Medicare physician pay fell 26% since 2001. How did we get here?

Kevin B. O'Reilly , News Editor

AMA News Wire

Medicare physician pay fell 26% since 2001. How did we get here?

Dec 2, 2023

What’s the news: As part of its campaign to fix the unsustainable Medicare physician payment system, the AMA is outlining in a quick, easily navigable fashion why doctors’ Medicare payments must be tied to  an inflation index called the Medicare Economic Index (MEI).

Speak up for Medicare reform

The need for Medicare physician payment reform has never been greater. The AMA shows how the current system is unsustainable—and how you can urge Congress to support solutions.

The AMA’s two-page explainer on the Medicare Economic Index (PDF) outlines how it incorporates these two categories reflecting the resources used in medical practices:

  • Physician practice costs, which includes components for nonphysician compensation such as fringe benefits, medical supplies, professional liability insurance and other expenses. Each component is assigned a weight and various proxy indices are used to estimate price changes. 
  • Physician compensation, which reflects increases in general earnings and is currently proxied by changes in the wages and benefits of professional occupations in the U.S. from the Bureau of Labor Statistics. The change in the combined practice costs and physician compensation components of the MEI is then reduced by the 10-year average of economywide, multifactor productivity. 

The big problem is that since 1992, the role of MEI in shaping Medicare physician payment has diminished dramatically, first under the sustainable-growth rate (SGR) and then under the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015. Given those changes, it comes as no surprise that when adjusted for inflation, Medicare physician payment has effectively declined (PDF) 26% from 2001 to 2023.

Related Coverage

Medicare physician pay must track inflation—every year

Learn about how you can take part in the fight to fix Medicare on behalf of your patients and practices at the AMA's Fix Medicare Now website.

Leading the charge to reform Medicare pay is the first pillar of the AMA Recovery Plan for America’s Physicians.

The AMA has challenged Congress to work on systemic reforms and make Medicare work better for you and your patients. Our work will continue, fighting tirelessly against future cuts—and against all barriers to patient care.

Why it’s important: It’s widely acknowledged by the experts that chronically inadequate Medicare payment rates will eventually take a toll on older adults’ access to high-quality care.

This was recognized again recently in the 2023 Medicare Trustees Report.

“While the physician payment system put in place by MACRA avoided the significant short-range physician payment issues resulting from the SGR system approach, it nevertheless raises important long-range concerns that will almost certainly need to be addressed by future legislation,” the report says.

We need your help

Become a member and help the AMA fight to protect physician payment and patients’ access to care.

“The law specifies the physician payment updates for all years in the future, and these updates do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases,” the report adds. “The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large. Absent a change in the delivery system or level of update by subsequent legislation, the Trustees expect access to Medicare-participating physicians to become a significant issue in the long term.”

Medicare updates compared to inflation (CPI)

A bill has been introduced in Congress to tie the Medicare physician payment schedule to MEI. The bipartisan bill—H.R. 2474, the Strengthening Medicare for Patients and Providers Act—was introduced by California Democratic Reps. Raul Ruiz, MD, and Ami Bera, MD, along with Republicans Larry Bucshon, MD, of Indiana, and Mariannette Miller-Meeks, MD, of Iowa. The legislative effort could put Congress on the path to finally reforming the outdated Medicare payment system. 

Related Coverage

Fixing Medicare physician pay system a top priority for the AMA

Learn more: The AMA has declared Medicare physician payment reform to be an urgent advocacy and legislative priority. To help physician advocates and lawmakers get a stronger a grasp on the complicated terrain of Medicare physician payment reform, the AMA has developed a series of additional explainers that outline problems with the issues mentioned above and offer solutions:

Visit AMA Advocacy in Action to find out what’s at stake in reforming Medicare payment and other advocacy priorities the AMA is actively working on.