On December 21, 2024, President Biden signed a stopgap spending bill that avoided a government shutdown and funds the federal government through March 14, 2025.¹ Perhaps more notable than what was included in the spending bill was what was excluded. While the COVID-era telehealth waivers were temporarily extended, no physician payment increases were included, meaning physicians will experience a 2.93% pay cut in 2025. This Health Capital Topics article discusses the status of physician payments as well as the status of any future “doc fix” legislation.

Physician payments are updated annually by the Centers of Medicare & Medicaid Services (CMS) via the Medicare Physician Fee Schedule (MPFS) conversion factor. The conversion factor translates a relative value unit (RVU) – a geographically-adjusted measure of resources required to perform a procedure – into a payment amount for a given service.² This conversion factor is updated each year using a formula that accounts for:

1. The previous year’s conversion factor;
2. The estimated percentage increase in the Medicare Economic Index (MEI) for the year (reflecting; inflationary changes in office expenses and physician earnings); and
3. An update adjustment factor.³

All physician services, except anesthesia services, use a single conversion factor.⁴

On November 1, 2024, CMS published the MPFS final rule for calendar year (CY) 2025, which reduced the conversion factor by 2.83% (from $33.29 to $32.35), marking the fifth straight year that CMS has decreased the MPFS conversion factor.⁵ This update results in an average payment rate reduction of 2.93%, as a result of “the 0% update required by statute for CY 2025, the expiration of the 2.93% temporary increase in payment amounts for CY 2024 required by statute, and a small [0.02%] budget neutrality adjustment necessary to account for changes in valuation for particular services.”⁶ In addition, CMS noted that it anticipates provider expenses to increase by 3.6% in 2025, meaning the 2.93% reduction will effectively amount to a 6.4% cut.⁷

After the publication of the final rule, provider associations lobbied Congress to pass legislation ameliorating the cuts, resulting in the introduction of a new, bipartisan bill to increase physician pay by 4.73%,⁸ turning CMS’s 2.93% pay cut into a 1.80% increase (which equates to half of the MEI for 2025⁹). The bill garnered support from 155 medical organizations, including the Medical Group Management Association (MGMA) and the American Medical Association (AMA).¹⁰ Ultimately, that bill did not progress; instead, an increase to physician payments was included in the originally proposed continuing resolution. Specifically, the funding bill contained a 2.5% increase to physician payments, nearly canceling out the cut, as well as two-year extensions for the telehealth waivers and flexibilities.¹¹ It also eradicated an $8 billion safety-net hospital cut and extended for another year 3.5% bonuses for accountable care organizations (ACOs) participating in advanced payment models (APMs).¹² However, the original spending bill (as well as a second proposed bill) was politically torpedoed. In an effort to keep the government running, legislators passed a last-minute, stripped-down spending bill that excluded all of these measures except for a three-month extension of the telehealth waivers and flexibilities (until April 1, 2025) and a delay of the safety-net hospital cut.¹³

Provider associations lambasted Congress’s inability to ameliorate the Medicare physician payment cuts. The MGMA called it “a huge congressional failure to the detriment of the nation's Medicare patients and their physicians.”¹⁴ The AMA stated that it “utterly fails to address declining reimbursement rates for Medicare, pushing our health system down a path that will have predictable and deleterious results. For the fifth consecutive year, Congress has adjourned and allowed Medicare cuts. What will be the result? Patients struggling to access health care. Physicians closing or selling their private practices while others opt to leave the profession.”¹⁵

When adjusted for inflation, MPFS reimbursement has declined 33% since 2001.¹⁶ Similarly, MGMA data on physician practices indicate that total operating cost per full-time equivalent (FTE) physician increased by more than 63% between 2013 and 2022, while the MPFS conversion factor increased by only 1.7% over the same timeframe.¹⁷ Physicians have been sounding the alarm on Medicare reimbursement challenges for years. In response to a 2023 survey conducted by MGMA, “87 percent of medical group practices said reimbursement not keeping up with inflation would impact current and future Medicare patient access,” and “92 percent of medical groups reported an increase in operating costs in 2024.”¹⁸ While provider associations have been calling for a more comprehensive overhaul of physician payment updates, to avoid such end-of-the-year overrides, such legislation has been kicked down the road once again. Provider associations have called on Congress to pass both retroactive physician payment rate increases and comprehensive reform to the MPFS; whether Congress can and will do so remains to be seen.