Traditional Medicare Provider Payment—Health Professionals


Medicare sets payment rates for physician services according to a fee schedule. That schedule 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 bill from the physician fee schedule. They 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 formula that worked poorly. The update was 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. Payments were based on 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.

The Medicare Access and Children’s Health Insurance Program Reauthorization Act (MACRA) of 2015 established annual updates for the fees of physicians and other health professionals. It also created a new system for paying clinicians that incorporates value-based payment adjustments to encourage cost-effective quality care. The Centers for Medicare & Medicaid Service (CMS) implemented the law with a unified framework called the Quality Payment Program. From 2016 through 2019, providers will receive a 0.5 percent annual update. Beginning in 2019, physicians and other eligible clinicians 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, performance measures will be used to determine a positive, negative, or neutral adjustment to each eligible clinician’s payments. CMS began measuring clinicians’ performance in 2017, with payments based on those measures beginning in 2019.

The Affordable Care Act requires the Centers for Medicare & Medicaid Services to review the system for assigning relative payment rates for physician services and identify those services that may be overvalued. Overvaluation 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. Advanced Practice Registered Nurses are becoming more common in primary care settings, helping to meet some of the increasing demand.

The Medicare Payment Advisory Commission 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 accept Medicare’s standard fees as full payment. A small number of physicians, fewer than 1 percent, opt out entirely from Medicare and see Medicare patients only under private contracts (see also Health Care Coverage: Medicare—Traditional Physician Balance Billing and Private Contracting).

Some physicians who accept Medicare have adopted “boutique medicine” or “concierge care” arrangements. These 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 who may be unable to pay the extra fee.



Physician payments

In implementing the new payment system for physicians and other health professionals, the Centers for Medicare & Medicaid Services (CMS) should:

  • ensure that the system improves health outcomes, improves care coordination and care transition experiences for individuals and their families, and incorporates efficiencies that increase value;
  • build in mechanisms for monitoring beneficiaries’ access to care and develop safeguards to prevent adverse health outcomes; and 
  • encourage the provision of preventive services, the management of chronic physical and mental health conditions, and the adoption of evidence-based practices.

CMS should also ensure that performance measures for quality and clinical practice improvement activities are based on criteria that are meaningful for individuals and family caregivers. These should include measures of the patient (and family) experience of care. It should also contain performance standards for physicians, other health professionals, and alternative payment models. Continuous learning, adaptation, and improvement in performance should be encouraged.

Congress should increase payments to primary care providers to better reflect the importance of their role in the health care system.

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. Guidelines for concierge care practices should also be provided to beneficiaries.