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The Downward Spiral of the Medicare Physician Fee Schedule

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The cost of providing high-quality health care has steadily increased over the past several decades. Unfortunately, the rise in health care costs has accelerated even faster in recent years. Meanwhile, payments to physicians in independent private practices have remained stagnant, or even decreased. Today, the lingering economic impact of the COVID-19 pandemic, coupled with high inflation, has forced doctors to make difficult financial decisions regarding their practices.

Like most businesses, doctors’ offices were closed for several months early in the pandemic when limited medical supplies were rightly allocated to hospitals caring for those suffering from COVID-19. Now that physician practices have reopened, the costs of medical supplies remain much higher than pre-pandemic levels. The increased costs of gloves, face masks, and other PPE, along with sanitization supplies, have placed a significant financial burden on doctors’ offices. Rising inflation has further exacerbated these fiscal pressures. Commercial rent (which is often linked to Consumer Price Indices) and salaries for staff (when doctors are fortunate enough to find staff willing to work in the medical field) have increased inordinately with historically high inflation. 

As physicians continue to grapple with rising costs, federal government officials in Washington have proposed new policies that threaten to make the situation even worse. That is especially true for physicians working within the Medicare system, which serves as a vital link to health care for our nation’s most medically frail populations — seniors and those with disabilities. 

Today, the most immediate threat to physicians treating Medicare patients is a proposed 4.42% cut to Medicare physician services. Unless Congress acts before the end of the year, this cut will go into effect on January 1, 2023, dealing a devastating blow to physicians still struggling to keep up with rising costs and the financial toll the pandemic has had on the entire medical community.

Sadly, this cut is just the latest example of the numerous ways in which policies governing participation in Medicare have been tilted against America’s physicians. Indeed, physicians have faced disparities in the Medicare system for quite some time. According to an analysis by the American Medical Association, for the past 20 years — from 2001 to 2021 — Medicare physician payments have declined by 22% (adjusted for inflation), putting the entire system, as well as physician practices nationwide, on a financially unstable path. 

Part of the reason Medicare physician payments continue to decline or remain stagnant is that physicians are the only type of Medicare providers that do not receive adequate annual payment updates to account for inflation. That means, unlike outpatient and inpatient hospitals, nursing centers, and hospices, physicians will not receive any inflationary update in 2023, despite the highest inflation rate in the U.S. in decades. 

Due to an outdated congressional statute, physicians won’t receive any inflation update until 2026. Even then, updates will resume at a glacial rate of 0.25%, which is far below actual cost increases. All the while, real payments will continue to decline. The inability of the Medicare Physician Fee Schedule to keep up with the actual costs of running a physician practice — not to mention the administrative and financial burdens of participating in the Medicare system — is forcing many physician practices to consolidate with hospitals or health systems, if not go out of business altogether. Since many commercial insurers peg their payments to the current Medicare rates, even physician practices that do not participate in Medicare are affected and face financial jeopardy. This is bad news for all patients, who will struggle to access medical care.

Fortunately, there are some in Congress who recognize this growing problem and have put forward legislation to at least begin addressing it. Representatives Ami Bera, MD (D-CA), and Larry Bucshon, MD (R-IN) — both physicians themselves — have introduced the Support Medicare Providers Act in the House of Representatives. The bipartisan bill would prevent Medicare’s latest proposed cut to physician services for at least a year, giving physicians a bit of much-needed relief and Congress more time to come up with a long-term policy fix.

Congress must reform the Medicare physician payment system to make it simpler and more reflective of the true cost of providing care in the current economic environment. While this legislation doesn’t fix everything that’s broken in the Medicare Physician Fee Schedule, it would be a good start. The viability of countless physician practices across the nation will depend on the passage of the Support Medicare Providers Act before the year ends. 

How do you believe the Medicare Physician Fee Schedule could be improved? Share your thoughts in the comment section.

Man-Kit Leung, MD, FAAOA is a board certified otolaryngologist/head and neck surgeon in private practice in San Francisco. 

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