Medicare changes for 2023: What do they mean for doctors?

By Joe Hannan | Fact-checked by Jessica Wrubel
Published December 16, 2022

Key Takeaways

  • Physicians could face a Medicare fee reduction of anywhere between 4.5% and 8.5% in 2023.

  • The cuts stem from the 2023 Physician Fee Schedule and a 2010 law intended to curb Congressional deficit spending.

  • Laboratory fees and value-based care incentives are also on the chopping block amid inflation and greater economic uncertainty. Clinicians may want to stay apprised of these possible changes.

Barring intervention by the US Congress, potential policy change is in the works that could hit physicians’ wallets in 2023—unwelcome news amid rising inflation, market volatility, and general economic malaise.

In November 2022, the US Centers for Medicare & Medicaid Services (CMS) announced its 2023 Physician Fee Schedule (PFS), which includes a proposed 4.5% cut for all Medicare reimbursement rates, according to a CMS report.[]

The final rule, which is in effect as of January 1, 2023, coincides with other fee restructurings, all of which may affect medical practice in that year.

Across-the-board cuts

The 2023 Fee Schedule contains two headline-grabbing numbers: a 4.5% cut, and an 8.5% cut.

“The rate cuts would create immediate financial instability in the Medicare physician payment system and threaten patient access to Medicare-participating physicians,” said AMA president Jack Resneck Jr., MD, in a statement.

But what’s the legal basis for the reductions? And why are there two numbers (4.5% and 8.5%) circulating?

The 4.5% cut

The 4.5% cut in the 2023 PFS stems from an update to the PFS conversion factor. In 2022, the conversion factor was $34.61. In 2023, it’s slated to drop by $1.55 to $33.06—a decrease of about 4.5%.

The 2022 Physician Fee Schedule contained a 3% supplemental reimbursement increase, but that expires as of 2023, according to the CMS report.

How it affects medical practice: In short, it means less revenue for seeing Medicare patients, and likely for patients with private insurance as well. That’s because private insurers typically have established their rates as percentages of what Medicare pays, according to an article published by Kaiser Family Foundation.[] While private insurance rates tend to be higher, a decline in Medicare reimbursement may translate to a decline in private insurance reimbursement.

The 8.5% cut

The 8.5% cut is not a separate one, but stems from another legal domino that may fall, according to an AMA press release.[] It incorporates the 4.5% PFS cut, plus another 4% reduction stemming from a law called the Statutory Pay-As-You-Go (PAYGO) Act of 2010.

The PAYGO law stipulates that whenever Congress passes new legislation that alters taxes, fees, or any other mandated spending, the changes cannot increase projected deficits.[] If Congress fails to do this, an automatic penalty, called sequestration, kicks in. The sequestration applies to certain programs, including Medicare.

It’s been estimated that a 4% sequestration would be necessary to keep the deficits level, according to a fact sheet published by the American Hospital Association (AHA).[] But, in the history of PAYGO, sequestration has never happened because Congress has always intervened.

If Congress decides to allow sequestration, the 4.5% across-the-board cuts would be combined with an estimated 4% sequestration, yielding a cut of approximately 8.5%.

How it affects medical practice: Essentially, sequestration would make a bad situation worse. It remains to be seen whether Congress will punt on PAYGO yet again, although various organizations, including the AHA and AMA, have called on Congress to do so.

Other reductions

While not necessarily outright cuts, there are at least two other pending changes that may possibly pinch clinicians in 2023. One applies to lab fees, the other to alternative payment model bonuses.

Advanced alternative payment models (APMs)

In 2022, physicians who met certain criteria were eligible for participating in APMs, which are intended to promote value-based care as per the American Academy of Family Physicians.[]

Qualifying physicians were eligible to skip merit-based incentive payment system (MIPS) reporting, avoid MIPS payment adjustments, and perhaps most importantly, receive a 5% incentive payment, according to the Quality Payment Program.[]

How it affects medical practice: The program was slated to span from 2017 to 2022, then pick up in 2024 “and beyond,” when eligible physicians will receive an increased fee schedule based on the conversion factor. In other words, as currently configured, the APM incentive bonus of 5% would stop in 2023, when doctors may face Medicare fee reductions spanning from 4.5% to 8.5%.

Laboratory payments

The pending Medicare fee cuts aren’t just confined to physicians.

Laboratories could face up to 15% reductions in Medicare payments spanning from 2023 to 2025.

This change stems from the Protecting Access to Medicare Act, which, when passed in 2014, called for the periodic assessment of private sector payment rates to calibrate Medicare payment rates for laboratory tests.

In September 2022, the American Hospital Association said that “significant” undersampling during the assessment “led to nearly $4 billion in cuts to hospital, physician, and other labs providing commonly ordered tests for Medicare beneficiaries.”

How it affects medical practice: Doctors in private practice with in-house laboratories could face these cuts, in addition to the other ones mentioned throughout this article, as well as hospitals and labs themselves.

What this means for you

If Congress does not act, the 2023 PFS will take effect and reduce Medicare fees by 4.5%. And, if PAYGO results in sequestration, physicians may see an estimated 4% cut in addition to the initial 4.5%. This combines with a sunsetting of a 5% incentive for APMs, and a cut that could be as high as 15% for lab services. Doctors may want to stay updated on these potential changes and the effects they may have on their bottom line.

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