What’s the news: A bipartisan group of U.S. senators has introduced the Physician Fee Stabilization Act. The bill would increase the budget-neutrality threshold under the Medicare physician payment schedule to $53 million in 2026, up from $20 million. The bill also would provide regular indexing of the threshold to the Medicare Economic Index (MEI).
The AMA sent a letter supporting (PDF) the bill, saying that it is an important step in aligning physician payments with the principles outlined in the AMA’s “Characteristics of a Rational Medicare Physician Payment System” (PDF). More than 120 state medical and national specialty societies endorse that AMA document, which serves as the basis for improving Medicare physician payment.
But the AMA letter tells lawmakers that “while the Physician Fee Stabilization Act is an important first step, the AMA believes the bill could go further,” noting that the AMA strongly supports H.R. 6371, the Provider Reimbursement Stability Act of 2023, sponsored by Reps. Greg Murphy, MD (R-N.C.) and Robin Kelly (D-Ill).
In addition to increasing the budget-neutrality threshold, H.R. 6371 also mandates:
- A two-year look-back period for the Centers for Medicare & Medicaid Services (CMS) to correct utilization estimates prospectively by comparing them with actual claims data for the new services. This addresses reductions in Medicare physician payments based on inaccurate utilization predictions for certain services that, when not corrected, lead to compounding financial losses over time.
- That CMS make regular updates to key elements of direct practice costs—for example, clinical wage rates, medical supply prices and equipment prices—simultaneously and no less often than every five years to improve payment accuracy while avoiding large redistributions among specialties.
- Guardrails against dramatic positive or negative changes to the Medicare physician payment schedule by capping the year-to-year variance in the conversion factor at 2.5%. The limitation excludes statutory increases for the Merit-based Incentive Payment System (MIPS) or alternative payment models (APM) and future MEI updates. This provides a more predictable and stable financial environment for physicians.
The Senate measure was introduced by Sens. John Boozman (R-Ark.), Peter Welch (D-Vt.), Thom Tillis (R-N.C.), Angus King (I-Maine), Roger Marshall, MD (R-Kan.) and Jeanne Shaheen (D-N.H.).
“The AMA appreciates your leadership with the introduction of the Physician Fee Stabilization Act, marking a significant step in the right direction towards overarching Medicare payment reform. We strongly urge Congress to build on this important first step and incorporate the additional provisions from H.R. 6371,” says the letter from AMA Executive Vice President and CEO James L. Madara, MD.
Incorporating those provisions “will provide a more comprehensive solution to the financial challenges faced by physicians due to outdated budget neutrality requirements,” he added.
The AMA is leading the charge to reform the Medicare payment system.
Why it matters: Keeping a practice financially afloat is reaching a breaking point for physicians, especially for practices in rural and underserved areas. Between 2001 and 2024, physicians have seen their inflation-adjusted payments from Medicare fall by 29% (PDF). Physicians are one of the few Medicare providers that don’t receive an annual payment update that is tied to inflation.
Budget-neutrality adjustments erode physician payments even further. The law requires that any changes to the Medicare Physician Fee Schedule be done n a way that is budget-neutral. So, if CMS projects that net spending for Medicare Physician Fee Schedule services will go up—or down—from one year to the next, CMS must reduce (or increase) all Medicare physician payment rates by that excess amount, typically by an across-the-board adjustment to the Medicare conversion factor.
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And CMS sometimes overestimates utilization in its budget-neutrality estimates, which results in the across-the-board reduction becoming permanent, compounding the error every year . For example, the agency cut physician payments by more than $5.7 billion between 2013 and 2022 because it estimated that 5.6 million new claims would be filed when transitional care management services were added to the fee schedule.
However, there were fewer than 300,000 claims the first year and still fewer than one million claims after three years. But because the reduction was already made to the conversion factor, it cannot be added back in even when utilization is lower than expected.
Learn more: Find the resources you need to advocate Medicare physician payment changes at the AMA’s Fix Medicare Now website.
Newly available resources include a printable Fix Medicare Now flyer (PDF) that can be hung in waiting areas to let patients know that the Medicare payment system is on an unsustainable path that threatens their access to physician. It includes a large QR code for patients to access FixMedicareNow.org where they can learn more about the physician Medicare payment issue, share their personal stories and contact their members of Congress to help ensure their continued access to high-quality care.
Also available for download is a printable, one-page document that spells out what patients should know (PDF) about Medicare payment reform, including an explainer on how the Medicare payment system works and why it is unsustainable. It also contains a QR code to the Fix Medicare Now site.
