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The need to transform the deeply flawed Medicare physician payment system into one that will not only sustain but strengthen physician practices could not be more critical. Unless we change course, continued access to quality, affordable care will be jeopardized for tens of millions of patients who need it most.
I serve patients as part of a six-physician private practice in Louisville, Ky., that is struggling to remain financially viable, in large part because our Medicare reimbursement has remained stagnant over two decades. As a result, we have lost ground; adjusted for inflation, Medicare physician pay plummeted by 26% between 2001 and 2023.
Of course, our practice costs rose substantially over that period, and the pace of those increases quickened over the past year. Like everyone else, our employees are feeling the sting of inflation, and are seeking higher pay to cope with higher costs. The nature of the labor market has changed as well, which also impacts our practice. Some of our long-term dedicated staff members have left health care for employment in other industries where they can earn more to support their families.
Private payers are well aware of the downward spiral in Medicare reimbursement, and have tied their physician contracts to the Medicare payment schedule. In our case, a major insurance company recently put forth a contract renewal proposal based on 80 percent of the Medicare reimbursement rate – with surgical rates below what they paid us six years ago.
We have tried negotiating in good faith with them for several months now, but they have not moved off their initial offer. With consolidation of health plans over the past few years, this insurance company now controls 60 percent of the private payer market in our region. Financially, we are not sure we can survive if we sign the contract, but if we cancel, our patients will suffer and financially, we lose either way. This same type of financial squeeze play is found nationwide, and its frequency has been exacerbated by health insurance industry consolidation.
There has been some progress made in Congress this year toward tying an annual update in Medicare physician payments to the rate of inflation, which will help reflect the true cost of care. This move is long overdue; the lack of annual payment increases for physicians stands in bold contrast to the substantial boosts routinely awarded each year to hospitals, skilled nursing facilities and others who file for Medicare reimbursement. Physicians, to the contrary, have had to work to reduce or delay threatened cuts in reimbursement almost every year.
According to an American Medical Association (AMA) analysis of Medicare Trustees data, Medicare physician payments only increased by 9 percent between 2001 and 2023, or just 0.4 percent per year. Meanwhile, the cost of running a medical practice—including office rent, employee wages, and insurance premiums—went up by 47 percent during that same period. And a continuing statutory freeze on physician payments enacted by Congress is set to remain in effect until 2026. Even then, updates are scheduled to resume at a paltry 0.25 percent per year, far below typical inflation rates.
At the same time, complying with certain Medicare requirements places an enormous administrative burden on physician practices. According to a 2021 study in the JAMA Health Forum, compliance with Medicare’s Merit-Based Incentive Payment System (MIPS) costs roughly $12,800 and requires more than 200 hours of work per physician, per year. To date, options for physicians to move toward more value-based payment models remain extremely limited.
The threatened viability of physician practices can be seen most vividly in rural and underserved communities. The forces driving greater consolidation in our health care system threaten to undermine both access and affordability for vulnerable patient populations with the greatest needs.
Other factors come into play as well. Many practices are still struggling to overcome the severe clinical and financial disruptions experienced during the COVID-19 pandemic, when patients often deferred or abandoned treatment and staffing shortages worsened. The higher workloads placed on physicians and other health care providers accelerated the burnout already fueling a physician shortage.
Identifying and implementing solutions
Leading the charge to reform Medicare physician payment is a core element of the AMA’s Recovery Plan for America’s Physicians, along with fixing prior authorization, supporting telehealth, reducing physician burnout and stopping inappropriate scope of practice expansions.
Physicians deserve payment models that recognize and invest in their contributions in providing high-value care to patients, while generating cost savings across all parts of Medicare and the broader health care system. In practical terms, this means directly rewarding the value of care that physicians offer to patients, as opposed to imposing administrative tasks such as data entry that are often irrelevant to the service being provided.
Passing the bipartisan Strengthening Medicare for Patients and Providers Act – co-sponsored by Reps. Larry Bucshon, M.D., (R-Ind.) Ami Bera, M.D., (D-Calif.) Raul Ruiz, M.D., (D-Calif.) and Mariannette Miller-Meeks, M.D. (R-Iowa) – is a strong first step toward ensuring our nation’s physicians are provided Medicare reimbursements that are adjusted for inflation.
Ultimately, Medicare payment reform should help create a system that is financially stable and predictable for both patients and physicians. The ideal system will protect and advance value-based care, while safeguarding access to high-quality care where it is needed most. Congress must cooperate to ensure Medicare can continue to play a critical role in the delivery of high-quality, affordable health care for so many of our country’s most at-risk patients.
Bruce A. Scott, MD, is AMA president-elect.
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