MedPAC Members Express Concern Over Medicare Docs’ Ability to Absorb Cost Increases

Fee-for-service payments in 2027 for physicians who treat Medicare patients should be increased by 1.25% for those participating in advanced alternative payment models and 0.75% for other physicians, the Medicare Payment Advisory Commission (MedPAC) said Thursday in its March report to Congress.

However, because a temporary payment bump of 2.5% will have expired by 2027, the recommendation still amounts to a pay decrease, the report added. “On net we expect our recommendation to result in 2027 payment rates for each group declining by 1.2% and 1.7%, respectively, relative to 2026 levels. These decreases would be smaller than what would otherwise occur under current law.”

“In the commission’s view, this recommendation for 2027 strikes an appropriate balance between the need to provide adequate payments to clinicians and the need to limit growth in beneficiaries’ cost sharing and premiums and maintain financial pressure on clinicians to constrain their costs,” the authors wrote.

The report noted that in its June 2025 report to Congress, the commission recommended an ongoing formula for increasing Medicare physician pay that would equal the annual increase in the Medicare Economic Index (MEI) — a measure of healthcare inflation — minus 1%.

“While evidence suggests that full MEI updates have not been necessary to maintain access to care, the commission is concerned that ongoing cost increases that substantially exceed payment updates could be difficult for clinicians to absorb,” the report authors wrote. “The commission is also concerned that differences in compensation between specialists and primary care clinicians may be contributing to fewer clinicians practicing primary care, thereby negatively affecting beneficiary access to primary care.”

At a question-and-answer session during an online reporter briefing, MedPAC Executive Director Paul Masi, MPP, told MedPage Today that the commission still stands behind its 2025 recommendation. “This year’s recommendation was designed to be similar to MEI minus 1%,” he said. “The commission’s recommendation in June 2025 remains a standing recommendation that an appropriate default update for the fee schedule would be something like MEI minus 1% or a measure similar to that.”

However, the commission also expressed concern about overall cost growth in the fee-for-service program. “There remain important opportunities to improve the level of fee-for-service payments across a number of different payment systems, particularly in the post-acute care settings, where we continue to find that fee-for-service provider margins are often in the double digits, and for certain sectors exceed 20%,” Masi noted. “So there are many opportunities to improve value for the Medicare program for taxpayers by reducing payments in those settings.”

Medicare Advantage (MA) plans also came in for some scrutiny. “The commission estimates that Medicare spends approximately 14% more for MA enrollees than it would spend if those enrollees were instead enrolled in fee-for-service Medicare, a difference that translates into a projected $76 billion in 2026,” Masi said. “That difference varies by MA organization and stems largely from two factors, favorable selection of beneficiaries into MA, and coding intensity.”

But this overpayment level is an improvement from last year, he continued. “We estimate that in 2026, favorable selection will increase MA payments by roughly 11% above what the program would have paid under fee-for-service Medicare … [and] we estimate that due to higher coding intensity, MA risk scores will be about 4% higher than risk scores for similar fee-for-service beneficiaries,” he said. “Last year, we projected that for 2025, Medicare would spend 20% more on MA enrollees than on similar enrollees in fee-for-service.”

The commission attributes the decrease in the difference to two factors: the implementation of a new computer model — called “Version 28” — for calculating patients’ illness risks, and the availability of new risk score data, he explained.

Asked by MedPage Today whether the commission had any recommendations for reducing the amount of overpayments to MA plans, Masi pointed to two tools — chart reviews and health risk assessments — allegedly used by some MA plans to manufacture more diagnoses for patients and therefore increase plans’ per-patient reimbursement. The report noted that in 2016, MedPAC recommended getting rid of health risk assessments, and that “eliminating chart reviews as a source of diagnoses for risk adjustment would be consistent with the commission’s approach.”

Masi also was asked about criticism of MedPAC by the MA lobbying group Better Medicare Alliance, which faulted the commission’s methodologies and said that MedPAC didn’t take into account the value MA plans provide to beneficiaries and taxpayers.

“This year, as we have in the past, we tried to promote transparency around our work by publishing a detailed technical appendix, where we provide information about the specific steps we take to estimate different components of our analysis of Medicare payments to Medicare Advantage plans relative to fee-for-service,” Masi said. “For many years, the commission has been strongly supportive of the inclusion of private plans in Medicare, and it’s important for beneficiaries to have choices for how they get their Medicare coverage.”

The report also looked at the Medicare Part D prescription drug program, and found that the average bid nationwide by Part D plans to offer the insurance increased 180% in 2025 and another 33% in 2026. “We estimate that shifts in financing from beneficiaries in the Medicare program to plans accounted for over 80% of the increase in bids in 2025,” Masi said. “In contrast, projected increases in drug spending explain most of the growth in bids for 2026.”

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