Latest / Off the Chart: A Business of Medicine Podcast / S1 Ep198: Medicare’s 2027 fee schedule won’t settle the physician pay debate, with four health policy experts
Transcript
- Speaker 1 0:00 If the proposed changes go through for 2027, we will be fully 35 percent in real reimbursement rates below where we were in 2016. Speaker 2 0:07 Economics is not about fairness; it's about I want a physician to save my life. If I can get that physician for $5 as opposed to $10, or more to the point, $100 opposed to $200, I'm going to pay that $100. Speaker 3 0:21 Pretty much every country does some form of rationing in their healthcare. The question isn't so much should we ration or should we not? It's what are the mechanisms that we use. Essentially, what pill are we willing to swallow? Speaker 4 0:34 None of these models are perfect, and I think in in a world where none of the models are really perfect. Hybrid models start to make a lot more sense. Speaker 5 0:57 Welcome to Off the Chart, a business and medicine podcast featuring lively and informative conversations with healthcare experts, opinion leaders, and practicing physicians about the challenges facing doctors and medical practices. My name is Austin Latrell. I'm the associate editor of Medical Economics, and I'd like to thank you for joining us today. Ahead of the final 2027 Medicare physician fee schedule, guest interviewer Cameron Savitt, a medical student at Georgetown University, sat down separately with the four health policy experts that you just heard, Dr. Michael Chernew of Harvard Medical School, former chair of the Medicare Payment Advisory Commission or MedPAC, Dr. Jonathan Ketchum of Arizona State University, Dr. Miranda Yaver of the University of Pittsburgh, and Dr. David Meltzer of the University of Chicago. Medical Economics senior editor Richard Payerton connects those interviews to cover whether the 2027 drop in the conversion factor is really a cut? What a proposed pay cut for visits on the same day as a procedure would mean for older patients, and which payment model, if any, gets it right. And if you're listening on the morning that this episode comes out, Thursday, October 29th, there's still time to join us this afternoon for Physicians Practice Practice Academy series. You can find details on that and a link to register in the show notes below and at physicianspractice.com. But with all of that said, thank you again to all of our guests for joining us, and let's get into the episode. Speaker 6 2:22 The 2027 Medicare physician fee schedule is highly anticipated and will be influential across U.S. healthcare. It most likely won't settle the debate about how physicians should be paid and how much. Michael Chernu is Harvard professor of healthcare policy and former chair of Medpac, the Medicare Payment Advisory Commission. Speaker 2 2:45 You know, you've spent decades studying how we pay for healthcare. When you look at the proposed 2027 physician fee schedule, what's the first thing that stands out to you? So the rule is enormous. So no one can look at the entire rule. It's like an elephant; you only see part of it. But I think the headline that people are focused on is the overall update for physicians, in which they let there was a temporary increase in payment, and then they let that expire. So the sort of headline news you would see is that there was a cut to the conversion factor. I actually don't like that framing of what happened, although it is true that the conversion factor went down, it's the same as it would have been sort of under current law. The Speaker 6 3:26 Medicare conversion factor is a key part of physician reimbursement. For 2027, is it really a cut? Jonathan Ketchum is research professor in business and professor of economics at Arizona State University. Speaker 7 3:41 Physicians often argue that Medicare reimbursements failing to keep pace with inflation and rising practice expenses. From an economist's perspective, how do we determine whether Medicare is paying physicians too little, too much, or appropriately? Speaker 1 3:55 Yeah, I think fundamentally, let's agree to kind of the the set of facts on the ground, which is it absolutely is true that in real terms, Medicare payment rates have fallen fairly dramatically since 2016, and most of that has been concentrated since 2020. So what we have seen is you know small nominal increases that have not kept up with the cost of practicing medicine, such that if the proposed changes go through for 2027, we will be fully 35% in real reimbursement rates below where we were in 2016. Interestingly, and perhaps surprisingly, commercial rates have largely tracked along with that, with an estimated reduction of about 16% reimbursement in terms of real prices. This is generally pushed away from independent practices and toward consolidation, both vertical and horizontal, so I think this is a key explanation and why healthcare delivery in the U.S. looks looks the way that it does. Having worked at the administration and having observed this market for a long time, the fundamental challenge comes from having politicals and careers within side the D.C. Way setting these prices at a very micromanaging level, and what that does is it really mutes the market signals about supply and demand in a way that I think it's virtually impossible for even the smartest people with the best data to to get it right compared to what a market can do. Speaker 6 5:18 When do lower payments hurt patient access and health. Miranda Yaver, a professor at the University of Pittsburgh, is author of Coverage Denied, a book-length study of inequality in healthcare. Speaker 7 5:32 At what point do incremental reimbursement reductions become a patient access problem rather than simply a physician compensation problem? Speaker 3 5:39 Medicare reimbursement simply hasn't kept pace with inflation, and