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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello, and welcome to Health Affairs This Week. I'm your host, Jeff Byers. We're recording on 08/07/2025. You may recall that we tested a podcast unification feed here on Health Affairs this week and a health policy over the spring. Thanks to all the listeners that sent us feedback and sat down with me to talk about the shows.
Jeff Byers:You all had a lot of really nice things to say, and I'm glad we're providing value to your listening media diet. But as the offspring once said, you gotta keep them separated. So, yes, we will not unify the podcast feeds. And if you understand that reference, this is your reminder to schedule your colonoscopy. On the health affairs front, we released a new issue this week.
Jeff Byers:It has some good articles on the perennially hot topic Medicare Advantage. Steven Lieberman and Rick Mays discussed the rise of MA in the issue. And for the value based heads out there, Alexander Everhart and company review changes in clinicians participation across Medicare value based payment models. Check it out. And on the events side, we have some free and exclusive insider events coming to you this late summer, early fall on August 20 for insiders.
Jeff Byers:Saye Nick Pay will break down 03:40 b. On August 12, we have a virtual live taping of a health policy where Rob Lott will chat with Kenton Johnson about the Everhart article on Medicare value based payment models, of which he is a coauthor. And on August 26, a free virtual event will explore independent dispute resolution for our provider prices in the commercial sector series. And on September 25, for insiders, we have a panel to discuss prior authorization, which will include Mark Vendrick, Ravi Gupta, Michael Ann Kyle, and Christina Andrews. Wow.
Jeff Byers:Lots of stuff there. Feel free to rewind that for thirty seconds to to ingest all that. Today on the podcast to discuss the proposed rule for the 2026 Medicare physician fee schedule, we have Leslie Erdulak. Leslie, welcome back to the program.
Leslie Erdelack:Hey, Jeff. What an intro.
Jeff Byers:Yeah. Yeah. A little longer than normal. Thanks for bearing with me. But we're excited to talk about the proposed Medicare physician fee schedule today.
Leslie Erdelack:We are.
Jeff Byers:Yeah. They happen every year, but to be honest, this seemed to get a little bit more attention because some of the policies related to AMA's RUC committee, which we'll get to, and it also increases actually increases pay for physicians this year after five consecutive years of cuts. But, Leslie, what were some of the biggest measures that stuck out to you?
Leslie Erdelack:So, yeah, there were a few things in this rule that caught my attention. First is there's a change to the way that practice expenses are handled that I think potentially reshapes how physicians get paid based on where they work. Medicare payment has been made under the physician fee schedule since 1992, but of course a lot has changed since then. And I do want to talk a little bit about the way this works. So Medicare calculates what to pay doctors based on a couple of components.
Leslie Erdelack:So one being the work that they do and the other one being practice expenses. So that's kind of like the overhead costs of running a medical practice. And so when you think about like, when a doctor sees you in their private office, they're paying for rent, they're paying for utilities, that's all the overhead. But when the same doctor sees a patient in the hospital, the hospital is providing most of those resources. So the thing I want to point out is that since those payment formulas were created decades ago, there's been a decline in the number of physicians who are working in private practice with a corresponding rise in physicians who are employed by hospitals and healthcare systems.
Leslie Erdelack:So there were some outdated assumptions about how doctors practice. And so one of the things that stuck out to me is that under this proposal, CMS is proposing to reduce what's called indirect practice expense allocations for facility based services, to half of what nonfacility services receive. So basically, when doctors work in hospitals or other facilities, their practice expense payments will go down because CMS figures they don't need as much overhead support. And, you know, this doesn't really create savings for Medicare, but it kinda just redistributes the money that gets paid to other physicians. And so I think this has a really big impact on specialists who do a lot of hospital based procedures.
Leslie Erdelack:Those types of practitioners could see their payments drop. But of course, I think it's too early to say how this could really influence the structure of health care markets. But it did really strike me. Think we're gonna talk a lot about shifts today. It did really stand out to me as like a shift really, like in the status quo here.
Jeff Byers:Yeah. As you mentioned, I think it's just an interesting acknowledgment of how practice is, you know, performed differently and in different settings than when these rules were originally written. And when we talk about shifts, one of the things that struck out in the proposed rule, jumping around a little bit, is that it contained, different payment conversion factors for doctors depending on whether or not they participated in alternative payment models when you kinda see that bifurcation of, like, where someone practices might change how they get paid. What can you tell us about those conversion factors for alternative payment models?
