Medicare & Medicaid

Medicare physician pay must track inflation—every year

Kevin B. O'Reilly , Senior News Editor

What’s the news: The AMA and over 130 other organizations representing more than 900,000 doctors who deliver care to tens of millions of older Americans are strongly urging congressional leadership of both parties to take needed action to ensure that physician payment keeps pace with inflation every year, in line with the Medicare Economic Index (PDF).

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The physician organizations’ call for action (PDF) comes on the heels of a recommendation from the influential Medicare Payment Advisory Commission (MedPAC) that Congress boost the 2024 Medicare physician payment rate above current law with an inflation-based payment update tied to 50% of the MEI. It is the first time that MedPAC has called for a pay update tied to the MEI.

“Having surveyed the health care landscape, MedPAC recognized that physician pay has not kept up with the cost of practicing medicine,” said AMA President Jack Resneck Jr., MD. “Yet, we feel strongly that an update tied to just 50% of MEI will cause physician payment to chronically fall even further behind increases in the cost of providing care. Congress should adopt a 2024 Medicare payment update that recognizes the full inflationary growth in health care costs.”

In its recommendation, MedPAC wrongly argues that half of MEI is enough because the practice-expense component of physician payment is about half of total Medicare physician payments.

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But, the joint letter from the AMA and other physician organizations notes, “it is well understood that the practice-expense component does not cover all practice costs.” Rather, it is just one part of a “multifactorial formula to compensate physicians for the total costs of running a medical practice and caring for Medicare beneficiaries.”

What’s overlooked in MedPAC’s recommendation is “payment for physician work—the time, energy and expertise devoted to treating patients,” which also adds to bottom-line practice expense and also is being hit hard by inflation.

“An inflation-based payment update is equally warranted for physician work and other aspects total physician payment, all of which could be addressed by finalizing an update that is tied to full—rather than half—of MEI,” says the letter, adding that Washington lawmakers have “a real opportunity to relieve the financial strain on Medicare physicians and strengthen access to care for current and future generations of Medicare beneficiaries.”

Leading the charge to reform Medicare pay is a critical component 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: Physicians are the only type of “provider” paid by Medicare to lack an inflationary payment update. That failure to keep pace has had a big impact on physician payment, translating to a 26% drop in inflation-adjusted Medicare pay for doctors between 2001 to 2023 (PDF).

“Physicians caring for Medicare beneficiaries continue to grapple with a statutory freeze in annual Medicare physician payments until 2026, when updates resume at a rate of only 0.25% a year indefinitely, well below the rate of medical or consumer-price index inflation,” the AMA-led joint letter says.

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Last year, meanwhile, Congress failed to stop the entirety of scheduled physician payment cuts, resulting in doctors seeing a 2% cut in Medicare pay this year. Next year doctors are in for at least a 1.25% cut absent congressional action. 

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“Medical practices across the country are experiencing unprecedented financial pressures stemming from higher staffing needs, rent, liability insurance premiums and other practice costs due to record-setting rates of inflation, the ongoing COVID-19 recovery, and significant administrative burden,” notes the physician organizations’ letter.

“It is no surprise” that one in five physicians is pondering an exit from practice “within two years due to the stress of running a medical practice, including increased financial pressures and administrative burden,” the joint letter says.

Learn more: The AMA—in collaboration with 120 other physician and health care organizations—has outlined the essential principles (PDF), including an annual inflationary update, that can put the nation’s health care system on sustainable financial ground.

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.