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 with the first tranche occurring in 2021, the second tranche occurring in 2022 and the next tranches now set to occur in 2023 (3%) and 2024 (3%).
The 2022 PFS cut office-based specialists still further due to a 24% cut to the PFS direct adjustment factor, again due to so-called “budget-neutrality” provisions relating to an update to clinical labor data. As a result of the 2022 PFS, office-based specialists providing care to patients with cancer, end-stage renal disease, fibroids, as well as limb salvage and venous ulcer needs, will see their reimbursement decreased in some cases by more than 20% through 2025 on top of other aforementioned cuts to the conversion factor. Moreover, it is critical to understand that for many office-based specialists, these cuts also come on top of still further cumulative cuts of up to 60% since 2006 (see HMA’s “Significant Specialty Variation” chart below).
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 2023 PFS Finalized 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 2023 PFS Finalized Rule to simply close their centers and continue the migration to large health systems (see “Additional Reimbursement” chart below).
Post, Brady PhD et al., Hospital-physician integration and Medicare’s site-based outpatient payments, Health Serv Res. 2021; 56:7-15
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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