Data Insights

Medicare reimbursement falls short of care delivery costs


Government Programs

medicare payment rates compared to cost
More than two-thirds (67%) of medical practices report that 2019 Medicare payments will not cover the cost of delivering care to beneficiaries according to a new MGMA Stat poll. Practices often rely on commercial contracts covering non-Medicare patients to offset the shortfall.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) intended to stabilize physician payment rates in Medicare’s fee-for-service system and incentivize physicians to move into value-based payment models, allowing greater flexibility and potential financial reward albeit with greater risk. Under MACRA’s revised methodology for updating the physician fee schedule (PFS), Medicare fee-for-service payments are not keeping up with inflation or the cost of running a physician practice; the Medicare conversion factor has remained essentially flat, only increasing +$.2348 since 2016. MACRA also aimed to accelerate the shift toward value-based payment. The legislation created a new pay-for-performance program, the Merit-based Incentive Payment System (MIPS), as an on-ramp to participation in alternative payment models (APMs).

MIPS offers performance incentives in the form of year-long payment adjustments that reward or penalize clinicians depending on where their performance falls across a continuum of participant scores. At first, payment adjustments looked significant and potentially large enough to offset the underlying problem of inadequate updates to Medicare reimbursement rates. For example, 2019 payment adjustments, based on the performance during the inaugural reporting period in 2017, could have ranged from -4% to +22%, depending on two scaling factors. MIPS adjustments do not compound but do gradually increase each year until payment year 2022, when Part B payment adjustments span -9% to a potential +37%. Based on 2017 performance data, MIPS 2019 payment adjustments are less than 2%, even for top performers, as the program requires budget neutral payments.

This well-intentioned program is costing practices money to comply, with little promise for financial reward. MGMA members tell us burdensome reporting requirements may be affecting patient care and other clinical priorities that drive value.

Additionally, APMs have not offered the robust participation options envisioned by the healthcare community. There are a mere eight national advanced APMs in 2019, and options to join an APM are particularly limited for specialty providers. APMs offer the potential for group practices to have greater flexibility to deliver care that fits a patient’s needs while sharing the savings generated to the Medicare program or beneficiaries. In addition to potential financial rewards inherent in the model, such as shared savings payments or outcome-based bonuses, APM participants are eligible for a 5% lump sum bonus paid by Medicare. A successful APM is a win-win for everyone: better quality care for patients, increased savings for Medicare and financial reward and viability for physician practices.

As medical practices transition toward a value-based payment environment, fee-for-service does not need to be abandoned entirely, but it does need to be updated appropriately. Even if a payment system provides the right incentives, if the underlying reimbursement rates are too low, the system is not sustainable for physicians to continue providing high-value care.

Of the 67% of MGMA members who reported Medicare costs are not keeping up with physician practice expenses, one respondent wrote the Medicare “population is more complex, more sickly, and has comorbidities that you don't see elsewhere. It takes more resources to manage their conditions.”

Testing and designing more APMs that physicians and patients want to participate in is one way to address this volume problem. MGMA will continue to advocate for more voluntary options that account for the diversity of medical group practices and for policies that establish fair reimbursement rates and ensure the financial viability of independent groups.

MGMA Stat is a national poll that addresses practice management issues, the impact of new legislation and related topics. Participation is open to all healthcare leaders. See results of other polls and information on how to participate in MGMA Stat.

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Mollie Gelburd
Mollie Gelburd, JD
Associate Director
MGMA Government Affairs

Drew Voytal
Drew Voytal, MPA
Associate Director
MGMA Government Affairs