House Energy & Commerce Subcommittee Issues Testimony From Paragon Health Institute Senior Policy Analyst Albanese
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Thank you, Chairman Guthrie and Ranking Member Eshoo, for the opportunity to testify before this subcommittee. My name is
In a previous hearing conducted by the
1. Offsetting increases in physician spending with other Part B savings;
2. Pursuing market-based pricing of physician services in Medicare;
3. Eliminating financial incentives for MIPS and advanced APM participation; and
4. Enabling Medicare Advantage to remain a viable option for seniors.
I am grateful for this committee's continued focus on these complex and important issues for seniors, as well as for the opportunity to share my views on them.
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Background
Physician Payment Policy
Medicare's policies have undergone multiple changes to balance the goals of cost efficiency, adequacy, and accuracy of physician payments. From its enactment to 1992, Medicare set prices based on doctors' billed, customary, or prevailing charges for services.1 This resulted in significant expenditure growth. To control spending while adjusting payment levels with inflation, the
In 2003,
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1
2
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Flaws in the Current Approach
Despite congressional intervention, the SGR and MACRA helped slow physician expenditures. The PFS conversion factor declined by roughly 8 percent between 1998 and 2023, and physician services fell from 48 percent to 32 percent of total fee-for-service (FFS) Part B spending, as other Part B services grew at a faster rate.4 However, the volume and intensity of physician services surged and PFS spending per aged FFS enrollee has risen by 128 percent since 1998 (versus a 66 percent growth in GDP, 88 percent in overall inflation, and 126 percent in medical inflation).5 This demonstrates that both the number and the per-unit cost of physician services are important factors in rising spending.
The slow growth in physician fees has raised concerns about Medicare beneficiaries' access to care, as low pay may attract fewer doctors to participate. Medicare's trustees and the
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3 Testimony of
4 A single conversion factor for the PFS, rather than one broken out by specialty, was implemented in 1998. See
5 See the
6 See the 2023 Medicare trustees' report and MedPAC, "Physician and Other Health Professional Services," in Report to the
7 For Figure 1, see
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A long-standing concern across Medicare is the accuracy of its prices. The PFS, like other Medicare payment systems, relies on administrative price-setting. The
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One goal of MACRA was to hold physicians accountable for the value of care, but it has failed to do so. MIPS has increased clinician burden, its incentive structures are weak and easily gameable, and its quality measures are ineffective.11 APMs have also been disappointing. A recent report by the
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11 Albanese, "MACRA Checkup."
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13 CBO, Federal Budgetary Effects of the Activities of the
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Figure 2: Clinician Participation Rate in Medicare (CMS and MedPAC)
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Discussion
Policy Goals
As policymakers consider revisiting Medicare's physician payment policy, it should balance the goals of (1) controlling costs to patients and taxpayers, (2) maintaining long-term access to care for beneficiaries, and (3) addressing the distortions of FFS administrative pricing.
As noted above, access to physician services has increased for Medicare enrollees, but continued stagnation in physician payment rates could undermine access in the long run. Some have suggested tying PFS annual updates to the MEI or some percentage thereof to address inflation. Doing this would directly increase patient expenses, because Part B premiums are calculated based on program costs and coinsurance is a fixed percentage of allowable costs. Medicare beneficiaries already spend 28 percent of their
Of course, raising physician fees would also increase Medicare spending overall (as would extending advanced APM participation bonuses, as others have suggested). Part B is expected to account for two-thirds of Medicare spending growth in the next decade, and although there have been lower PFS updates, increases in the volume and intensity of such services still led to rising spending per enrollee. Unlike the Part A trust fund, which payroll taxes support, Part B's trust fund is mostly financed by general revenues. The Medicare trustees project that this trust fund's expenses will rise from 13 percent to 22 percent of all federal income tax revenue by 2030, directly crowding out other policy priorities and directly contributing to the national debt.15 Policy changes can worsen this outlook. All else being equal, if the PFS conversion factor had increased by the MEI from 1998 to 2023, Medicare spending would have been
MedPAC found that updating PFS payment rates by just 50 percent of the MEI's growth would increase spending by
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14
15
16 For Figure 3, see
17 MedPAC, "Physician and Other Health Professional Services."
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19 Government Accountability Office, Medicare Physician Payment Rates: Better Data and Greater Transparency Could Improve Accuracy,
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Figure 3: Cumulative Medicare Spending Would Be
If PFS Were Based on MEI (Medicare Trustees, AMA)
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Previous policy actions have attempted to address this trade-off in various ways. Freezing payment updates, as under MACRA, is not sustainable in the long run. Aggregate spending targets such as the SGR were volatile and did not account for efficiencies among individual practices or specialties. Performance-based payments under MIPS have not improved quality. APMs that experimented with alternatives to FFS have largely failed to save money. What, then, should be policymakers' approach?
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Recommendations
First,
Second, to allow for increases in physician pay without continuing to rely on government price-setting, lawmakers should adopt market-based pricing in Medicare FFS. Central planning and government price-setting are far less accurate determinants of economic value than are market prices, as the numerous distortions in Medicare payments show.23
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Increasing payment rates by inflation would perpetuate the distortions in other Medicare payment systems without addressing existing inaccuracies in the PFS. A more direct way to determine the market value of health care services would be to base payment on the rates negotiated by Medicare Advantage (MA) plans. Such plans are required to cover Part A and B benefits at a minimum (and often provide more) to a similar beneficiary population and tend to have payment rates that are closer to Medicare FFS than other commercial payers are.24 Market pressures--such as contracting with providers, competing for enrollees, and maintaining profitability--incentivize them to maximize value in terms of higher quality health outcomes and lower costs.25 Although many private health plans currently base their reimbursement on Medicare FFS, negotiations with their provider networks would gradually cause them to deviate from it. This, coupled with price transparency rules, would push plans to reach market-bearing prices. If lawmakers instead choose to use an administrative measure of inflation to update PFS rates such as the MEI, they should consider applying only a percentage of it and use private payer data for other components of PFS payment calculations, such as the RB-RVS.
Third,
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23 Albanese, "Roadblock to Progress."
24
25
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Instead of MIPS, CMS should focus its efforts on a much smaller inventory of metrics dedicated to identifying and penalizing poor health outcomes such as serious misdiagnoses or mistreatment, which would reduce government micromanagement of the practice of medicine and provide patients with simpler and more meaningful metrics to compare quality across providers.27 With regard to APMs,
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Conclusion
Improving physician payment in Medicare is a difficult task, but lawmakers should ensure that they undertake policies that minimize costs for patients and taxpayers, maintain access to care for Medicare beneficiaries, and improve pricing accuracy. The best way to pursue these goals is to (1) offset increases in physician spending with other Part B savings, (2) pursue market-based pricing of physician services in Medicare, and (3) eliminate financial incentives for MIPS and advanced APM participation. Over the long run, the organic growth of MA will provide a more effective alternative to FFS, as structural reforms across Medicare's payment systems would otherwise be necessary.
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29 For models where the latest evaluation was released by early 2022, see CMS, Synthesis of Evaluation Results across 21 Medicare Models, 2012-2020, https://www.cms.gov/priorities/innovation/data-and-reports/2022/wp-eval-synthesis-21models. For later CMMI evaluations, see
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Original text and figures here: https://d1dth6e84htgma.cloudfront.net/Joe_Albanese_Witness_Testimony_10_19_23_dafc53dc87.pdf
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