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Advising the Congress on Medicare issues
MedPAC > News > Physicians and other health professionals > March report highlight: MedPAC recommends per beneficiary payment for primary care

March report highlight: MedPAC recommends per beneficiary payment for primary care

Over the next several weeks, we’ll be posting highlights of new data, analysis and recommendations from MedPAC’s March 2015 report to Congress.

MedPAC’s March 2015 report continues the Commission’s focus on increasing support for primary care with a recommendation to create a per beneficiary payment for primary care providers. 

The Commission has a longstanding concern about the state of support for primary care. Primary care is essential for creating a coordinated health care delivery system, but the Medicare fee schedule undervalues it relative to specialty care. Even though the relative payment for primary care services under the fee schedule has increased over the last decade, compensation for primary care practitioners is still substantially less than that of other specialties. When physicians’ salaries are simulated as though all of the services they provided were paid at Medicare fee schedule rates, primary care physicians’ average annual salary after practice expenses is about $185,000. In contrast, radiologists’ simulated average annual salary after practice expenses is approximately $387,000, and nonsurgical, procedural physicians’ is about $435,000. These disparities also exist when compensation is observed on an hourly basis, and only increase when physicians’ actual salaries are considered. Disparities in compensation could deter medical students from choosing primary care practice, deter current practitioners from remaining in primary care practice, and leave primary care services at risk of being underprovided.

In response to its concern, the Commission has made several recommendations over the years to rebalance the fee schedule and bolster support for primary care. The Commission has proposed identifying overpriced services and pricing them appropriately, replacing the SGR with payment updates that are higher for primary care than specialty care, creating a budget-neutral primary care bonus funded from non–primary care services, and establishing a medical home pilot.

The Patient Protection and Affordable Care Act (PPACA) created a primary care bonus program called the Primary Care Incentive Payment program (PCIP). The PCIP provides a 10 percent bonus payment on fee schedule payments for PCIP-defined primary care services provided by eligible primary care practitioners. It expires at the end of 2015.

The Commission believes that the additional payments to eligible primary care practitioners should continue. While the amount of the PCIP payment is not large and will probably not drastically change the supply of primary care practitioners, allowing it to expire without a replacement sends a poor signal to primary care practitioners.

However, the Commission has also become increasingly concerned that the fee schedule is an ill-suited payment mechanism for primary care. The fee schedule is oriented toward discrete services and procedures that have a definite beginning and end. In contrast, ideally, primary care services are oriented toward ongoing, non-face-to-face care coordination for a panel of patients. Some patients in the panel will require the coordination of only preventive and maintenance services. Others will have multiple complex chronic conditions and will require extensive care coordination. The fee schedule is not well designed to support these non-face-to-face activities, and it is precisely these activities that will be crucial in the move to a more coordinated and efficient health care delivery system.

Because of that concern, the Commission recommends continuing the additional payments to primary care practitioners, but in the form of a per beneficiary payment in contrast to the per service payment made under the PCIP. Replacing the PCIP with a per beneficiary payment could be a first step in moving Medicare’s payment for primary care from a service-oriented FFS payment approach toward a beneficiary-centered payment approach that encourages care coordination, including the non-face-to-face activities that are a critical component of care coordination. Although a step in the right direction, the Commission acknowledges that a per beneficiary payment in itself will not guarantee an increase in care coordination activities or even an increase in compensation for eligible primary care practitioners in all instances. Nonetheless, the Commission believes a per beneficiary payment for primary care is needed until new and better payment and delivery system reforms are established.

In developing its approach, the Commission considered several design issues implicated by a per member payment: payment amount, attribution of beneficiaries to practitioners, and the source of funding.

At least as an initial starting point, the Commission supports funding the per beneficiary payment at the same level as the PCIP, with eligible primary care practitioners and primary care services defined as they are in the PCIP. In 2012, bonus payments totaled about 1 percent of fee schedule spending, or $664 million. On average, eligible primary care practitioners received a bonus payment of about $31 per beneficiary in that year. At that funding amount, and given an average patient panel size, eligible practitioners would receive about $3,900 in additional Medicare revenue per year, and practitioners who provided primary care services to more FFS Medicare beneficiaries than the average practitioner would earn more. For example, consider a primary care practitioner with a panel of 1,400 patients, of whom 280 (20 percent) are FFS Medicare beneficiaries. A $31 per beneficiary payment would provide $8,700 in additional Medicare revenue per year to that practitioner.

Unlike the service-based PCIP, a per beneficiary payment necessitates linking a beneficiary to a practitioner to ensure that the right practitioner gets paid and that Medicare does not make duplicate payments to multiple practitioners on behalf of the same beneficiary. The Commission recommends attributing beneficiaries to eligible primary care practitioners prospectively; that is, beneficiaries would be attributed to eligible primary care practitioners at the beginning of the performance year based on the plurality of primary care services provided in the previous year. One concern with prospective attribution is that practitioners could be paid for beneficiaries no longer under their care. However, when the Commission looked at this issue, it found that the majority of beneficiaries (69%) stayed with the same practitioner within a year. And a smaller majority (60%) stayed with their practitioner from year to year. We also found that, from a practitioner’s perspective, some beneficiaries switch out of the practitioner’s practice and go to other practices, while other beneficiaries switch in from other practices. So, on net, practitioner panel sizes are relatively stable from year to year.

Finally, the Commission recommends funding the per beneficiary payment by reducing fees for all services in the fee schedule other than PCIP-defined primary care services provided by any practitioner (in other words, certain practitioners who provide some primary care services will not be eligible for the per beneficiary payment, but they will not have their fees reduced when they provide PCIP-defined primary care services ). Beneficiaries would not pay cost sharing, just as beneficiaries do not pay cost sharing to fund the PCIP. This method of funding would be budget neutral and would help rebalance the fee schedule. All services in the fee schedule other than PCIP-defined primary care services account for about 75 percent of fee schedule spending. Funding a per beneficiary payment at about the same level of funding as the PCIP, or $31 per beneficiary per year based on 2012, would require a 1.4 percent reduction in payment for all services in the fee schedule other than PCIP-defined primary care services.