If you are concerned about declining Medicare physician payments in California, you’re not wrong. Physicians are facing a fifth consecutive year of possible Medicare payment reductions unless Congress intervenes. These cuts come as medical practice costs rise, with a projected 3.6% increase in the Medicare Economic Index (MEI) for practice expenses in 2025 by the Centers for Medicare and Medicaid Services (CMS).
These cuts are mostly due to the expiration of a temporary increase and payment freezes under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Despite Congress anticipating a shift to value-based Advanced Alternative Payment Models (APMs), few have been approved, limiting physician participation. The California Medical Association (CMA) has sounded alarms that Medicare physician payments in California have decreased by 29% since 2001.
Over 65 million Americans receive Medicare benefits. That’s almost 20% of the US population. Needless to say, a decrease in physician payments makes no sense.
Join us for a comprehensive look at how physicians receive compensation under Medicare. We’ll also review changes in Medicare physician payments in California to watch for.
Medicare Physician Payments in California Legislation
Every year, CMS adjusts Medicare physician payments in California and the rest of the US based on legal guidelines. In late 2023, CMS approved a 3.4% reduction in the physician fee schedule conversion factor. This led to a 1.25% overall payment decrease, varying by specialty.
Professional organizations like the CMA, the Medical Group Management Association (MGMA), and the American Hospital Association (AHA) strongly oppose these payment cuts. They warn that revenue loss could drive physicians to stop accepting Medicare. While doctors aren’t mandated to take Medicare patients, almost all do, with only 1% opting out in 2023.
The new legislation adjusting physician payments for the year aims to counter these reductions. Since 2020, Congress has passed four one-year increases to prevent fee cuts. Many entities have contributed suggestions for broader changes to the payment system, including by MedPAC. This group of bipartisan Medicare payment reform senators is exploring long-term solutions to the physician fee schedule, with more legislation anticipated this year.
Fee Schedule for Medicare Physician Payments in California
Medicare physician payments in California are paid according to the Medicare physician fee schedule. This schedule encompasses over 10,000 medical services.
For services under traditional Medicare, the program typically covers 80% of the fee schedule amount, while patients cover the remaining 20% in coinsurance. Physicians accepting Medicare agree to this payment structure known as “assignment” for all services. Non-participating physicians can accept assignments on a case-by-case basis and may charge higher amounts. Those opting out of Medicare enter private contracts with patients, set fees independently, and do not receive Medicare reimbursement.
The fee schedule rates for services are based on clinician work, practice expenses, and professional liability insurance. These components account for the total cost and effort, with more complex services receiving higher weights. It also takes into consideration geographic cost variations. The fee schedule conversion factor determines the final amount.
Additional considerations like service location, healthcare provider type, and shortage areas may affect payment rates. Physicians can also earn adjustments through the Quality Payment Program (QPP) based on care quality.
Adjustments to Medicare physician payments in California involve the following:
- Updating the conversion factor as needed by MACRA.
- Adding new services.
- Adapting to cost changes for existing services.
- Incorporating other relevant factors.
The AMA/Specialty Society RVS Update Committee advises CMS on service code weighting. To ensure budget neutrality and control Medicare expenses, fee schedule changes must not exceed set limits per the Omnibus Budget Reconciliation Act of 1989. If projected costs go beyond these limits, CMS reduces spending by lowering the conversion factor.
Problems with Medicare Physician Payments in California
The current payment system for Medicare raises concerns about payment sufficiency for physicians and clinicians. Also, compensation disparities between primary care and specialty providers present an issue. Furthermore, the QPP effectiveness in driving quality improvements and cost-effective spending is in question.
Inadequate Payouts
Medicare physician payments in California have been steadily declining due to the broken payment system. Physician groups and stakeholders are justifiably concerned. The system’s budget neutrality requirements and limited flexibility for updates lead to payment rates that do not keep pace with inflation. While practice expenses are considered in payment rate calculations, maintaining budget neutrality hinders CMS efforts to increase payments for certain services without reducing payments elsewhere.
Under MACRA, statutory increases to the conversion factor will begin in 2026. However, they do not include adjustments for economic changes. Medicare payments for physician services are generally lower than those from private insurers. This potentially affects beneficiary access if physicians opt out due to unsatisfactory payment rates.
Almost all Medicare claims are accepted on assignment and paid at the standard rate, with traditional Medicare beneficiaries responsible for a standard 20% coinsurance.
Disproportionate Payments for Primary Care
Another notable issue with Medicare physician payments in California is inadequate reimbursement for primary care services compared to specialty care. This payment imbalance can lead clinicians to prioritize profitable procedures over high-value services like patient education and preventive care. Overall, this increases physician spending.
Flaws in the QPP
The QPP consists of a Merit-Based Incentive Payment System (MIPS) and A-APM bonuses to enhance quality, care coordination, and high-value services. The number of clinicians eligible for A-APM bonuses has grown significantly from about 99,000 in 2017 to 271,000 in 2021.
Despite this growth, policymakers argue that more substantial incentives are necessary. They encourage providers to embrace the financial risks and startup costs associated with these models.
MedPAC is concerned that MIPS, the quality-based payment system for non-APM participants, lacks sufficient motivation for improving quality and managing costs. Positive adjustments under the program are negligible due to the many exempt clinicians. Plus, few are facing penalties.
Declining Payments in California: Background
To understand the current state of Medicare physician payments in California, it’s necessary to explore the origins of the legacy systems and methods that still underpin current payment structures.
The first attempt at developing a payment mechanism was the 1956 California Relative Value Study (CRVS). Subsequently, in the 1970s, an investigative team from the Harvard School of Public Health, spearheaded by budding economist William Hsiao, Ph.D., began probing into doctor remuneration. The research team built upon the relative value concepts propounded by the CRVS. They were spurred on by a “sharp hike in health care expenditures” that led to intensified examination of physicians’ fees.
