CMO: Medicare's Proposed Physician Payment Cut 'Absolutely the Wrong Direction'

Physician reimbursement from Medicare decreased 29% from 2001 to 2024, according to the American Medical Association.

The proposed 2.8% physician payment cut in the 2025 Medicare Physician Fee Schedule is not sustainable, the CMO of a New Jersey-based health system says.

On July 10, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule for the Physician Fee Schedule that would reduce the conversion factor for physician reimbursement from $33.29 this year to $32.36 next year. The conversion factor is the number of dollars assigned to a relative value unit (RVU), which is a key element of physician payment by Medicare.

If the payment cut is adopted in the 2025 Physician Fee Schedule final rule later this year, it would be the fifth consecutive year that physicians experienced a reimbursement cut from Medicare.

Physician reimbursement from Medicare decreased 29% from 2001 to 2024, according to the American Medical Association.

The proposed 2025 reimbursement cut would have a significant negative impact on health systems, hospitals, and physician practices, says Andy Anderson, MD, MBA, executive vice president and chief medical and quality officer at RWJBarnabas Health.

"The cost of healthcare is rising," Anderson says. "There is clearly inflation in our economy, and having the reimbursement go down is absolutely the wrong direction. The Physician Fee Schedule model is not sustainable if the reimbursement is going to be cut. Reimbursement needs to keep pace with inflation and the cost of healthcare."

Medicare physician payment cuts are hitting the bottom line of healthcare organizations, according to Anderson.

"It handcuffs our health systems and hospitals to make the investments they need to make in infrastructure as well as to provide a fair wage to employees including physicians," Anderson says. "These reimbursements cuts are not going to help healthcare grow over time."

To cope with the reimbursement reduction trend, health systems, hospitals, and physician practices must reduce costs and find efficiencies, Anderson says, adding that these efforts include stewardship of services and resources, such as laboratory tests, radiology tests, and pharmaceuticals.

"We need to question ourselves and make sure we are using our resources judiciously," Anderson says.

According to Anderson, another area where health systems and hospitals can contain costs is throughput—moving patients through hospitals as efficiently as possible.

"Some of that is through better discharge planning," Anderson says. "Some of that is through better throughput in our emergency rooms. We need to focus on throughput efficiency while being safe at the same time."

In addition to proposing a 2.8% physician payment cut next year, CMS predicts that the Medicare Economic Index, which is the measure of physician practice cost inflation, will increase by 3.6% in 2025. The gap between the reimbursement cut and inflation places a significant financial burden on healthcare providers, according to Anderson.

"Medicare needs to match inflation with reimbursement and to make sure that this gap is not widening," Anderson says. "It is creating stress points financially on our healthcare system, and that is not a sustainable model."