Section 8: Provide Appropriate Funding for Physician Services

For decades, physicians have given away their services for free to patients who could not afford to pay. However, today’s health care market makes this very difficult. Medicare and Medicaid, which now cover 36 percent of all health care spending in the United States, often pay physicians less than it costs them to provide their services.  

Commercial insurance companies’ payment rates, computed largely as a percentage of Medicare, have followed the government-run programs into the basement. Simultaneous increases in paperwork, compliance, reporting, and technology have driven annual practice expenses to more than $500,000 per physician. 

The squeeze leaves many physicians struggling to keep their practices open, let alone provide charity care. State and federal leaders must realize that cutting physicians’ payments is not an effective tool for controlling health care costs, and often exacerbates the cost of care by limiting access to efficient outpatient care. Without physicians, no health care delivery system can be effective.  

Recognize and cover physicians’ cost of providing care 
Physicians’ practice costs — like any other business’ operating costs — continue to march upward. While the rate of increase has slowed slightly in the past several years, physicians face growing demands to cover the salaries and benefits of their professional and office staff, purchase new clinical and practice management equipment, buy liability insurance, update software, and pay rent and utilities.  

The Medical Group Management Association’s (MGMA’s) data show that, for 2012, most physician groups were operating on razor-thin margins or at a loss. MGMA each year compares physicians’ office costs with revenue in dollars per unit of service. To simplify the accounting for the thousands of different types of services physicians provide, each unit of work is measured in relative value units or RVUs. This is a Medicare measure of the units of service produced. One unit of work is approximately the value of the simplest office visit for a new patient. In 2012, physician-owned multispecialty groups brought in an average of $55 per unit of work while spending $56 to keep their clinics open, for an operating loss of $1 per unit of work. Family practice groups brought in less, $52 per unit of work, but their costs were $54, for a median operating loss of $2 per unit of work. 


To stay open, any business must collect enough revenues to cover costs. Especially for patients covered by government insurance programs, this isn’t happening for physicians. MGMA data show that Medicare pays only 61 percent of physicians’ average costs. Medicaid payments per unit of work vary, but for most services, Medicaid covers less than half of the average cost to provide the services.

The U.S. Government Accountability Office also evaluated physicians’ Medicaid payments against managed care and private insurers for evaluation and management services (E&M) physicians provide to patients in their office and emergency departments. They found Texas’ Medicaid payments were 50 percent lower than private insurance for E&M office services and 85 percent lower for emergency services. 

Physician practices are often forced to limit services to Medicare and Medicaid patients if they cannot make up the losses elsewhere. Physicians in a number of Texas communities, particularly those in rural and South Texas, say they are facing dire circumstances. 

Ensure competitive Medicaid and CHIP payments for physicians 
Physicians want to take care of Texans who rely on Medicaid coverage for their care. Unfortunately because of the red tape and bureaucratic hassles coupled with low payment rates, many physicians struggle to continue to see their Medicaid patients. (See Section 4: Promote Government Efficiency and Accountability by Reducing Medicaid Red Tape for details.) 

Medicaid is a state- and federally funded health care program that provides low-income patients access to essential health care services. For every dollar Texas invests in Medicaid, the federal government contributes another $1.40. Without Medicaid, millions more Texans would be uninsured: As of June 2014, Medicaid covered nearly 3.8 million Texans. To qualify, patients must have a low income, but being poor doesn’t always mean a patient will qualify for the program. For example, low-income childless adults are not eligible in Texas even if their income meets the state’s Medicaid income requirements. Most Medicaid recipients in Texas are children, pregnant women, or disabled. 

Texas allocated $56 billion in all funds to Texas Medicaid for budget years 2014-15; the state’s share was $22.1 billion, and the federal government paid $33.9 billion. While most enrollees (75 percent) are pregnant women and children, they account for only about 40 percent of the program’s costs. Seniors and patients with disabilities make up the other 25 percent of the patient population but account for 60 percent of the costs. In 2013, the Texas Legislature enacted numerous reforms to reduce total Medicaid expenditures by $961 million, including authorizing further expansion of Medicaid HMOs, improving birth outcomes, and restructuring the medical transportation program. 

