Strengthening Medicare for Patients and Providers Act of 2023

The Medicare Physician Fee Schedule (MPFS) Conversion Factor has played a significant role in shaping the reimbursement rates for healthcare services provided by physicians under the Medicare program in the United States. The conversion factor is a crucial component of the MPFS, determining the dollar value assigned to the relative value units (RVUs) assigned to each medical service. This factor has undergone several changes over the years in response to evolving healthcare policies and financial considerations.

The history of the conversion factor dates back to the implementation of the Resource-Based Relative Value Scale (RBRVS) in 1992. The RBRVS system aimed to standardize physician payments based on the complexity and resource utilization of services provided. Over time, the conversion factor has seen several adjustments such as the creation (and elimination) of the sustainable growth rate formula and the more recent shift to quality payment programs and accountable care.

Under current law, beginning in 2026, the Medicare Physician Fee Schedule will be subject to two separate conversion factors depending on whether the physician participates in an alternative payment model (APM). For physicians who participate in an APM, the conversion factor is increased by 0.75% while for physicians not participating in an APM the conversion factor is increased by only 0.25%.

In addition, the current law does not allow for an inflation update to the Medicare payments for physician services. The SMPPA, if passed would normalize the increases across these two cohorts of physicians by applying an increase to the conversion factor equal to the MEI.

On April 3rd, Mr. Raul Ruiz (D-CA-25) and 13 cosponsors introduced yet another adjustment to the CF via the Strengthening Medicare for Patients and Providers Act of 2023 (SMPPA). This bill would replace the separate conversion factors for qualifying APM participants and other physicians with a single conversion factor and provides for an update that is equal to the annual percentage increase in the Medicare Economic Index, beginning in 2024. (The Medicare Economic Index is a specialized index that is generally used to determine allowed charges for physician services based on annual price changes.)

A number of stakeholders, including the AMA, American Academy of Neurology, American Academy of Family Physicians, American Academy of Cardiology, American College of Emergency Physicians, American College of Physicians, and the American Psychiatric Association co-signed a letter of support applauding the bill's efforts to “advances the ongoing need to provide financial stability to physician practices in order to preserve access to care for Medicare beneficiaries.”

While the Congressional Budget Office has yet to formally score this bill, and it is difficult to accurately estimate what impact this change could make, the AMA demonstrated that compared to inflation, Medicare payments to physicians decreased 26% since 2001. 

Legislators have struggled for decades to develop new tools that can be used to control growth in spending under the Physician Fee Schedule. This latest alternative has the potential to increase spending on physician-provided services. However with total spending on physician and clinical services approaching $865 billion in 2020, a 1% increase could drain Medicare coffers by an additional $8.6 billion -- without taking into account organic growth in service utilization and enrollment.