Leslie Erdelack:Yeah. So the conversion factors, it's all it's all a little bit technical, but the conversion factors get applied when you're calculating physicians' payment rates. And so they're basically Medicare's way of turning this sort of like abstract calculation that measures the work, that practitioners do, the work of medical services into actual dollar amounts that doctors get paid. And so every medical service has values assigned to it, but they don't really mean anything financially until you multiply them by the conversion factor. So when you mentioned, like, the two tier system, here's kinda what's changing in 2026.
Leslie Erdelack:This is actually the first time we've seen separate conversion factors based on whether physicians participate in those alternative payment models, like accountable care organizations or other types of arrangements where they're held accountable for quality and cost.
Jeff Byers:So if you're a physician, you know, not all physicians participate in alternative payment models. A lot of them are voluntary. Some of them some physicians are are going for it. What can you expect if you're participating in one of these models?
Leslie Erdelack:So I think this is really CMS's way of saying we want you moving toward value based payment models. So it's not it's not a huge bump here, but there is a difference in that conversion factor between the two groups. It's only about point five percentage point. So basically, the conversion factor, you know, changes you know, this two tier system affects every single Medicare payment. So if you're a doctor participating in an alternative payment model, you get the higher conversion factor applied to all your services.
Leslie Erdelack:And if you're not, you get the lower one.
Jeff Byers:Yeah. And on that trying to move people to value based care. I mean, we've we've talked about this in the industry for for a very long time. Earlier this year, the CMS canceled four tests for alternative payment models, and they halted two before they began. We talked about that on the pod as well.
Jeff Byers:But just to note quickly that this proposed rule create a new mandatory payment model. They call it the ambulatory specialty model. It's also part of the agency's push to to tackle chronic diseases. Of note, it's mandatory. So it's aimed at specialists who treat Medicare patients with heart failure for the most part.
Jeff Byers:So it'll be interesting to see if approved, what that could look like down the line.
Leslie Erdelack:So, yeah, that's sort of a move toward holding specialists accountable for outcomes and costs and not just organizations. And I think, you know, that sort of goes hand in hand. CMS has this goal for all Medicare beneficiaries to be in accountable care models by 2030. And so, yeah, it's it's like you said, it's a fairly it's a new way of engaging specialists in value based care. And I think, yeah, I think policy wise, that's pretty notable.
Jeff Byers:Moving on. One of the interesting things in this proposed rule was a proposed cut to thousands of procedures, scans, and tests as physicians have become, quote, unquote, more efficient. Stat News reported that this particular component of the rule is also a direct shot at the AMA, its committees to help set medical services. This panel is known as the RUC. Medicare no longer wants to use RUC surveys that help set the values of thousands of medical codes.
Jeff Byers:This committee has endured a lot of criticism over the years that it favored specialists over primary care doctors, and this would start to reverse that according to stat news. Of note, it's interesting that they might wanna change some things around, maybe help primary care physicians, and then they are making mandatory ambulatory specialty models, which affect specialists for the most part. But what is the ruck, and what does this cut do?
Leslie Erdelack:Okay. So to address your your, second question, so CMS is so this cut. CMS is proposing a 2.5% downward adjustment for certain codes and services like procedures and diagnostics. And this is basically a proposal to cut payments for these types of procedures under the assumption that they take less time now than they used to because as as physicians gain experience and as technology improves, these services should in theory get more efficient. So I do think like the controversy here is worth mentioning.
Leslie Erdelack:So CMS is essentially saying, like, we assume you're getting more efficient at doing these procedures over time, so we're gonna cut your your payments. But from the physician perspective, if they're becoming more efficient, that should benefit patients, through shorter procedure times, as one example, and not automatically trigger payment cuts. So there's really kind of like a philosophical disagreement there. But the methodology here is also under scrutiny. And as you said, CMS has historically relied on this survey data that's provided by the committee run by the AMA.
