While current health care industry trends lean toward larger physician practices, more than half of doctors still work in practices with 10 or fewer physicians. But the viability of these physician practices—as well as those serving patients in rural, economically marginalized or underserved areas—may be at risk because Medicaid pays them even less than Medicare does.
These unsustainable payment rates do not reflect practice costs or the value of the care provided, according to an AMA Council on Medical Service report adopted at the 2024 AMA Annual Meeting in Chicago.
The Medicare payment system is on an unsustainable path, with Medicare physician payment rates dropping 29% since 2001 (PDF), after adjusting for inflation.
“Small practices are disproportionately affected by payment rates that fall below an ideal benchmark,” says the report.
The report adds that, as Medicare physician payment rates continue to either drop or fail to keep up with the rate of inflation, linking private insurance payment rates to the Medicare physician payment schedule puts small practice at a further disadvantage.
“Continuing to tether payment to a Medicare payment rate that has been reduced by almost 10% in four years presents an untenable situation for small practices,” the report says. “As such, uncoupling payment schedules from a Medicare benchmark may allow for a level of payment that reflects the full cost of practice, the value of the care provided, and includes inflation-based updates, thereby sustaining small practices.”
While it may be unfeasible to establish an equitable minimum government payment rate across the six major government health care programs or impractical to establish a minimum payment rate in the private physician market, delegates adopted policy stating that payment benchmarks should reflect the cost of providing care while acknowledging risk, variable expenses, an appropriate allocation of fixed costs and physician work.
Specifically, delegates called on the AMA to:
- Support making bonuses for population-based programs accessible to small community practices, without untenable exposure to administrative burden of downside risk, taking into consideration the size of the populations they manage and with a specific focus on improving care and payment for children, pregnant people, and people with mental health conditions, as these groups are often disproportionately covered by Medicaid.
- Convince health insurance companies and managed care organizations to immediately uncouple their fee schedules from the Medicare physician payment schedule and to maintain payment levels that are sustainable, reflect the full cost of practice and the value of the care provided, and include an inflation-based update.
- Advocate for Children’s Health Insurance Program, Medicaid and TRICARE payment that is sustainable, reflects the full cost of practice and the value of the care provided, includes inflation-based updates, and pays no less than 100% of the Medicare resource-based relative value scale.
The AMA is leading the charge to reform the Medicare payment system because it is deeply alarmed about the growing financial instability of the Medicare physician payment system due to a confluence of fiscal uncertainties physician practices face related to the pandemic, statutory payment cuts, lack of inflationary updates and significant administrative burdens.
Patients and physicians should tell Congress to support legislation that would reform the flawed Medicare physician payment system and provide annual inflationary updates. Use these materials in conversations with members of Congress to let them know the Medicare physician payment system needs reform to become a more sustainable, value-based system that better meets the needs of patients and physicians.
The AMA's Medicare Basics series provides an in-depth look at important elements of the Medicare physician payment system. Find more topics about the payment system and why it's in need of reform.
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.