In 1979, Hsiao and his collaborator, William Stason, M.D., released an influential study that would significantly shape doctor remuneration policy and the wider U.S. healthcare system. Their study, “Toward Developing a Relative Value Scale for Medical and Surgical Services“, unveiled research results aimed at discerning the relative worth of surgical operations and medical consultations hinged on resource expenditures.
Later, in a 1984 article, Hsiao and his peers voiced worries not merely about exorbitant fees, but also the equity of charges across diverse services and specializations. They noted that, during that era, it was mostly individual doctors who set their service charges.
Physician Payment Review Commission
Throughout these years, regulators and policymakers in Washington, D.C., closely scrutinized the research conducted by Hsiao and his colleagues. When the Health Care Financing Administration (now CMS) and the Physician Payment Review Commission (PPRC) made requests, additional studies were undertaken and published in 1984 and 1985. The work carried out between 1988 and 1991, often referred to as Hsiao’s research’s second phase, set a stable groundwork for subsequent legislative advancements for Medicare physician payments in California.
In 1986, Congress founded the PPRC with a strict mandate to suggest amendments to the “methods used for remunerating physicians for services rendered to Medicare beneficiaries.”
The PPRC’s first report to Congress, “Medicare Physician Payment: An Agenda for Reform,” launched the following year. This report delineated main objectives for physician payment policy and put forth a variety of reform possibilities. The adoption of a relative value scale, an idea coined by Hsiao and his team, was one of the suggestions.
By spring of 1989, Paul Ginsburg, Ph.D., PPRC’s executive director, published an article in Health Affairs titled “Physician Payment Policy in the 101st Congress“. He expounded upon the future challenges:
“Almost two decades slipped away between the compromises that led to the eleventh-hour inception of Medicare Part B and the commencement of significant efforts to revamp physician payment methods. Starting from 1984, however, a chain of legislation over four consecutive years determined a course for change and prepared the groundwork for its realization. Research outcomes revealing unfitting care and unpredictable fee models, along with the nation’s urgent cost worries, amplified policymakers’ determination to completely remodel the payment system.”
Medicare Physician Payments in California and the Bush Administration
Influenced by the PPRC’s guidance, the Omnibus Budget Reconciliation Act of 1989 led to the formation of the Medicare physician fee schedule. The architecture of this fee construct was based on three pillars:
- The relative value scale.
- Geographic adaptations.
- A specialized conversion factor that translates relative values into monetary sums.
The legislation made it mandatory for the resource-based relative value scale to be the backbone of Medicare physician payment reforms. Despite the implementation of Hsiao’s work into law, he was later excluded from consequent discussions on the optimal way to operationalize the system he played a crucial role in developing.
The exact parameters under which the authority of the Resource-Based Relative Value Scale (RBRVS) was transferred to the AMA from the Health Care Financing Administration (HCFA) are not entirely clear. Many believe that the George H. W. Bush administration, in collaboration with then-HCFA Administrator Gail Wilensky, Ph.D., opted to shift the upkeep responsibilities to the AMA, citing the intricacy and financial burden of the task. In 1991, the AMA set up the Relative Value Scale Update Committee (RUC). This committee would provide advice to CMS about the relative values for new or revised codes in the Current Procedural Terminology (CPT) code book.
This framework for assessing the worth of physician services was introduced in 1992 and has mostly stayed the same since. The persistence of the system is not unexpected. However, it’s interesting to note that as far back as the 1980s, the PPRC, researchers, and HCFA were aware of the payment imbalances between primary care providers and specialists. Despite this, there have only been minimal attempts to resolve these disparities for Medicare physician payments in California.
Fixing Medicare Physician Payments in California
Certain Congressional bills suggest adjusting the budget neutrality threshold to give CMS more flexibility in updating payment rates without mandatory reductions. Some proposals aim to tie budget neutrality updates to the MEI to reflect inflation in clinician costs. The Strengthening Medicare for Patients and Providers Act, proposed by a bipartisan group of Congress members, seeks to align fee schedule updates with the MEI’s annual percentage increase.
MedPAC recommended a one-time inflation-based increase in physician payment rates for 2024, equivalent to 50% of the projected MEI increase. They did not propose regular inflation updates. Instead, they focused on targeted measures to assist primary care and safety-net providers. Suggestions included a permanent supplemental payment for services to low-income Medicare beneficiaries. Additionally, they suggested payment increases of 15% for primary care claims and 5% for non-primary care claims.
MedPAC supports MACRA and the QPP, especially the financial incentives for APM participants. They recommend changes like getting rid of MIPS for its limited impact. Also, they propose a voluntary program similar to APMs. Lawmakers may extend bonus payments for APM clinicians until 2026.
A bipartisan group of senators has formed a Medicare payment reform working group to consider long-term changes to the physician fee schedule and MACRA.
These proposals show a growing interest in Medicare physician payments in California reform. Policymakers aim to create payment systems that fairly compensate physicians while managing spending growth.
Ongoing Issues with Medicare Physician Payments in California
With the fifth consecutive year of cuts, exacerbated by rising medical practice costs and a projected 3.6% increase in the MEI for 2025, the outlook for Medicare physician payments in California is increasingly challenging. The expiration of temporary payment increases and freezes under MACRA, coupled with the slow approval of value-based APMS, have further strained the financial stability of medical practices in California.
The need for Congressional intervention is more urgent than ever. It is crucial for physicians to stay informed and engaged as we collectively advocate for fair compensation and sustainable healthcare practices.
