Proposed Medicare payment cuts would exacerbate challenges physicians face

With more than 67 million people — about 20% of the country’s population — enrolled in Medicare, the federal health insurance program plays a vital role in enabling access to quality health care.

However, physicians across the country who accept and treat Medicare patients face a concerning trend: declining reimbursement. 

The Centers for Medicare and Medicaid Services this summer released a proposed rule for 2025 that contains a variety of policy changes — many of which would drive positive change, such as increased flexibility related to Part B payments for immunosuppressants and preventive services. However, it also includes a proposed reduction to physician payments, which would exacerbate the existing pressures physicians face today in an increasingly difficult financial landscape. CMS is expected to issue the Final Rule on or before November 1, with the rule taking effect on January 1, 2025.

Medicare reimburses physicians based on the physician fee schedule (PFS), which assigns payment rates for more than 8,000 services, including office visits, surgical procedures and diagnostic services. In its proposed rule for 2025, Medicare reduced the conversion factor (which is used to convert the relative value unit for each service into a dollar payment amount) by 2.8%, from $33.29 to $32.36. The changes in the proposed rule will affect all physicians, though certain specialties will experience a greater impact. Urologists, for example, will experience a 3.5% decrease, or a collective $55.2 million reduction, in estimated allowed charges, according to a report produced by the American Medical Association estimating the potential impact of the proposed PFS rule and expiring legislation. For medical oncologists, the estimated allowed charges would fall by 3.1%, or a collective $11.1 million.

While the reduction to the conversion factor is mostly due to the expiration of a temporary payment increase, the proposal highlights a concerning trend: reimbursement rates aren’t keeping pace with inflation. Medicare physician payments, when adjusting for inflation in practice costs, declined 29 percent from 2001 to 2024, according to the AMA. Under the proposed rule, that gap between reimbursement and cost to deliver care will continue to widen as CMS is projecting a 3.6 percent increase in Medicare Economic Index, a measure of inflation based on practice costs and wage levels.

The climbing costs of medical care, coupled with the proposed cuts and other market pressures, pose a significant threat to physician practices across the country at a time when they are already bracing for changes brought by the Inflation Reduction Act. Specialty physician providers are particularly vulnerable to changes in Part B reimbursement due to the cost of the therapies they administer.

While the proposed cuts and impending changes brought by the Inflation Reduction Act will affect all physicians, we expect small, physician-owned practices will be acutely impacted and forced to make difficult decisions to ensure their continued financial viability. None of the options — such as ceasing operations — is in the best interest of patients.

While it’s not a silver bullet, CMS could help alleviate these pressures by addressing the underlying issue: physicians are the only group of providers in Medicare that do not receive an annual payment increase. Physicians, like the other groups of health care providers, should receive a year-over-year payment increase. At the very least, they should receive compensation that keeps pace with the rate of inflation.

We do not believe that year-over-year cuts are the path to create a sustainable financial environment for physicians to be successful nor for patients to receive the best care – particularly at a time when more adults age 65 and older are increasingly relying on Medicare coverage alone.

About 45 pe rcent of qualified adults solely relied on Medicare for their health insurance coverage in 2022, up from 38 percent in 2017. During the same timeframe, the percentage of adults covered by both private health insurance and Medicare fell from 48 percent to 37 percent. The statistics underscore the increased reliance on Medicare for health insurance coverage and the importance of maintaining stable provider markets.

As CMS prepares to finalize its rule for 2025, we urge CMS to reconsider the proposed reduction to the conversion factor and instead keep it at the finalized level for calendar year 2024. As physicians in communities nationwide face mounting pressures, they need support — not additional burdens — to overcome challenges and continue to provide patients with high-quality care.

Lisa Harrison is the SVP & President of Specialty Distribution & Solutions at Cencora, and Beth Mitchell is VP of U.S. Public Policy & Advocacy at Cencora.