The Children’s Health Insurance Program (CHIP) provides health insurance to low-income children who do not qualify for Medicaid. Like Medicaid, the costs are shared between the state and federal government: In 2014, the federal government paid 70 percent of Texas’ CHIP costs. The Affordable Care Act (ACA) reauthorized CHIP through 2019 and approved funding for the program through September 2015. Pending continued funding, beginning in federal fiscal year 2016, the ACA will increase the CHIP federal matching amount another 23 percent, meaning Texas’ cost-sharing would drop from 30 percent to 7 percent. As of April 2014, some 500,000 low-income children were enrolled. To qualify, a family of four may not earn more than $47,700 (in 2014). 

For physicians, Medicaid and CHIP are typically the lowest payers. They often do not cover the basic cost of providing the service. On average, Medicaid pays 73 percent of Medicare and about 50 percent of commercial insurance payments. In 2010 and 2011, the state cut already-meager physician payments another 2 percent. 

Recognizing the inadequacy of Medicaid payments and the need to pay better to expand access to care, the ACA gave primary care physicians a temporary reprieve from low Medicaid rates. The act increased Medicaid payments to Medicare parity for primary care services provided by eligible physicians from Jan. 1, 2014, to Dec. 31, 2015. The federal government provided 100 percent of the funding to pay for the higher rates. CHIP services were excluded from the rate increase as were subspecialists. 

Without action by Congress — or the Texas Legislature — the higher payments will soon expire. As federal action appears unlikely, Texas lawmakers should invest the necessary resources to improve appropriate and timely access to medical services for Medicaid patients not only by maintaining higher payments for primary care physicians, but also by ensuring competitive physician payment rates for subspecialists and the CHIP program. 

If lawmakers cut physicians’ payments further or fail to invest in a robust physician network, millions of Medicaid recipients will have an enrollment card but fewer physicians caring for them, driving patients to use more costly emergency departments. 

Repeal the dual-eligible payment cut  
During the 82nd Texas Legislature, lawmakers made a number of funding cuts without knowing their complete impact, creating a medical emergency for thousands of dual-eligible Texans and the physicians who care for them. “Dual-eligible” patients are low-income seniors and people with disabilities who qualify for both Medicare and Medicaid. In Texas, there are approximately 465,000 dual-eligible patients, who are among the sickest and most vulnerable people in our state. 

When physicians provide treatment to dual-eligible patients, Medicare pays the physician 80 percent. Medicaid used to then pay the remaining 20 percent coinsurance for the patient. Medicare also requires patients to pay an annual deductible — $147 in 2014 — which Medicaid used to pay because the patients are so poor. Beginning Jan. 1, 2012, Texas Medicaid quit covering the Medicare deductible. It also decided to pay physicians and providers no more than the amount Medicaid pays for the same service, which, in most instances, eliminated payment of the patient’s coinsurance. The Texas Legislature in 2012 subsequently reinstated full payment of the annual deductible for dual-eligible patients. Yet, the patients’ physicians still face a cut of 20 percent for the coinsurance amount. 

Example: Established dual-eligible patient visits physician office for routine visit; Medicare deductible has been met. Physician bills Medicare CPT Code 99213. Medicare allowable is $69.61. Medicare pays $55.69 (80 percent of the allowable). Physician bills Medicaid for the remaining 20 percent. Medicaid allowable is $33.27, so no coinsurance will be paid. Under the old policy, Medicaid would have paid an additional $13.92, so that physician’s entire payment equaled Medicare’s $69.61 allowable. This is essentially a 20-percent payment cut, and is less than what a physician receives for treating any other Medicare patient. 

