By Tom S. Nantais
Author is an advisor to Clinician Nexus
An aging generation may push physician shortages to new extremes.
An estimated 73 million people in the United States belong to the Baby Boomer generation. Born between 1946 and 1964, approximately 10,000 of these individuals reach the age of 65 each day. By 2030, all living Baby Boomers will be at least 65 years old, which will place enormous pressure on Medicare to provide coverage for this growing population of enrollees.
When Medicare was initiated in 1965, the ratio of working individuals to retired individuals was 4 to 1. That ratio has since dropped to 2.7 to 1 in 2023. In addition, life expectancy for males was only 66.8 years in 1965 – this number has since risen to 74.8 years in 2022.Given these circumstances, continuing to fund Medicare adequately will become extremely challenging.
However, the Centers for Medicare and Medicaid Services (CMS) can increase funding in several ways:
- Decrease reimbursement to clinicians for existing medical services.
- Reduce the types of services covered by Medicare.
- Increase copays and deductibles for Medicare enrollees.
- Increase the Medicare tax rate paid by working individuals.
- Increase the U.S. retirement age.
To live within its funding budget, CMS annually proposes reducing the conversion factor used in its clinician reimbursement formula. This typically results in intensive lobbying from the American Medical Association and other physician organizations to stave off the cuts.
This budget impasse will only get worse as the Medicare population increases. For medical groups across the U.S., any reduction in reimbursement has a direct impact on what groups can pay physicians. Additionally, the U.S. looks at significant shortages in many physician specialties – especially in primary care.
See the following projections from the Association of American Medical Colleges (AAMC):
The estimates are daunting. With projected physician shortages and decreasing reimbursement, the money needed to match the supply and demand of physicians is inadequate. In addition to Medicare challenges, state-administered Medicaid programs provide reimbursement below provider costs. Commercial insurers are also reducing fee schedules or denying claims to meet their own financial goals.
Several medical groups in specific geographic pockets around the U.S. still enjoy favorable payment rates. Some groups with very favorable commercial payer rates receive payments of more than 200% of what Medicare pays for the same medical service. However, that number will decrease rapidly as all reimbursement continues to decline. While these groups can adequately reimburse physicians, there are storm clouds on the horizon.
Many physicians will relocate or consider moving to the ‘richer’ areas for increased compensation. Others may not be able to relocate and will need to decide whether to continue in their current role or look at other health care-related positions, such as in the pharmaceutical industry. This will further exacerbate ongoing physician shortages. Clearly, medical groups and health systems must address this reimbursement and physician compensation conundrum promptly and proactively.
While there are several potential solutions, the following will focus on the primary care shortage.
For organizations looking to take a more proactive approach, realigning care teams to provide top-of-license opportunities for non-physician providers is vital. In 2024, 63% of medical groups planned to add new Advanced Practice Provider (APP) roles to their clinical workforce. Meanwhile, the nation’s 355,000 licensed Nurse Practitioners conducted over one billion clinic visits annually. Since 99 million U.S. citizens live in areas with primary care shortages, more states are expanding the duties licensed APPs can perform. There has also been a significant growth in APPs trained in mental health services.
As referenced above, there is a projected shortage of up to 48,000 primary care physicians by 2034. However, there is an ample number of APPs to mitigate this gap. A potential solution is to allow primary care APPs – whose median annual base salary is nearly $129,000 according to SullivanCotter’s 2024 Advanced Practice Provider Compensation and Productivity Survey – to expand their scope of practice and provide primary care services for more patients. This would potentially improve access to care and cost considerably less than current adult primary care physician care models. SullivanCotter reports the median annual total cash compensation (TCC) for a primary care physician is $296,000. While it is understood that APPs cannot replace every vacant primary care physician position, they can play a very important clinical role in closing care gaps with certain care model adjustments.
As median TCC for primary care physicians continues to increase (3.3% in 2024), the savings gained by increasing the use of APPs will help offset the inflationary rise of primary care salaries. This represents a possible solution to maintaining primary care compensation at market levels while mitigating the projected primary care physician shortage.
However, we also see median annual increases in TCC for non-primary care physicians ranging from 2.4% to 4.5%. The math needs to add up when considering flat or declining reimbursement rates to cover these inflationary expectations. Different from primary care, the ability of a specialized APP to replace a medical, surgical, or hospital-based specialty physician is much more difficult. The combined specialty physician shortage could be as much as 79,200 by 2034.
The rules of supply and demand for specialty physicians will not work. The logical focus should be maximizing reimbursement when looking at potential solutions for covering the increased salary costs.
Strategies for doing so can include:
- Negotiate with payers to increase fee schedules.
- Incorporate utilization-based reimbursement.
- Initiate highly reimbursed carve-outs for specialties in high-demand areas such as transplant, neuroscience, and specialty children’s services.
- Become a designated Center of Excellence.
- Negotiate a provider-to-employer direct contract to bypass the payer altogether. A health care payer sees medical loss ratios ranging from 84% to 87% of the premium, leaving 13% to 16% of premium to cover administrative costs and profit margin. Under a direct contract, some or all of that excess could incentivize both the provider and employer to deliver efficient care at a lower cost to employees.
Health care providers are clearly at a crossroads. Existing reimbursement models, when coupled with impending physician shortages, are no longer adequate to balance the inflation-driven supply and demand equation. While this article provides ideas that may work to obtain greater balance, organizations will still need to make greater adjustments in the long run as traditional wRVU-based compensation models are quickly becoming outdated.
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