Physicians' Medicare Pay Keeps Dwindling ― How Bad Will It Get?

John Ratliff, MD, a neurosurgeon at Stanford University, is tired of the way the Medicare program keeps paying physicians less and less.

Physicians are facing a planned 8.42% cut in Medicare reimbursements in 2023, which would be on top of a 2.75% cut in the second half of this year and a 3.3% cut in 2021.

"This constant cutting of Medicare rates, which has been going on for years, makes it hard for practices to make ends meet," said Ratliff, who chairs the Washington committee of the American Association of Neurological Surgeons and the Congress of Neurological Surgeons.

Uncertainty about what the actual 2023 cut will be makes it hard for practices to plan ahead. At the end of this year, just before the cut is scheduled to go into effect, Congress might pare it back significantly, as it did the past 2 years. "These last-minute changes create a lack of stability and a lack of clarity for our practice environment," Ratliff said.

Will Congress step in again? The past last-minute fixes by Congress were seen as ways to protect physicians from the financial impact of the COVID-19 pandemic. But some policymakers think practices have now recovered and don't need another financial rescue.

"Medicare's payments for clinician services are adequate," stated the Medicare Payment Advisory Commission (MedPAC) in its March report. "We expect volume and revenue to rebound to pre-pandemic levels (or higher) by 2023."

A coalition of some 120 physicians' groups, including the American Medical Association (AMA), disputes that view and is calling for an overhaul of the way Medicare adjusts physician pay.

"The constant yearly fixes are ridiculous. It reminds me of the SGR," Ratliff said, referring to the sustainable growth rate, an automatic adjustment that menaced Medicare physician payments for the first one and a half decades of the 21st century. In all but 1 year, Congress stepped in to undo the yearly SGR cut, often weeks before it was due. The SGR was abolished in 2015, but the annual scenario seems to be back.

Hyperinflation in the economy will make Medicare pay cuts seem even steeper. In June, the general inflation rate stood at 9.1%, the highest level in more than 40 years, according to the US Department of Labor. In late spring, gas prices were up 43.6%, while prices for medical care rose just 3.2% over past year.

Although gas prices have recently been dropping, the rising gas prices have taken a toll on practices. "The gas price forced one person on my staff to quit," said David L. Holden, MD, an orthopedic surgeon in Oklahoma City. "She needed child care to come to work, and the cost of gas was so high she couldn't afford the child care anymore," added Holden, who is president of the Oklahoma State Medical Association.

According to Holden, continued Medicare payment cuts could lead to access problems for patients. "If reimbursements continue to drop, more doctors will have to cut back on Medicare or even drop it," he said.

A Long-Term Slide in Medicare Payments

"The problems physicians are having with Medicare cuts are not new. We have been experiencing them for more than two decades," said Parag D. Parekh, MD, an ophthalmologist in State College, Pennsylvania, and chair of government relations at the American Society of Cataract and Refractive Surgery.

From 2001 to 2020, the cost of running a practice rose 39%, but Medicare payments, adjusted for inflation, fell by 50%, according to the Surgical Care Coalition, a group of surgical societies that opposes the Medicare cuts.

Even without accounting for inflation, Medicare reimbursements for doctors are at the same level as two decades ago. The Medicare conversion factor, a multiplier used to convert relative value units (RVUs) into the reimbursement amount, stood at $36.69 in 1998, and this year it stands at $34.60, the coalition reports.

"Medicare payments to hospitals have a 2% yearly increase built in, but doctors don't have that," said Ezequiel Silva III, MD, a San Antonio, Texas, radiologist who chairs the Relative Value Scale Update Committee, operated by the AMA.

This may also be due to the unique position the SGR put physicians in. The SGR was supposed to regulate physician fees. When Congress abolished it in 2015, it transitioned physicians to value-based payments, which basically reward them for saving money for Medicare. This is done either through the Merit-Based Incentive Payment System or Advanced Alternative Payment Models (APMs).

After the SGR was abolished, physicians received modest yearly increases of 0.5% or less for 5 years, but, owing to other factors, actual reimbursement was lower than that amount. Since 2020, physicians have received no updates at all. In 2026, an even more modest increase of 0.25% is scheduled to begin.

Working Harder to Compensate for Lower Payment

"As physicians saw the real payment for their work decline, the answer often was, 'All right, I'm going to work harder,' but you can only work so much harder," said Brian Larkin, MD, a hip and knee surgeon at Orthopedic Centers of Colorado in Denver.