Leslie Erdelack:That committee, their recommendations have been really influential in how Medicare values different medical services. And so, yeah, so the survey that CMS has been using to estimate like providers' time and their practice costs, they have noted some potential problems, low response rate with respondents who who may, you know, have inherent conflicts of interest. And so this proposed rule indicates that CMS wants to move away from using AMA's survey data and the recommendations from this committee, and they wanna move toward more empiric information. So things like, electronic health record data, operating room logs, and claims data. So this is, again, another shift in how Medicare payment is determined, moving away from sort of the physician input and relying a little bit more on sort of, like, the data analytics.
Jeff Byers:Yeah. It should be noted. The AMA itself released a statement that CMS is proposing to accept nearly 90% of the AMA specialty society, RVS update committees, the RUC, relative value recommendations for 2026. Just a just of note. So we'll we'll put a link into the show notes from the AMA's response, but they have some choice words for the proposals.
Jeff Byers:Moving on, the proposal also cements some select telehealth flexibilities. You know, what are the implications for this for telehealth?
Leslie Erdelack:Yeah. So I think we're seeing CMS try to find a middle ground here after, you know, we saw telehealth expand significantly during COVID. The rule, as you said, does kind of put in place, permanently some important flexibilities. You know, for example, over a 100 codes that have been on the provisional telehealth list or were on the provisional telehealth list during COVID would become permanently available. So, during the pandemic, CMS created this complicated system where some telehealth services were provisional, others were permanent with different rules for each.
Leslie Erdelack:And now they're saying basically if a service can be reasonably done via video, it can be on the telehealth list. So who's it good for? It's good for rural areas, it's good for practices that have sort of embraced these more hybrid care models. Through this rule, doctors can also use telehealth for follow-up visits with hospitalized patients for as often or as long as medically necessary without arbitrary Medicare limits. So we're moving kind of beyond those temporary pandemic waivers to really actual structural changes in the way that Medicare covers virtual care.
Leslie Erdelack:And as far as telehealth utilization, so in the 2023, about twelve percent of Medicare beneficiaries received a telehealth service. And so this is higher of course than pre pandemic levels, but concentrated in specific areas where it works best clinically. And interestingly, I noticed in the rule that telehealth services were actually exempted from those efficiency adjustments that we talked about earlier. So this affects psychiatrists, clinical psychologists, social workers, so practitioners who are in the behavioral and mental health practice where telehealth is used quite frequently.
Jeff Byers:Producer Shannon's giving us the wrap it up sign, so we'll run through this last one quickly. The integration of mental health and primary care, it looks like this physician fee schedule is trying to connect those dots a little bit more. Where can you tell us about that?
Leslie Erdelack:So the big news here is that CMS is proposing to create these optional codes for advanced primary care management services that would sort of facilitate or incentivize offering complimentary behavioral health integration or psychiatric services. And historically this has been really hard because of payment silos, workforce shortages, and just like the challenges of coordinating everything. But I think this is an area again where CMS is really trying to push innovation. And so by creating these codes, you know, again, CMS is kind of saying, you know, we'll pay you extra to coordinate mental health care within your primary care practice. And, you know, this all just makes it easier for primary care to bill for these integrated services, could remove a lot of those financial barriers that have made integration, you know, so hard in the past.
Jeff Byers:Well, Leslie, thanks for helping me out with pulling those those big ticket items from this very, very large proposed rule for us. Is there anything else you wanna highlight policy wise from this?
Leslie Erdelack:Yeah. I would just say I think there's I think there is this broader theme of CMS trying to, you know, assert more control over strategies to, like, modernize the Medicare payment system, which many have said is out of date. There's gonna be an overall increase in pay for doctors, but the reaction has been pretty mixed. Hospital based specialists are concerned about those practice expense changes, and some groups have said the rule just doesn't account for inflation really eating into those real payment rates and practice costs. So the efficiency adjustment, you know, like we talked about is gonna get a lot of pushback.
Leslie Erdelack:Some people are saying it essentially wipes out or offsets, you know, any of those gains that are provided through the increase to the conversion factor, for example. So we'll see. There's a lot to follow here.
Jeff Byers:CMS will accept comments on the proposed rule through September 12. Generally, the final rule probably should be issued sometime around November. Leslie Urduwak, thank you again for joining us today on HealthFairs This Week. And if you, the listener, enjoyed this episode, send it to the UpCoder in your life. Thanks.
Jeff Byers:We'll see you next week.
Leslie Erdelack:Thanks, Jeff.