In the News

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).

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.

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.

“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.”

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. 

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:

• Medicare physician payment adequacy: Budget neutrality (PDF).
• Merit-based Incentive Payment System (PDF).
• Advancing value-based care with alternative payment models (PDF).

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.