The dual-eligible payment cut unfairly penalizes physicians who provide care for the poorest and often sickest and frailest Medicare patients. The policy change hit particularly hard practices in rural and inner-city Texas, along the Mexico border, and many of those serving nursing home residents. Physicians in these settings serve a disproportionate number of dual-eligible patients. In addition, the cut is forcing physicians to limit how many dual-eligible patients they are willing to treat, to restrict their Medicaid participation, and to forego practicing in communities that most need them. 

Don’t tax sickness 
Saving lives should not be taxed like other services. Taxing patient care is bad medicine. People don’t choose to be sick. Health care is a unique business activity and should not be subject to a traditional business activity tax. 

Recognizing the unique nature of health care when they rewrote the state’s business tax in 2006, legislators included exclusions for the free and under-reimbursed care physicians provide to Medicaid, Medicare, CHIP, workers’ compensation, military, and charity care patients. In 2013, they added the purchase price of vaccines to the exclusions. Because physicians have contractual and ethical obligations to care for patients, often without regard to their own financial interests, their losses on unpaid and underpaid services are unavoidable and substantial. Those exclusions merit recognition. 

Federal law and hospital staff agreements require physicians to provide care to patients in emergency settings regardless of ability to pay. Texas physicians deliver more than $2 billion per year in a hidden tax via free charity care. No other profession is required by law to give away its products or services for free. 

Medicaid and CHIP payments to Texas physicians cover less than half the cost of providing care. The average Texas physician provides more than $72,000 per year in undercompensated care to Medicaid and CHIP patients (much more in some specialties, in rural Texas, and along the Mexico border). Tax increases add to the cost of caring for these patients, and force more physicians to limit participation in these government programs. 

Texas physicians pay their fair share in business and personal taxes. They also pay such additional state taxes as an inflated licensing fee, a professional fee, an Office of Patient Protection fee, and additional license surcharges imposed over the years by the legislature. These fees are in addition to the sales taxes physicians pay on the supplies and equipment they use to care for patients, and the property taxes they pay on all business property and equipment they use for patient care. 

Texas should not place additional taxes on caring for the sick. 

 Stop the Medicare Meltdown — Repeal the SGR, fix the sequester, remove the penalties, and stop adding administrative cost 
Over the last decade, nothing has so regularly and completely vexed and frustrated physicians more than the annual showdown with Congress to stop double-digit cuts to Medicare payments to physicians. 

Medicare patients and military families are never out of danger. Year after year, the specter of congressional action or inaction threatens to jeopardize health care services for Medicare patients. And, because TRICARE rates for military families are based on Medicare, they’re in danger, too. 

This is because federal law requires Medicare payments to physicians be modified annually using the Sustainable Growth Rate (SGR) formula. Because of flaws in how the formula was designed, the corresponding result has mandated physician rate cuts every year for the past 13 years. Only short-term congressional fixes have stopped the cuts. 


 In 2014, Congress came closer than ever to passing legislation that would repeal the SGR permanently. The bill had strong bipartisan support and addressed many of the policy issues surrounding Medicare, but in the end, Congress lacked the willpower to cover the costs of the legislation. Instead, Congress voted for the 17th time to put another patch on the problem. Physicians now face the threat of another major payment cut on April 1, 2015. 

This cut is on top of a 2-percent sequestration cut that began in 2013 as required by the Budget Control Act of 2011. And physicians face multiple other cuts that will whittle away their payments over the next several years due to new ACA requirements. 

Compounding this, most commercial insurers pay physicians based on a percentage of the Medicare rate. Since Medicare payments have been essential¬ly unchanged over the last 13 years, this double hit has meant a flat-lining of physician payment rates and now threatens the viability of many physi¬cian practices. It makes investment in new clinical equipment and health information technology increasingly more difficult. 

