Reconciling Cuts to the Physician Fee Schedule

The Centers for Medicare & Medicaid Services (CMS) released the Final Rule for the 2025 Medicare Physician Fee Schedule on Nov. 1, which included a 2.8-percent payment cut, despite the Medicare Economic Index (MEI) rising by 3.5 percent. This is the latest challenge in a broken framework.

For the first time, both the Medicare Payment Advisory Commission, also known as MedPAC, and Medicare Trustees warn that if this gap persists, access to care will be at risk for seniors and individuals with disabilities. This reduction threatens to destabilize already-strained physician practices and reduce access to care for millions of Medicare beneficiaries.

The Medicare payment system is built on a foundation of budget neutrality, requiring payment increases for some services to be offset by reductions elsewhere. Coupled with the lack of an annual inflation adjustment for physician payments, this structure has left physicians with a 26-percent decline in Medicare payments when adjusted for inflation since 2001. Practice costs have risen by over 40 percent during the same period.

The American Medical Association (AMA) is leading efforts to address this crisis. Legislative efforts to address these issues are gaining momentum. H.R. 10073, the Medicare Patient Access and Practice Stabilization Act, was introduced  Oct. 29. This bipartisan bill, introduced by Reps. Greg Murphy, a Republican from North Carolina, and Jimmy Panetta, a Democrat from California, would stop the payment cut and increase physician payment by one-half of the MEI, resulting in a 12-month payment update of 4.73 percent. This legislation is supported by the AMA and 127 other physician organizations. MedPAC recommended a similar payment update in its report. The hope is that this legislation will be passed in the lame-duck session of Congress.

The AMA is advocating not only to stop the upcoming cut, but also to enact structural reforms. A central focus of these efforts is incorporating the MEI into the Physician Fee Schedule. The MEI measures inflation and practice cost growth, providing a data-driven basis for payment adjustments. Aligning physician reimbursement with real-world economic conditions is essential to maintaining a stable and sustainable healthcare system.

The AMA plans to continue its advocacy in the new Congress for more permanent, comprehensive reforms. 

Rep. Miller-Meeks recently introduced H.R. 4747, the Strengthening Medicare for Patients and Providers Act, which calls for permanent, annual inflation-based updates to the Medicare Physician Fee Schedule.

Rep. Murphy has also introduced H.R. 6371, the Provider Reimbursement Stability Act, which raises the spending threshold that triggers budget neutrality adjustment from $20 million to $53 million. These bipartisan initiatives are a critical first step toward modernizing the payment system and ensuring that physicians can continue to deliver high-quality care.

Declining Medicare payments have downstream effects; specifically, they can affect commercial and Medicaid payment rates. The result is a growing strain on physician practices, many of which are small businesses that already operate on narrow margins.

This is an issue that needs to be on our radar, to continue to maintain access to care for our patients.