certainly in a period where we're seeing rising inflation, that's just simply untenable because providing quality healthcare is expensive. One of the concerns that we certainly see on the Medicaid side, as opposed to Medicare, is that when you have too low reimbursement rates. People simply don't participate in the program, and so the thing that we really want to make sure is that you know physicians are able to keep their practices open and sustainable, and be able to focus on care provision. And when these financial cuts come into the picture, then that can become more difficult. Right now, 98% of non-pediatric physicians accept traditional Medicare, and we'd certainly like to keep that number that high. Speaker 7 6:34 At what point do continued payment reductions then begin to threaten access to care? Would you say? Speaker 2 6:40 Yeah. So this is an unbelievably important question, and by the way, I don't know the answer. But Medpac was worried about this, so Medpac does a process, and we'll see what comes up in March where we look at access and try and assess access in the near term, right? And the assessment in the March 2026 report was that accesses of physician services were adequate, which means that folks on the Hill are going to ask, why should we pay more? The MedPAC recommendation, by the way, was to pay more, pay above current law, not just for say 2027, but also to put an inflation factor into the update rule in general. Very worried about like the growth of concierge practice, physicians deciding not to accept public patients, but I don't think we're sort of at a burning platform right now. But I do think, to your question, we do need to set up a baseline that's at least a little more sustainable than perhaps what we have right now. Speaker 6 7:36 A proposed same-day visit cut is a concrete proposal with direct effects on physicians' schedules and patients' time. Speaker 7 7:44 You know, CMS is proposing to reduce payment for certain evaluation and management visits performed on the same day's procedures. Could this encourage practices to schedule separate visits, creating precisely the kind of inconvenience and administrative friction that you've documented in your research? Speaker 3 8:00 That's such a great point, and I and yeah, I mean, I think that that is is likely to occur. And when I talk with whether it's my students or policymakers about policy reforms, we always want to think a couple steps down the game tree and sort of what are the what kinds of workarounds is this going to create? And so, when you take an older population that may have vision issues, may have mobility issues, and then increase the likelihood that their care is going to be spread out and require more visits, it creates administrative burdens, and it can create financial burdens because there's a copayment, and you may have to pay for parking. Physicians probably don't like having to change how they practice medicine, and physician and patients are going to kind of get caught in the middle. And it isn't through any nefariousness on the part of their provider, but it is going to likely cause a lot of headaches all around. Speaker 6 9:00 Is Medicare paying for the wrong things? Dr. David O. Meltzer is professor of medicine and chief of the section of hospital medicine at the University of Chicago. Speaker 7 9:10 Suppose your research suggests that better continuity of care can reduce hospitalizations, but under traditional FFS Medicare, preventing a hospitalization doesn't necessarily guarantee additional revenue for the physician who prevented it. Are we fundamentally rewarding the wrong things? Speaker 4 9:28 I'm not sure we are. I think it's complicated. What we ultimately care about is outcomes. So it's very tempting to want to pay for outcomes. When you pay people for an outcome. What that means is that they get more money when an outcome is achieved, but it doesn't address the question of how the outcome is achieved. And you can achieve an outcome either by the way people usually think about it, which is, for example, providing better medical care that improves someone's health. Or you can achieve a better outcome by only caring for people who are going to have good outcomes. Risk selection. My concern is that the latter is pretty prevalent. As a result, the sort of pay for outcome, pay for performance kind of measures are are quite imperfect. Now we've made progress in risk adjustment. I think there's a lot more progress to be made. I am not 100% in on pay for performance, pay for outcome, even sort of capitation type type models. Now, this that last comment about capitation gets towards this idea of you know rewarding people economically for spending less, right? Which you know can often mean doing less, and doing less is fine if the thing you're doing less of wouldn't have been a value. But doing less is not a good thing if that actually would have been a value. None of these models are perfect, and I think in in a world where none of the models are really perfect, hybrid models start to make a lot more sense. Now, what's happened with changes in the fee schedule over the past two years is that Medicare has instituted advanced primary care management fees, which essentially are a per patient per month payment for providing care management to those patients, and our comprehensive care program has really leaned into those. We sign patients up for those. We're able to bill monthly. It's generating a really substantial amount of money for our program, and what that is allowing us to do is make the primary care part of the business at least break even, if not even profitable for our health system. I think that changes in the fee schedule when they add these new services can be a really positive thing. Physicians Practice 12:06 Hey there, Keith Reynolds here, and welcome to the P2 Management Minute. In