This decade-long and continued uncertainty is forcing a growing number of physicians to make the difficult decision to opt out of Medicare, to limit the number of Medicare patients they treat, or retire early. The 2012 Survey of Texas Physicians indicates that 51 percent of Texas physicians have, will, or are considering opting out of the Medicare program altogether.[34

Medicare patients today often can’t get in to see their physicians as quickly as needed. This forces Medicare patients to put off care until they are sicker or end up using the hospital’s emergency department. Sending Medicare patients to the emergency room is counterproductive to the goal set by Congress and the White House to keep health care costs down by encouraging all Americans to have a “medical home.” 

Medicare patients should feel anything but secure about the future of their health care. Physicians are key to delivering health care services and are the foundation of the Medicare program. Without a robust network of physicians to care for the millions of patients dependent on Medicare, the program will not work. 

We all recognize the value that hospitals, nursing homes, home health services, durable medical equipment vendors, and other health care providers give to Medicare patients. However, over the past decade, they all have received annual payment increases, while physicians have not. 

Congress must repeal the flawed SGR formula permanently and replace it with a rational Medicare physician payment system that works and is backed by a fair, stable funding formula. Congress should create a bipartisan subcommittee to develop a comprehensive list of viable pay-fors to cover the cost. 


 Replace harmful restrictions with realistic quality-based incentives 
TMA believes the patient-physician relationship must be preserved regardless of patients’ health conditions, ethnicity, economic circumstances, demographics, or treatment compliance patterns. Unfortunately, many pay-for-performance strategies, commonly referred to as “value-based payment models,” that intend to contain health costs could undermine this relationship. These strategies have proliferated in both commercial and government health programs. The ACA encourages payment based solely on outcomes and mandates pay adjustments for all physicians. This often selectively penalizes physicians who treat disadvantaged patients. 

Value-based payment models that do not risk-adjust properly for patients’ health status and those that rely solely on claims data for evaluation of care will likely hurt the patient-physician relationship. This is particularly true if patient risk factors, chronic conditions, compliance, health disparities, and culturally competent care are not factored into the physician’s performance profile. For example, many physicians are rated on how many of their patients obtain screening mammograms or colonoscopies at appropriate times; those ratings, and their payments, are hurt if a patient chooses not to get the tests the doctor ordered. Other examples of physicians’ quality rating measurements being directly impacted by patient choice or other factors include medication compliance, routine screening exams, weight management, and tobacco cessation. 

Physicians also are finding the transition to value-based payment models cost-prohibitive due to: 1) the expansion of these “quality” programs; 2) the vast number of quality measures; 3) the difficulty of deciphering which measures are important; and 4) interpreting quality-data reports in a meaningful way for their practices. The overwhelming number of uncoordinated quality measurement and reporting initiatives across multiple insurance companies must be addressed. 

To help physicians transition to value-based payment systems, TMA is asking insurance companies and government payers for transparent methodology and program policies, standardized and valid quality measures, and streamlined quality reporting and evaluation processes. These systems must comply with a set of principles adopted by both TMA and the American Medical Association that: 

  1. Ensure quality of care, 
  2. Foster the patient-physician relationship, 
  3. Offer voluntary physician participation, 
  4. Use accurate data and fair reporting, and 
  5. Provide fair and equitable program incentives.[35

 Repeal the Independent Payment Advisory Board 
Replacing the SGR and removing administrative penalties will be meaningless unless Congress also repeals the Independent Payment Advisory Board (IPAB). Leaving both in place would create cruel and unusual double jeopardy for physicians who want to care for senior citizens and military families. The ACA created a 15-member IPAB designated to recommend measures to reduce Medicare spending if costs exceed targeted growth rates. 

The ACA prohibits the panel from recommending changes to eligibility, coverage, or other factors that drive utilization of health care services. This means the board will have only one option — cut payments. And through 2019, hospitals, Medicare Advantage plans, Medicare prescription drug plans, and health care professionals other than physicians are exempt. This means the board has only one option — cut Medicare payments to physicians. Cuts the board recommends will automatically take effect, unless Congress acts to suspend them. 

