MedPAC calls for overhaul of physician fee schedule updates

In its June report to Congress, the Medicare Payment Advisory Commission, or MedPAC, recommended adopting inflation-based updates to Medicare's physician fee schedule, or PFS. This change would replace the current updates with a fixed, inflation-based formula tied to the Medicare Economic Index, or MEI.

MedPAC submits two reports to Congress annually -- one in March and one in June. In its March 2025 report, MedPAC recommended that Congress tie physician payment rates to the MEI minus one percentage point in 2026. However, these recommendations only applied to 2026.

For future years, MedPAC "recommends replacing the current-law updates to the PFS with an annual update based on a portion of the growth in the MEI, such as MEI minus 1 percentage point, based on the historical evidence suggesting that updates of full MEI have not been necessary to maintain beneficiary access to care," it stated in its June report.

"This recommendation would automatically adjust to changes in inflation, improve predictability for clinicians, beneficiaries, and policymakers, be simpler to administer, and balance beneficiary access with beneficiary and taxpayer financial burden."

MedPAC said it would continue to monitor trends in access to care and recommend higher or lower updates in the future as part of its annual analysis.

These proposed updates signify a notable departure from how Medicare currently updates physician payments. Starting in 2026, payment rates will increase by 0.75% for clinicians participating in advanced alternative payment models (A-APMs) and by 0.25% for all other clinicians.

"Meanwhile, clinicians' input costs, as measured by the MEI, are expected to increase by an average of 2.2 percent per year from 2025 through 2034 -- exceeding the growth in PFS payment rates by a greater amount than in the two decades before the coronavirus pandemic," MedPAC stated.

"This larger gap between input cost and payment-rate growth could create incentives for clinicians to reduce the number of Medicare beneficiaries they treat, stop participating in Medicare entirely, or vertically consolidate with hospitals, which could increase spending for beneficiaries and the Medicare program."

MedPAC's recommendations aim to ensure that Medicare beneficiaries maintain access to care by improving clinicians' incentives to treat them.

However, the commission estimated that its recommendation would increase federal program spending by between $15 billion and $30 billion over the next five years.

Given the increased Medicare spending this recommendation would warrant, MedPAC suggested that Congress direct the Secretary to collect objective data to calculate payments more accurately and address overpayments.

The American Medical Association (AMA) expressed appreciation for MedPAC's recommendations and emphasized the need to link physician payments to the actual cost of providing care.

"For those who study Medicare -- such as the experts at MedPAC -- and those of us on the front lines of health care, this is a pivotal agreement on the path toward Medicare payment reform," Bobby Mukkamala, MD, AMA president, said in a press release.

"It just makes sense that payment must keep pace with increasing costs as it does for hospitals. The AMA appreciates that MedPAC sees it that way as well and has been responsive to physicians on the front lines."

MedPAC's June report also contained assessments of supplemental benefits in Medicare Advantage, home healthcare use among Medicare Advantage beneficiaries, Part D prescription drug plans and Medicare's measurement of rural provider quality. These recommendations were delivered to Congress to inform policy discussions.

Jill McKeon has covered healthcare cybersecurity and privacy news since 2021.