While “budget-neutrality” sounds like good policy, when it operates within a Physician Fee Schedule that has not kept up with inflation, it results in massive swings in reimbursement and punishes providers irrespective of the value they add to the healthcare system. This is because, while reimbursement under the overall Physician Fee Schedule has increased 11 percent over the last two decades, the cost of running a medical practice has increased 39 percent over that same period (see AMA’s “Medicare Updates Compared to Inflation” chart below).
As a result of budget-neutralizing an underfunded system, the 2021 Physician Fee Schedule (PFS) Rule cut the conversion factor by 10% after an update to E/M data, which had a disproportionate impact on non-primary care providers. For example, physical therapists, who make on average roughly $89,000 per year, were cut 9% while primary care providers, who make $241,000 per year, saw a historic increase in reimbursement. Indeed, 2021 PFS cuts were so significant Congress phased them in through 2025. When finally phased-in, the 2025 conversion factor is projected to be $32.3433, a cut of more than 10% from the $36.09 conversion factor in 2020.
Office-Based Center Closures Are Correlated with Health System Consolidation
Post, Brady PhD et al., Hospital-physician integration and Medicare’s site-based outpatient payments, Health Serv Res. 2021; 56:7-15
Ongoing Cuts to Office-Based Specialists as a Driver of Health System Consolidation
While President Biden’s Executive Order on Promoting Competition in the American Economy makes it clear that this Administration is concerned with health system consolidation, the 2024 PFS Proposed Rule continues to undercut this initiative. According to the American Medical Association, over the last decade the percentage of physician-owned practices has fallen below 50% and there has been a sharp rise in (1) physicians employed by a hospital and (2) physician practices owned by hospitals or health systems. (see “a sharp redistribution of physicians from physician-owned to hospital/health system-owned practices” below).
According to Avalere, the ongoing pandemic also has accelerated these trends with hospitals and acquiring 58,200 additional physicians over the last three years (see “National Trends” chart below). Given that the reimbursement for medical specialties is, on average, up to $178,000 more in a vertically integrated health system, the incentive is clear for beleaguered PFS providers who may no longer be able to sustain further cuts in the 2024 PFS Proposed Rule to simply close their centers and continue the migration to large health systems (see “Additional Reimbursement” chart below). A recent multidisciplinary survey including vascular surgery, interventional radiology, and interventional cardiology found that ongoing Medicare cuts to independent practices are damaging and a significant factor in closure in many cases.
USPA’s vision is for a Physician Fee Schedule that provides payment stability for office-based specialists and fundamental reform of the so-called "budget-neutrality" provision.
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