AHA pushes for inflation boost for physician reimbursement

The American Hospital Association, or AHA, suggested a full inflationary update to physician reimbursement versus one based on a portion of the Medicare Economic Index as recommended by the Medicare Payment Advisory Commission. 

The Medicare Payment Advisory Commission, or MedPAC, is an independent agency that advises Congress on issues related to Medicare, including Medicare spending and payment reforms. In MedPAC's March meeting, the group recommended lawmakers tie Medicare reimbursement rates for physicians in 2026 to the Medicare Economic Index (MEI) minus a percentage point. 

However, AHA said the recommendation is not enough to "make up for the existing shortcomings in physician reimbursement."  

The conversion factor under the Medicare Physician Fee Schedule, which determines physician reimbursement, has not kept pace with inflation, AHA continued in a letter to Michael Chernew, Ph.D., chairman of MedPAC. The conversion factor has declined by 13% in real dollars from 2001-2024, with a 29% reduction when factoring in inflation, AHA reported. 

The MEI is a measure used by the federal government to estimate the annual change in the cost of operating a medical practice. The measure is based on physician compensation, practice expenses and malpractice insurance costs. In theory, Medicare reimbursement can adjust to keep pace with those costs. 

However, physician practices have been under significant financial strain recently as expenses remain high. Medicare has also reduced reimbursement rates under the Physician Fee Schedule by over 3%. 

"Continued decrements are unsustainable, particularly in light of the physician shortages the country is facing," the AHA told Chernew. "Therefore, we continue to urge MedPAC to recommend a higher update to physician reimbursement that more fully accounts for inflation." 

In the letter, AHA also opposed changes to the relative value unit methodology proposed by MedPAC. 

MedPAC recommended HHS improve the accuracy of relative payment rates by updating cost data regularly and ensuring the methodology reflects the settings in which clinicians practice.  

But AHA said this recommendation does not address the underlying problems with physician reimbursement and may actually penalize facility-based providers. The group argued such changes may redistribute payments unfairly and exacerbate consolidation trends, especially disadvantaging hospitals. 

Finally, AHA expressed concerns about expiring incentives for alternative payment model (APM) participants.  

Participants in Advanced APMs receive a 5% incentive bonus under MACRA. However, the incentive was meant to be temporary to encourage participation in APMs and financial risk arrangements. 

AHA urged MedPAC to "reiterate its concerns" about the pending expiration of the bonus payments, contending an " absence of formal policy recommendations related to this issue may be misconstrued to mean that incentives are no longer needed." 

"These payments continue to support providers’ transitions to value-based payment models and support the provision of non-fee-for-service programs like meal delivery programs, transportation services and care coordinators that promote population health," AHA explained. 

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.