How does MedPAC work: A study in physician payments

How MedPAC works physician payment system

A recent post came out saying, “How Out Of Touch is MedPAC? – They Are Recommending ONLY a 1.25% Payment Rate Increase for Physicians for 2024” – and it made us think, maybe some folks don’t know how MedPAC works?  We wanted to give a little inside baseball to explain the MedPAC Medicare payment update process.  

Congress created the Medicare Payment Advisory Commission (MedPAC) to recommend Medicare payment updates and strategies to improve the Medicare program. MedPAC is mandated in their charter to submit recommendations on annual payment updates for several fee-for-service payment sectors within Medicare. As MedPAC examines each sector, they must look at that sector only within the context of Medicare; that is to say, they cannot look at nursing home payments from other payers (i.e., private plans, Medicaid, etc.). While MedPAC commissioners examine the financial strength of the overall industry, payment recommendations must also fit within the confines of current law. The Commission is also required to look at the sustainability of the Medicare program – so any payment recommendations must reflect the goal of keeping the Medicare program solvent over time.  

As an example of how this works – let’s look at physician payments.  Reviewing MedPAC’s December 2023 draft physician payment recommendation, MedPAC recommended that physician payments be updated by 50% of the projected increase in the Medicare Economic Index (MEI) in 2025. The MEI is projected to be approximately 2.6% in 2025, so MedPAC’s recommendation is for an update of 1.3% in 2025. Commissioners also recommended a non-budget neutral add-on payment tied to the number of low-income beneficiaries that providers see, as the Commission previously recommended in March 2023. The add-on payment would amount to 15% for primary care physicians and 5% for others.  

Many have commented that the recommended update does not keep up with inflation and that physicians will leave the program based on the lack of updates. So, why didn’t MedPAC recommend a higher update? Because the Commission must work within the confines of data measurements they use as indicators as mandated by Congress – beneficiary access, quality of care, Medicare payment rates, and provider costs. When looking at those indicators for next year’s payment rates, beneficiary access remains at the same levels as past years, quality of care is remaining steady (as much as it could be measured), and private plan payment rates were 136% of fee-for-service rates (which is consistent over time – private plans have been paying more for years).  The only indicator that looked negative within this framework was the Medicare Economic Index (which is a measure of clinicians input costs) – the MEI was projected to be 2.6% in 2025, higher than the pre-COVID rates of 1-2%. So, given those sets of data, MedPAC set as high a rate as they could given those confines. 

It is important to note that the Commission stated its concerns multiple times about the accuracy of the physician fee schedule, the underpricing of primary care services relative to other services, and the impact of these problems on the pipeline of future primary care physicians.  Commissioners in the December 2023 meeting expressed great concern about the small physician payment update, specifically about the flat fee schedule update and lack of an inflation adjustor.  In addition, over the past 10 years, MedPAC voted on numerous recommendations to change the physician payment system.  

Punchline:  Until Congress fixes the physician payment system, the physician payment hole will continue to get deeper.  

So, is MedPAC out of touch? No, not given the constraints under which they work.

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