Physician Payment for Some Services Lags Behind Inflation

  • This page as PDF

Summary

Physician reimbursement for some services under Medicare FFS has declined, while payment increased for the same services in the hospital outpatient setting.

Physicians who provide care for Medicare beneficiaries receive reimbursement rates established each year by the Centers for Medicare and Medicaid Services (CMS) in the Medicare Physician Fee Schedule (MPFS). The agency uses relative value units (RVUs) to assign a value to each procedure a provider performs and then adjusts the value over time using a conversion factor, which is the dollar amount assigned to an RVU. The CF is the primary factor determining increases or decreases to overall Medicare physician payment rates.

In July 2023, CMS released the calendar year (CY) 2024 MPFS proposed rule, which announced changes to payment policy, including a proposed conversion factor of $32.75, a 3.34% decrease from the current conversion factor in 2023. Since the passage of the Medicare Access and CHIP Reauthorization Act in 2015, annual changes to the conversion factor have been set in statute. However, the conversion factor is still subject to adjustments that account for budget neutrality and other factors, meaning that the real increase is often less than that prescribed by statute. RVUs are reviewed and updated periodically but not on an annual basis, potentially creating a lag between physician reimbursement and the increased costs of providing care.

Evaluation of Physician Payment

To assess how physician payment has tracked relative to practice costs, Avalere conducted a year-over-year reimbursement trend analysis from CY 2014 through CY 2023 for select Current Procedural Terminology® codes routinely used by oncologists and other specialists. Avalere also compared physician nominal MPFS rates to hospital outpatient reimbursement for the same services.

Key Findings

  • From 2014 to 2023, the conversion factor decreased by a total of 5%, while the compounded increase of inflation over the same period was 28%. The gap between the rate of change of inflation and the conversion factor may therefore result in physician underpayment.
Figure 1. Cumulative Change in Conversion Factor and Medical Inflation Since 2014, by Year
Figure 1. Cumulative Change in Conversion Factor and Medical Inflation Since 2014, by Year

Source: US Bureau of Labor Statistics, “Consumer Price Index Historical Tables for US City Average, 2023“; US Bureau of Labor Statistics, “BLS Data Viewer, 2023“; American Medical Association, “History of Medicare Conversion Factors, 2023.”

  • In 2023, physician payment for chemotherapy administration is nearly the same as 10 years ago ($133 in 2014 and $132 in 2023), while the hospital rate has increased by 11% during the same period. If the chemotherapy infusion reimbursement had kept pace with inflation, it would be $171 in 2023, but that would still represent about half the payment to hospitals ($333).
Figure 2. Inflation-Adjusted Physician Payment and Hospital Payment for 1-Hour Chemo IV Infusion (Code 96413), 2014–2023
Figure 2. Inflation-Adjusted Physician Payment and Hospital Payment for 1-Hour Chemo IV Infusion (Code 96413), 2014–2023

Source: Hospital Outpatient Prospective Payment Schedules, 2014–2023; US Bureau of Labor Statistics, “Consumer Price Index Historical Tables for US City Average, 2023”; US Bureau of Labor Statistics, “BLS Data Viewer, 2023”; American Medical Association, “History of Medicare Conversion Factors, 2023.”
Note: Physician payment represents the non-facility physician rate; hospital outpatient represents OPPS APC rate. Avalere calculated the projected, inflation-adjusted physician payment by applying the rate of change of medical inflation to the prior payment.

  • Similarly, physician payment for non-chemotherapy IV infusion declined by almost 6% between 2014 and 2023, while hospital payment increased by about 20% over the same period.
Figure 3. Inflation-Adjusted Physician Payment and Hospital Payment for Non-Chemotherapy IV Infusion (Code 96365), 2014–2023
Figure 3. Inflation-Adjusted Physician Payment and Hospital Payment for Non-Chemotherapy IV Infusion (Code 96365), 2014–2023

Source: Hospital Outpatient Prospective Payment Schedules, 2014–2023; US Bureau of Labor Statistics, “Consumer Price Index Historical Tables for US City Average, 2023”; US Bureau of Labor Statistics, “BLS Data Viewer, 2023”; American Medical Association, “History of Medicare Conversion Factors, 2023.”
Note: Physician payment represents the non-facility physician rate; hospital outpatient represents OPPS APC rate. Avalere calculated the projected, inflation-adjusted physician payment by applying the rate of change of medical inflation to the prior payment.

  • Despite policy efforts in 2021 that resulted in a payment bump for some evaluation and management services, reimbursement has once again fallen behind the rate of inflation.
Figure 4. Inflation-Adjusted Physician Payment and Hospital Payment For Office/Outpatient Evaluation and Management Visit (Code 99214), 2014–2023
Figure 4. Inflation-Adjusted Physician Payment and Hospital Payment For Office/Outpatient Evaluation and Management Visit (Code 99214), 2014–2023

Source: Hospital Outpatient Prospective Payment Schedules, 2014–2023; US Bureau of Labor Statistics, “Consumer Price Index Historical Tables for US City Average, 2023”; US Bureau of Labor Statistics, “BLS Data Viewer, 2023”; American Medical Association, “History of Medicare Conversion Factors, 2023.”
Note: Physician payment represents the non-facility physician rate; hospital outpatient represents HOPD rate. Avalere calculated the projected, inflation-adjusted physician payment by applying the rate of change of medical inflation to the prior payment.

Over the last 10 years, medical inflation has grown, yet payment for physician services under the MPFS has remained stable. Furthermore, when compared to payment for services at hospital outpatient departments, payment for physician services lags. Despite legislative and regulatory efforts to maintain payment parity, payment for select specialty service codes continue to be outpaced by inflation.

Funding for this research was provided by the Community Oncology Alliance. Avalere maintained full editorial control.

To learn more about the impact of provider reimbursement on access to care, connect with us.

Methodology

Avalere assessed changes in physician payment as set in the MPFS over the last 10 years relative to inflation and hospital payment (as set in the Hospital Outpatient Prospective Payment System) for comparable services. This analysis did not assess changes to RVU per service type, project inflation-adjusted hospital payments, or potential payments from alternative payment model or merit-based incentive payment system participation.

The full analysis is available for download.

Webinar | Election 2024: What’s at Stake for Healthcare? 

On August 14 at 1:30 PM ET, Avalere experts and guests will discuss the 2024 elections, exploring the candidates’ health policy approaches and implications for stakeholders. 

Learn More

Register
From beginning to end, our team synergy
produces measurable results. Let's work together.

Sign up to receive more insights about Coverage and Payment
Please enter your email address to be notified when new Coverage and Payment insights are published.

Back To Top