A New Era for Physician Payment: Inflation-Adjusted Reimbursement

One of the principal sources of consternation among American physicians and other healthcare practitioners is the persistent erosion of Medicare reimbursement rates, particularly when considered against the backdrop of inflation in recent years. For the medical community, the situation has become increasingly untenable, prompting many caregivers to contemplate early retirement as a viable alternative.

Yet, might that be a ray of light breaking through the gloom—a glimmer of hope on the legislative horizon? Perhaps. A newly introduced bill has emerged this week from the U.S. House of Representatives’ Committee on Energy and Commerce which, if ultimately enacted by Congress, would tether Medicare reimbursement for clinicians to the rate of inflation. Such a reform could, in theory, arrest the steady decline in Medicare payments that has plagued providers for years.

Medicare Payment Plan

The aforementioned committee approved its section of the federal budget reconciliation package with a narrow 30-24 vote, strictly along party lines. The proposed legislation would inject $9 billion in additional funding into the Medicare Physician Fee Schedule (PFS) by instituting an inflation-indexed adjustment to the conversion factor. Under the bill’s current language, this conversion factor would rise by 75% of the Medicare Economic Index (MEI) in 2026, followed by annual increases of 10% of MEI in subsequent years. The measure now proceeds to the House Committee on the Budget, where it will be merged with other sections from parallel committees to form a consolidated bill for a full House vote. Speaker Mike Johnson (R-LA) has indicated that this vote is anticipated before Memorial Day. Should the bill pass, it would then advance to the U.S. Senate for further deliberation.

The American Medical Association (AMA) has expressed robust support for the bill as it makes its way through the legislative process, noting that the measure “would adjust Medicare physician payment to rise with the rate of practice-cost inflation.” AMA Executive Vice President and CEO, Dr. James L. Madara, characterized the bill as providing “the first Medicare physician payment update that is permanently built into baseline Medicare rates since the passage of the Medicare and CHIP Reauthorization Act (MACRA) in 2015.”

None Too Soon

In a letter addressed to House Energy and Commerce Committee Chair Brett Guthrie (R-Ala.) and Ranking Member Frank Pallone (D-N.J.), Dr. Madara warned that “physician practices have faced a 33% loss in purchasing power since 2001, severely straining their sustainability.” This deterioration in purchasing power has directly compromised the ability of many physicians to remain independent. One leading medical organization observed that the prolonged decline in Medicare physician payments has coincided with a marked reduction in the viability of independent medical practice. According to AMA data, while 61% of physicians owned their practices in 2001, fewer than half held ownership stakes by 2016, with employed physicians surpassing practice owners by 2018.

Thus, the Medicare reimbursement reform recently approved by committee could very well be the prescription needed to revitalize providers—both financially and operationally. However, the legislation’s scope extends beyond Medicare alone.

Addressing Medicaid

The bill currently under consideration in the House also includes provisions aimed at reforming the Medicaid program. Among these are:

• The imposition of federal work requirements
• A temporary suspension of state provider taxes
• Reductions in certain Federal Medical Assistance Percentages (FMAP)
• Increased cost-sharing for adults earning between 100% and 138% of the federal poverty level
  

The AMA has voiced significant concern regarding these Medicaid-related proposals, cautioning that they would introduce additional administrative burdens and result in “coverage interruptions that especially affect Americans with low incomes and those living in rural areas.” In his letter to the committee, Dr. Madara further warned:

“These provisions create additional administrative burdens for patients and could result in more individuals being denied or losing coverage under Medicaid or CHIP for failing to comply with bureaucratic requirements, despite otherwise meeting all substantive criteria for eligibility.”

The hope remains that, through the collective input of government leaders and stakeholders across the healthcare continuum, this legislation will be refined and improved prior to final passage—for the benefit of the medical community, Medicare and Medicaid recipients, and the American taxpayer alike.