As we’ve seen with the SGR, it’s obvious that cuts the IPAB enacts will devastate Medicare beneficiaries’ ability to find physicians to care for them. The issue of Medicare spending for 3.2 million Texans is too important to be left in the hands of an unaccountable board that makes decisions based solely on cost. 

 Allow Medicare beneficiaries to contract directly with physicians for care 
Growing bureaucratic burdens, inadequate payment rates that haven’t kept pace with the rising costs of providing care, annual threats of pay cuts, and full patient schedules combine to make it increasingly difficult for physicians to continue seeing Medicare patients. While most will keep their longtime patients after they become eligible for Medicare, a growing number of physicians have been forced to stop seeing new Medicare patients. 

Currently, seniors who want to see a doctor who does not accept their Medicare insurance must pay for their care entirely out of their own pocket. As baby boomers come of Medicare age, we will need to change some of Medicare’s inflexible rules to ensure patients have access to physicians. One way to accomplish this is to allow Medicare patients to see any physician of their choice. Physicians should be allowed to enter into direct contracts with Medicare patients, even when they opt out of formal Medicare participation. 

The Medicare Patient Empowerment Act would allow seniors to use their current Medicare coverage to see a doctor who is not accepting Medicare. It would strengthen patient choice and access to physicians. It would ensure that seniors can see any doctor they choose and still use the Medicare benefits for which they have paid, without having to change their Medicare plan. The act would allow Medicare patients and their physicians to enter into private contracts without penalty to either party. 


  • Require health insurers to regularly report their medical loss ratios in a standardized format to the Texas Department of Insurance (TDI) as well as to purchasers and enrollees upon request.

  • Require insurers to notify patients that rescission of their policy is under consideration, and why, before the actual cancellation.

  • Prohibit health insurers from providing incentives to employees or contractors based on the number of rescissions they recommend.

  • Allow Texas’ small businesses to challenge health insurance premium quotes, and require insurers to provide information to justify a premium increase.

  • Enact tax breaks or other incentives for employers who offer appropriately structured, consumer-directed health plans to their workers.

  • Direct the Employees Retirement System of Texas to offer appropriately structured, consumer-directed health plans to state workers.

  • Require health insurers, at the time health care services are delivered, to pay patients’ and physicians’ claims immediately and calculate patients’ out-of-pocket responsibility.

  • Increase Medicaid primary care physician payments on par with Medicare and extend higher payments to subspecialists and the Children’s Health Insurance Program. 

  • Devise and enact a system for providing health care to low-income Texans with realistic payment to physicians, less stifling state bureaucracy, and no fraud-and-abuse witch hunts. 

  • Repeal the dual-eligible budget cut. 

  • Protect tax law provisions that acknowledge physicians’ unique roles in caring for all patients — this includes physicians who provide charity care. 

  • Prohibit tax auditors from accessing patient’s private medical records. 

  • Repeal the broken Sustainable Growth Rate (SGR) formula. Enact a rational Medicare physician payment system that works and is backed by a fair, stable funding formula. 

  • Fix the broken SGR formula before giving additional payment increases to any other provider in Medicare. 

  • Accompany increases in compliance or reporting burdens with payment increases, not penalties. 

  • Revise Medicare’s value-based purchasing program so it does not penalize physicians for providing services to chronically ill or disadvantaged patients, and does not punish them when patients cannot comply or choose not to comply with orders or recommendations for testing and treatment. Both cost and quality measures need to be risk-adjusted to account for the effects of poverty, poor educational attainment, and cultural differences. 

  • Ensure criteria used to measure physicians’ performance are evidence-based, fair and accurate, and truly evaluate quality and efficiency of care, not just cost. 

  • Simplify Medicare quality reporting by using transparent methodology and consistent, standardized measures and reporting processes across all physician reporting programs. 

  • Repeal the Independent Payment Advisory Board. 

  • Pass the Medicare Patient Empowerment Act, giving physicians the ability to contract directly for any and all Medicare services.



Healthy Vision 2020

Last Updated On

February 05, 2018