Medicare Physician Fee Schedule Reform: Structural Topics and Recommendations to Strengthen the System for the Future
May 7, 2024
Recent years have witnessed a growing bipartisan call to reform how Medicare reimburses for physician and other health professional services. Stakeholders assert that the current system—the Medicare Physician Fee Schedule (PFS)—is misaligned to today’s practice patterns and market dynamics. Many constituencies maintain that the current approach is insufficiently updated, embeds known pricing distortions, and does not appropriately effectuate value-based care principles, such as providing cost-conscious, high-quality care that prioritizes performance measurement and patient experience. Calls for reform are further prompted by increasing concern about the viability of independent physician practices, including the implications of consolidation and private equity acquisition of physician offices. Finding a workable comprehensive solution to updating physician payments is an uphill battle stymied by the significant cost of doing so, competing stakeholder positions, and the complexities of restructuring payment.
The original design of the Medicare PFS, still in use today, is based on the resources typically needed to provide services to patients. First implemented in 1992, the PFS is a fee-for-service (FFS) system of payment premised on the idea that services should be separately valued in relation to each other. This requires information on the effort and costs incurred to perform those services and how those variables change over time. The Centers for Medicare & Medicaid Services’ (CMS’s) efforts to update data used to set rates in the required budget neutral manner often result in system instability and may take years to fully implement due to concerns about redistribution. These innate vulnerabilities have been compounded by three decades of policy decisions, statutory changes, and advancements in care delivery.
While established metrics suggest that physicians’ participation in the Medicare program and beneficiary access is currently adequate, the Medicare Payment Advisory Commission (MedPAC) raises concerns that beneficiaries may experience more access to care barriers moving forward. For the past two years, MedPAC has recommended physician payment updates based on changing economic conditions, as well as additional “safety net” payments to physicians treating low-income beneficiaries. Reducing health disparities and improving the foundation of care is a top priority for many in this country, and payment reform within the PFS and more broadly that expands technology while also investing in person-centered, community-oriented care (especially for populations that are underserved and/or living with multiple chronic conditions) is central to that cause.
As robust policy discussions are taking place to explore these issues and identify solutions, Arnold Ventures engaged HMA to provide accessible background and context on the PFS for people who may be unfamiliar with the payment system, including a review of how the stakeholder community got to the point of needing to “fix” the fee schedule. Through a thorough assessment of the most pressing policy and payment concerns, we identified several key structural issues within the physician fee schedule that should be considered and balanced when making policy changes to the payment system.
