That Is Not a Light at The End of The Tunnel! It Is a Train Coming Down the Track!

The Medicare proposal for 2025, as outlined in the Medicare Physician Fee Schedule (PFS) Proposed Rule, introduces several important changes that will affect physician and hospital payments. All stakeholders must understand these changes. One key element is a proposed 2.8% reduction in the conversion factor, which impacts the reimbursement rates for physicians under Medicare. This reduction, part of a broader effort by CMS to shift towards value-based care, improve care coordination, and simplify administrative burdens, could lead to more efficient and effective healthcare delivery. The rule also introduces new payment codes for advanced primary care management and cardiovascular risk assessment services, reflecting a growing emphasis on holistic patient care. Moreover, CMS proposes expanding telehealth and behavioral health services, which could improve access to care for many patients. New performance measurement requirements are tied to the Merit-based Incentive Payment System (MIPS) to incentivize quality care. We all, particularly healthcare providers, must understand these changes and their potential impact. You can access the full CY 2025 Medicare Physician Fee Schedule Proposed Rule and related information on the CMS website for more details. https://www.cms.gov/

What is the Effect of These Cuts?

The impact of overall cuts to physician revenues, particularly in the context of Medicare and Medicaid, can have significant and far-reaching consequences for healthcare providers and patients. Given the large number of Medicare and Medicaid beneficiaries in the United States — there are approximately 65 million Medicare enrollees, and over 85 million Medicaid enrollees — even small adjustments to physician reimbursements can lead to large-scale impacts on the healthcare system. Below are several potential negative effects of such cuts on physician practices, patient care, and the healthcare system. It’s of utmost importance to understand these possible negative effects to fully grasp the issue’s urgency and the need for immediate action.

As physician revenues are cut, particularly in programs like Medicare and Medicaid, many physicians may limit the number of patients they see covered by these programs or opt out entirely. This trend has already been observed in some areas, especially where reimbursements do not cover the cost of providing care. According to a 2021 American Medical Association (AMA) survey, many physicians reported that Medicare reimbursements do not keep pace with inflation or the rising cost of care delivery, leading some to reduce their participation in these programs. Medicaid and Medicare cuts disproportionately affect patients in rural and underserved areas with fewer healthcare providers. For many residents of these areas, Medicaid and Medicare are primary sources of health insurance. If physicians in these regions reduce services or stop accepting new patients due to revenue cuts, healthcare accessibility could decline significantly, exacerbating existing health disparities and potentially compromising patient care.

With fewer physicians accepting Medicare and Medicaid patients or reducing their availability for these populations, more patients may turn to emergency departments (EDs) for primary care or non-emergency issues. Emergency departments, which the law requires to treat patients regardless of insurance status, could significantly experience increased patient volume. This overutilization of EDs for non-emergency care strains resources, increases healthcare costs, and reduces the quality of emergency services for those in need. Reduced access to primary care and specialists, especially for elderly or low-income patients on Medicare and Medicaid, could lead to delayed diagnoses and treatments. This often results in worse health outcomes, as chronic conditions like diabetes, heart disease, and hypertension may go unmanaged. In the long run, this leads to more severe illness, hospitalizations, and higher overall healthcare costs.

Practices that serve large populations of Medicare and Medicaid patients encounter severe and chronic administrative problems. These problems stem from the overwhelming demand for the practices’ time and resources for billing and compliance work. The situation is exacerbated by recent cuts in reimbursement rates, which force practices to find new ways to be profitable despite increased demands from payers and reduced funding from them. These pressures typically lead practices to explore consolidation with larger entities, such as health systems, which have more resources and can presumably achieve better margins. This shift has implications for patients, especially those with practices serving high numbers of Medicare and Medicaid patients. Independence for physician practices appears at risk, increasing the probability that the practices will shift from a fee-for-service model under which they mostly operate.

A direct result of revenue cuts is the compulsion for doctors to increase patient load to keep their practices afloat. This push to see ever more patients can hardly be anything other than a crimp on quality, ranging from the shorter appointments that are now the order of the day to an inevitable reduction in the time available for consultations — rushed or otherwise; an almost impossible task it is for a doctor nowadays to find the time to engage in preventive “medicine” or even to discuss anything with a patient that requires much of a “complex” conversational undertone. A direct result of the above may well be the “dumbing down” of the practice of medicine. Increased work for remaining staff and even greater burnout among physicians and healthcare workers will result from having too few people working in an overburdened system. The healthcare profession already has a significant burnout problem; revenue cuts could worsen it, leading to decreased job satisfaction and perhaps even higher turnover rates. Medicare and Medicaid mainly cover older adults, low-income individuals, and those with disabilities — groups that already have a higher risk of facing poor health outcomes and that often have trouble accessing necessary care.

These vulnerable populations may suffer the most from the inevitable cuts to physician payments. This is because the physician payment scale predominantly affects the poor and the already disadvantaged. For instance, many of those individuals enrolled in Medicaid — an increasingly necessary lifeline for so many over the past decade — are from minority populations. On the contrary, many communities of color hail from parts of the nation that have historically been underfunded, starved of resources, and held back from achieving better socioeconomic outcomes. These are the communities where attaining optimal health is hardest, and to compound matters, health disparities are widening.

Cuts to physician revenues also impact physicians’ ability to address social determinants of health (SDOH), such as access to food, housing, transportation, and education. Physicians may have less time and fewer resources to coordinate care with community organizations that address these issues, further entrenching health inequities and making it harder to improve health outcomes for disadvantaged populations. As physician revenues from Medicare and Medicaid are cut, physicians may increasingly rely on private insurance to compensate for the shortfall. This could lead to cost-shifting, where higher fees are charged to private insurers to offset the reduced payments from government programs. Over time, this can increase premiums and out-of-pocket costs for privately insured individuals, shifting the financial burden from the public to the private sector. Patients with private insurance may see higher co-pays, deductibles, and other out-of-pocket expenses as insurers adjust to the rising care costs. This can reduce the affordability of healthcare for many individuals and families, even those with employer-sponsored insurance. If widespread reductions in physician revenues lead to a noticeable decline in access to care, policymakers may be under increased pressure to enact reforms. This could include revisiting Medicare and Medicaid payment structures, increasing reimbursement rates, or implementing policies that stabilize physician participation in these programs. However, achieving bipartisan agreement on such reforms can be challenging, particularly in a divided political landscape. Organizations such as the AMA have called for permanent, inflation-based adjustments to Medicare payments to ensure physician reimbursement keeps pace with the rising care costs. Such adjustments could help prevent revenue cuts and stabilize physician participation in Medicare and Medicaid programs.

In my next several blog posts, I will discuss how these changes to payment models will cause hospitals and physician practices to adapt and how this will affect patient access.