just 60 seconds, we deliver proven, real-world tactics you can plug into your practice today. Whether that means speeding up check-in, lifting staff morale, or nudging patient satisfaction north, no theory, no fluff, just the kind of guidance that fits between appointments and moves the needle before lunch. But the best ideas don't all come from our newsroom; they come from you. Got a clever workflow hack, an employee engagement win, or a lesson learned the hard way? I want to feature it. Shoot me an email at kreynolds@mjhlifesciences.com with your topic, a quick outline, or even a smartphone clip. We'll handle the rest and get your insights in front of your peers nationwide. Let's make every minute count together. Thanks for watching, and I'll see you in the next P2 Management Minute. Speaker 6 12:58 What if the entire physician payment debate starts from the wrong economic premise. A Speaker 2 13:03 lot of the discussion that I read online and I hear about has what I would call, broadly speaking, a fairness paradigm. Physicians, you work very hard, you save people's lives, and I actually do believe that physicians and the providers in general are the backbone of the American healthcare system. We have a healthcare system to keep people healthy, and physicians are central to that in you know every aspect of it. But that's not the way economics works. Economics works in a way that kind of is annoying because what you pay what you pay for something is what it costs in order to get that resource to do what you want it to do, so I'm going to tell a story, which later I will regret because it's liable to be offensive. It is meant to be educational to my appendix burst, and I was lying in the hospital bed, and it wasn't all that pleasant. And the medical care and the physicians were amazing. The residents were terrific. They were bright. They were engaging. They put up with all my mishigas. I'm lying there and I'm thinking these people need to get paid more. They work so hard. They're so dedicated. And I think I believe that. By the way, just to be clear, then the economics part of my brain kicks in. And so the economics of this is these people are so dedicated we can probably get them for less, and that really is the tension between what you think of fairness and what you think of economics. Economics is not about fairness. The economics about this is how much do we have to pay in a fiscally constrained world to get the level and quality of physician services that we want. Speaker 6 14:39 The Medicare physician fee schedule requires documentation of patient conditions and treatments. When does administrative burden become a drag on the system? Speaker 7 14:49 Your your research challenges the romantic view of independent medicine. You know, in a 2007 Health Affairs study, you found that Medicare heart attack patients treated by solo physicians were less. Likely to receive prompt angioplasty and more likely to die than patients treated by physicians in larger practices. That's a pretty striking finding. Does it suggest that our efforts to preserve small independent practices might sometimes conflict with what's best for patients? Speaker 1 15:15 I think the reality of modern medicine is it does have a much higher set of fixed costs to do and to do well. My great great grandfather actually rode horseback as a physician, and you know went door to door that way. Clearly, those days are long gone. Where I am concerned, though, is where the the bureaucratic apparatus artificially inflates that optimal size. And my sense is actually that it is largely today not the underlying technology or the challenges of practicing medicine scientifically or clinically, but rather the the administrative and legal barriers. And the fee schedule continues to reward you know those larger structures, and even the 2027 changes continue that momentum. Speaker 7 15:57 You know the physician fee schedule specifies what Medicare pays for 1000s of services, but it doesn't fully account for the administrative work required to deliver them. Should Medicare explicitly compensate physicians for time spent on prior auths, insurance appeals, and non other non clinical tasks, or no? Speaker 3 16:14 It's a tough one. Yeah, there it is. Uncompensated care. Traditional Medicare does not generally have much in the way of prior authorization. The new Wiser model, wasteful and inappropriate service reduction model, has piloted new prior authorization across six states. The early reports are that it is not going very well. But Medicare Advantage is really the area where prior auth is much more dominant, such that in 2024, almost 53 million requests for prior authorization were handled. One physician who I interviewed said that they had five staffers dedicated to prior auth handling and sort of the insurance administration, and that's about a third of a million in salary alone dedicated to this, and there and physicians' time gets absorbed in in the appeal processes and peer to peers, and so I think it's worth it's a worthwhile conversation, especially given the realities that physicians are facing a lot of burden and burnout. If physician burnout is leading to attrition. Then there's just going to be fewer fewer physicians to treat these patient populations. The Speaker 6 17:31 Medicare physician fee schedule is not perfect. So what should be changed? Speaker 7 17:36 And what would you do if you know politics disappeared? If you could completely redesign this 2027 physician fee schedule without worrying about Congress or physician lobbying or political backlash, Speaker 1 17:48 well, you're catching me at a good time because I'm back to my academic role and out of the White House, so I can speak my mind, which is fairly radical here. I think I personally would aim to sunset the fee schedules altogether and get the government out of this