Traditional Fee-for-Service Medicare/Provider Payment—Physicians and Other Health Professionals

On this page: Medicare


Since 1992 Medicare has set payment rates for physician services according to a fee schedule that is based on certain factors including the time, skill, and intensity required for appropriate medical care. Nurse-practitioners, certified nurse-midwives, and other health professionals also may bill from the physician fee schedule and are similarly affected by the issues and policies discussed here.

From 1997 until the enactment of corrective legislation in April 2015, Medicare law called for the Physician Fee Schedule to be updated each year based on a method known as the sustainable growth rate (SGR) system. The purpose of the SGR system was to control overall spending for physician services by basing payment updates in part on the growth rate of the overall economy. The SGR system was problematic because it was not targeted enough to reward doctors who were performing well and did not produce the right incentives to drive down volume and unnecessary services. In addition, the formula for annual payment adjustments usually called for reductions in payment rates to doctors. Since 2003 Congress has acted repeatedly to delay the cuts.

MACRA, enacted in 2015, repealed the SGR system and established annual updates to physicians’ and other health professionals’ fees and a new system for paying clinicians that incorporates value-based payment adjustments. CMS has proposed to implement the law with a unified framework called the Quality Payment Program. From 2016 through 2019, providers will receive a .5 percent annual update. Beginning in 2019 physicians and other eligible health providers who receive a specified amount of revenue from a qualifying advanced Alternative Payment Model (APM), such as a qualifying accountable care organization, will be eligible for additional annual payments. Beginning in 2026, providers qualifying for the advanced APM path will receive larger annual payment updates than providers who do not. Physicians and health professionals who do not qualify for the APM pathway will be paid under the Merit-based Incentive Payment System (MIPS). In MIPS, measures of performance will be used to determine a positive, negative, or neutral adjustment to each eligible clinician’s payments. To implement MIPS, CMS has proposed to begin measuring clinicians’ performance in 2017, with payments based on those measures beginning in 2019. CMS expects most clinicians to be paid under MIPS initially, with the proportion qualifying for an advanced APM pathway to increase over time.

The ACA requires CMS to review the system for assigning relative payment rates for physician services and to identify those that may be overvalued. The overvaluation of particular services may create incentives for doctors to provide more of these services, which would drive up spending. Primary care services have historically been undervalued, which has prompted some doctors to choose other specialties. APRNs are becoming more common in primary care settings, helping to meet some of the increasing demand.

MedPAC is required to monitor physician payment rates. The commission has concluded that Medicare beneficiaries have good access to physicians and that most physicians are willing to participate in the Medicare program (that is, the doctors agree to accept Medicare’s standard fees as full payment). However, some physicians who accept Medicare have adopted “boutique medicine” or “concierge care” arrangements that require patients to pay an extra fee (typically on an annual basis) for services not covered by Medicare. Those not paying the extra fee may no longer be able to see the doctor. Doctors adopting such practices say they are able to devote more attention to the patient and offer additional services. Critics argue that these arrangements discriminate against people with lower incomes who may be unable to pay the extra fee. A small number of physicians, fewer than 1 percent, opt out entirely from Medicare and see Medicare patients only under private contracts. (See this chapter’s section Health Care Coverage: Medicare—Traditional Fee-for-Service Medicare/Physician Balance Billing and Private Contracting.)

Traditional Fee-for-Service Medicare/Provider Payment—Physicians and Other Health Professionals: Policy

Physician payments

In this policy: Federal

In implementing the new payment system for physicians and other health professionals, CMS should ensure that the system places Medicare beneficiaries (and their families) at the center of their care, improves health outcomes, improves care coordination and care transition experiences of individuals and families, and incorporates efficiencies that increase value.

As CMS implements the new payment system for physicians and other health professionals, CMS should build in mechanisms for monitoring beneficiaries’ access to care and develop safeguards to prevent adverse health outcomes for beneficiaries.

The performance measures for quality and clinical practice improvement activities in the new payment system for physicians and other health professionals should be based on measures that are meaningful for individuals and family caregivers, which include among others measures of the patient (and family) experience of care. Performance standards for physicians and other health professionals, and for APMs, should encourage continuous learning, adaptation, and improvement in performance.

CMS should publicly report the performance of physicians and other health professionals at the group practice level and the individual level.

Congress should protect beneficiaries from unreasonable premium and copayment increases due to payment policies that encourage unnecessary spending.

Payments should encourage preventive services, management of chronic physical and mental health conditions, and adoption of evidence-based practices.

Congress should improve payments to primary care providers to better reflect the valuable services they furnish.

CMS should monitor the impact of Medicare “concierge care” or “boutique medicine” arrangements on access to care, including the effects on patients with low and moderate incomes. CMS should develop and publish clear rules that specify when extra fees are allowed and what types of extra fees are permitted under Medicare law, as well as guidelines for beneficiaries who encounter concierge care practices.