Larkin added that doctors have had to become more efficient, but they are often not rewarded for that by Medicare. "I have been doing hip and knee replacements in a very efficient, cost-effective way," he said. He has been participating in Medicare's Comprehensive Care for Joint Replacement Model, which has been rewarding hospitals for improved cost efficiency. But Larkin said the program did not reward doctors for using markedly less expensive ambulatory surgery centers rather than hospitals.

Through his value-based activities, Larkin had hoped to qualify for Medicare's APM program, which would have rewarded him a 5% bonus. To qualify, however, he would have needed to have received at least 50% of his Medicare payments or to have 35% of his Medicare patients on a qualifying APM, but Larkin said not enough Medicare programs are available to reach that level.

"APMs sound good on paper, but they don't have practical meaning in terms of benefiting providers," Larkin said. His concerns about getting the 5% bonus will soon be moot, however, because 2022 is the final year to qualify for it.

When Payment Rises in One Area, It Must Fall Everywhere Else

One major problem with Medicare physician payments is the principle of "budget neutrality," which basically means that whenever reimbursement is raised for one service, payment for other services must be reduced. Specifically, when the rate of an RVU is raised by a certain amount, the overall conversion factor has to be reduced to account for that extra spending.

In 2021, primary care groups won concessions in their long-standing campaign to raise their reimbursements. The RVUs assigned to key evaluation and management (E/M) codes were raised significantly. For example, the work RVU for a visit by an established patient rose 34%.

"The E/M changes gave more money to primary care," Parekh said. "But due to budget neutrality, money had to be taken away from the proceduralists."

Parekh said the Centers for Medicare & Medicaid Services (CMS) could have softened the blow to surgeons by raising the value of the E/M component of their global surgery codes, but it did not do so.

"Budget neutrality can have the effect of pitting physicians against each other," Parekh said. "But all doctors' groups are united in their belief that budget neutrality must end."

The Perils of More Congressional Cuts

CMS sets Medicare reimbursement each year, but Congress has been adding reductions to the CMS cuts. CMS has proposed a 4.42% cut for physicians in 2023, but the expected cut is actually 8.42% because an automatic 4% cut goes into effect when federal spending reaches a certain level. This cut is directed by Congress through the Statutory Pay-As-You-Go (PAYGO) Act of 2010.

PAYGO cuts were triggered by the American Rescue Plan Act of 2021, a $1.9 trillion package to offset the effects of the COVID-19 pandemic. If allowed to go through, the 4% PAYGO cut would affect all discretionary spending by the federal government, not just Medicare. These cuts were supposed to start in 2021, but Congress set them aside for 2021 and 2022.

Will Congress set PAYGO aside for 2023? Interest groups on Capitol Hill, including physicians' groups, are asking for another year's deferral, but PAYGO cuts will probably occur sometime in the future.

Another congressionally mandated cut is not counted in the 2023 cuts because it went into effect in 2022 and therefore is not considered a new cut. The Medicare sequestration is a 2% cut on all Medicare payments, not just those for physicians.

The 2% Medicare sequestration cut was in effect from 2012 to 2019, but Congress set it aside in 2020 and 2021 because of the pandemic. It phased it back in for this year. Is the Medicare sequestration here to stay, or can Congress be convinced to set it aside again?

"Now is a bad time for cuts, when inflation is so high and we just came out of a pandemic," said Issada Thongtrangan, MD, a solo orthopedic spine surgeon in Scottsdale, Arizona. "Practice costs are going up and they keep cutting reimbursements."

What Lies Ahead

Physician groups want Congress to go beyond simply overriding planned cuts every year. "Unless there is a fundamental change in the payment system, Medicare physician pay will likely be cut every year into the foreseeable future," said George Williams, MD, an ophthalmologist in Royal Oak, Michigan, who is a spokesperson for the American Academy of Ophthalmology.

Budget neutrality, as it exists now, produces cuts whenever the value of services is significantly changed. The AMA is calling on Congress to "eliminate, replace, or revise budget-neutrality requirements to allow for appropriate changes in spending growth."

The AMA also wants physicians to have a reliable payment update. "The physician payment system needs to provide predictable and dependable annual increases that take into account inflation and rising practice costs," said Jack Resneck, Jr, MD, a San Francisco dermatologist who is the 2022–2023 AMA president.

Furthermore, the AMA wants physicians to be able to participate in Medicare payment models that "recognize physicians' contributions in providing savings and quality improvements, such as preventing hospitalizations," according to an AMA report.

In Resnick's words, "Physicians are extraordinarily dissatisfied with the way Medicare pays them."

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