that the ACP (American College of Physicians) and AMA (American Medical Association) described as a “freezing of physician payments.”

According to Commission reports, Medicare payments to clinicians declined by $9 billion in 2020, but were offset thanks to congressional relief funds, including PPP loans, U.S. Department of Health and Human Services (HHS) Provider Relief Funds, Economic Injury Disaster Loan (EIDL) funds, and more. Physicians also got a 4-percent bump to payments through 2022, compared to prior law.

The temporary rate hike is expected to go away at the start of 2023, but physician groups are likely to lobby Congress to keep the pay bump intact.

Physician groups and lobbying groups have already blasted the recommendation from MedPAC.

As noted, during MedPAC’s public meeting this past January, Ariel Winter, MPP, a 20-year principal policy analyst at MedPAC, also claimed that “Medicare payments to clinicians declined by $9 billion from 2019 to 2020, but clinicians have received tens of billions of dollars in pandemic relief funds to offset financial losses due to the pandemic.”

“In addition, Congress and CMS (the Centers for Medicare & Medicaid Services) gave clinicians much more flexibility to provide telehealth,” she added.

Further, despite the pandemic, physicians’ compensation from all payors increased from 2019 to 2020, based on AMA findings. However, AMA President Gerald E. Harmon, MD said in a press release:

“The discrepancy between what it costs to run a practice and payment is sparking consolidation and driving physicians out of rural and underserved areas; in addition to being asked to do more with fewer resources each year, physicians continue to face significant clinical and financial disruptions during the COVID-19 pandemic.”

The American Academy of Family Physicians (AAFP) noted in their own statement that “The decision to not update physician payments despite rising costs, staffing shortages, and burnout is misguided.”

Hospitals, skilled nursing facilities (SNFs), and other healthcare providers qualify for annual updates to account for rising costs of inputs and inflation, yet physician payment does not; there’s also the fact that operational costs have skyrocketed in 2021, and inflation is still rising, as well as staffing shortages.

In addition to MedPAC’s recent decision on physician payments, primary care providers (PCPs) are grappling with a controversial billing dispute provision connected to the “No Surprises Act” that allows insurers to determine rates that physicians and hospitals may charge. The Budget Control Act of 2011 also reinstated their sequestration from the raise of the debt ceiling in 2011 – meaning that the two percent that has been deducted from physician Medicare payments since 2013 was put on hold in 2021 to offset pandemic expenses, but reinstated at one percent from April 2022 through the end of June 2022, and then will increase to the two percent as of July 1 until it expires in 2030.

There is also an impending dark cloud of a four-percent additional cut to the Medicare physician and hospital payments starting in 2023.

The Statutory Pay-As-You-Go Act of 2010 (Statutory PAYGO) requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a five- or 10-year period. Should such legislation be enacted without offsets, the Office of Management and Budget (OMB) is required to implement sequestration, or across-the-board reductions, in certain types of mandatory federal spending. Medicare benefit payments and Medicare program integrity spending would be cut, but the reduction cannot be more than 4 percent.

The Congressional Budget Office (CBO) estimated that a Statutory PAYGO sequester in fiscal year 2022 resulting from passage of the American Rescue Plan Act of 2021, coupled with the $1.9 trillion COVID-19 relief package passed in March 2021, would cause a four-percent reduction in Medicare spending – or cuts of approximately $36 billion. Failure to waive Statutory PAYGO would result in $9.4 billion in cuts to hospital providers in fee-for-service Medicare for the 2022 calendar year. This cut was halted for one year to 2023, and now it is looming.

Medicare fee-for-service payments to hospitals tend to total about one-quarter of total Medicare spending.

The pandemic has put severe financial pressure on hospitals, including but not limited to: higher expenses for labor, drugs and supplies; the astronomical costs of preparing for a surge of COVID-19 patients, and new variants; months of essential hospital revenue being erased due to the combination of a forced shutdown and slowdown of regular operations for non-emergent care; and the high cost of treating COVID-19 cases, which tend to be incredibly resource-intensive.

In a report released by the American Hospital Association (AHA) in September 2021, Kaufman Hall projected that hospitals nationwide could lose an estimated $54 billion in net income over the course of the year, even after taking into account Coronavirus Aid, Relief, and Economic Security (CARES) Act funding from 2020 and 2021.

But circling back to our physicians, with sequestration cuts already reinstated, the PAYGO cut looming for 2023, and now MedPAC recommending no raise to the 2023 Medicare Part B Fee Schedule, physicians could be in for a massive pay cut next year. We strongly urge you to contact your associations and lobbying physician partners to get Congress to act, in order to avert some of these cuts. The survival of your practice may depend on it.

Programming Note: Listen to Terry Fletcher report this story live today during Talk Ten Tuesdays, 10 Eastern.

References and Resources:

https://www.aha.org/fact-sheets/2021-03-19-fact-sheet-statutory-paygo-sequester-relief-needed-health-providers

https://sgp.fas.org/crs/misc/R45106.pdf

https://www.beckersasc.com/asc-news/medpac-recommends-physician-pay-freeze.html