Institutional mechanics · checked
Who decides what Medicare pays a physician?
The 60-second answer
Congress sets the annual update to the conversion factor; CMS sets the relative values through rulemaking, with heavy input from a specialty-society process. The update is not linked to practice-cost inflation, and budget neutrality means one specialty’s gain is another’s loss.
How the system works
Each service has relative value units for work, practice expense and malpractice. Multiply by a geographic adjustment and the conversion factor, and that is the payment. Changing any relative value triggers a budget-neutrality adjustment that reduces the conversion factor for everyone.
Who controls the decision
Congress on the update; CMS on relative values; a specialty-society committee whose recommendations CMS accepts at a high rate on the valuation inputs. Representation in that process is therefore consequential.
Where it fails
The update has run below measured input-cost growth for successive years and the gap compounds. And redistribution decisions are made without published specialty and practice-size impact at the proposal stage, so a practice can discover the effect only after it is final.
The governing law
Statute sets the conversion-factor update and requires budget-neutrality adjustments. The Medicare Economic Index measures practice-cost inflation and does not drive the update.
What physicians experience
A payment schedule that falls behind costs in real terms, with periodic redistribution shocks a small practice cannot cross-subsidise.
What patients experience
Participation decisions, panel capacity and appointment availability follow from this arithmetic.
Where to read the detail
- Fix the update, then fix the redistribution
- The one-page brief
- Site-neutral payment
- Compensation models and incentives
This explainer synthesises analysis published elsewhere on this site; it introduces no fact that is not on one of the pages above. Registry: data/how-medicine-works.json.