business. I think if we could effectively over time get the government and you know my former colleagues and friends out of the business of micromanaging how providers are paid, and really let the insurers and the providers and ultimately the patients kind of determine that and and figure out how to reward value, I think that would be really exciting. And I think as long as we have the fee schedule? It's it's a real barrier to that kind of innovation. Speaker 7 18:23 In the movement toward value-based care, after years of experimentation, are alternative payment models really delivering the results we originally envisioned? Speaker 2 18:32 My view of alternative payments, very broadly, is when money gets tight, and money will get tight, the providers, including physicians, should want to control the money. Alternative payment models are a mechanism to do that. There's inefficiency in the healthcare system in a whole bunch of ways, and the question in part is who gets to capture those savings if these inefficiencies are eliminated. My view is if you don't share the savings, there won't be any savings to share. Alternative payment mechanisms are a mechanism to do that, and they don't have to be great. They just have to be better than the alternatives. That's the way I view APMs. They don't have to be great. They have to be better than fee for service. And I think the fee for service pathway, for fiscal reasons, is going to be continual, continual reductions in inflation-adjusted fees. And if you could move to an alternative payment model that's well constructed, I think you have the opportunity to capture some of those efficiencies. Now, people have said that's really hard for small practices, and I completely agree. I really would encourage people that are in small practices that are struggling with this to try and find some of the organizations are called conveners that they can join up with, and those convening organizations can help them succeed and still retain control of their practice in a bunch of ways. And you Speaker 7 19:42 know, the the 2027 proposal specifically asks for input on prospective primary care payments. Given your experience designing the comprehensive care physician model, would you favor paying primary care physicians a fixed amount per patient rather than predominantly on individual billable encounters? Speaker 4 19:59 Looked at these proposals. If I take it literally a fixed amount per patient, and I'm imagining you're suggesting per year or something like that, I mean I think that would be a terrible idea because the temptation will be to take healthy patients and to stay away from sick ones. My biggest concern there is that whatever adjustment you come up with, it's going to be potentially something that's easily gained. You know, people often talk about these 9010 rules, right? Where you know 90% of the work comes from 10% of the people or whatever. There is no question that that sort of pattern exists when it comes to primary care. That is one of the advantages of sort of the more traditional fee for service kind of approach to things. Again, there is no perfect reimbursement model, and I I think these hybrids are are really important. Speaker 7 20:56 Looking at the 2027 physician fee schedule, what's the single most important change policymakers should make to ensure that Medicare reimbursement supports not just physician practices but the patients who depend on them. Speaker 3 21:08 I'd be curious to know if we are having a harder time getting medical appointments because of these increased financial pressures. Is this going to drive up readmissions? Because is this going to make it harder to do effective follow up? And readmissions are pretty expensive to the system. And so one of the things that I am always looking at in any health reform is when can a policy undercut its underlying objective? I would argue that this has happened in a non-trivial number of cases with prior off, because if a treatment is being withheld for X amount of time, whether delay or denial, patient's condition can exacerbate and become costlier to treat. So that instead of you know paying for the patient's insulin, we're treating the patient's diabetic ketoacidosis, which is you know a lot costlier to the system as well as to the patient. In all likelihood, I would argue that we should you know do a lot more in the way of value-based care, which patients may not like, and there are a lot of competing incentives here. But I also think that a well-intentioned policy could potentially backfire in some critical ways. Speaker 5 22:37 Once again, those were interviews conducted by Cameron Sabbat of Georgetown University with Dr. Michael Chernew of Harvard Medical School, Dr. Jonathan Ketchum of Arizona State University, Dr. Miranda Yaver of the University of Pittsburgh, and Dr. David Meltzer of the University of Chicago, connected by Medical Economics senior editor Richard Payerton. My name is Austin Luttrell, and on behalf of the whole Medical Economics and Physicians Practice teams, I'd like to thank you for listening to the show and ask that you subscribe so you don't miss the next episode. As always, be sure to check back on Monday and Thursday mornings for the latest conversations with experts sharing strategies, stories, and solutions for your practice. You can find us by searching Off the Chart wherever you get your podcasts. Also, if you'd like the best stories that Medical Economics and Physicians Practice published, delivered straight to your email six days of the week, subscribe to our newsletters at medicaleconomics.com and physicianspractice.com. Also. the chart, a business of medicine podcast is executive produced by Chris Mazzolini and Keith Reynolds, and produced by Austin Latrell. Medical Economics and Physicians Practice are both members of the MJH Life Sciences family. Thank you.