As a result, since 2020, Medicare has cut physician pay each year, despite rising costs for physicians to run their practices. Congress has introduced special legislation four times since 2020 to try to roll back the pay cut, and this year is no different.
Five things to know about Medicare’s 2025 physician pay cut
1. The 2.83% pay decrease took effect Jan. 1 without Congress intervening and follows a 1.69% Medicare pay cut in 2024 and 2% drop in 2023. When medical practice inflation is considered, this is actually a 6.3% payment cut to physicians for 2025.
2. Medicare physician pay has increased just 9% over the last 22 years — 0.4% per year on average.
3. The American Medical Association estimates that inflation-adjusted Medicare reimbursement for physician services has dropped by 33% since 2001. While the payments rose by 7% during that period, medical practice costs jumped by 59%.
4. If Congress does not intervene, the impact is likely to be most severe for small, independent and rural physician practices and those treating low-income or marginalized patient communities.
5. The 2.83% pay results from the expiration of a 2.93% temporary Congressional update to the conversion factor at the end of 2024 and a freeze on fee schedule inflation updates until 2026 under the Medicare Access and CHIP Reauthorization Act.
Seven things to know about the pending bill to roll back the pay cut
1. A bipartisan bill was reintroduced by 10 House members on Jan. 31 to stop the decrease in payments and provide a 2% pay bump to stabilize physician practices and protect patients’ access to care.
2. The legislation also proposes a 4.73% increase in physician pay, including an additional 1.93% adjustment to account for inflation, using the Medicare Economic Index as a gauge.
3. Similar legislation saw bipartisan support in December, but Congress failed to address the issue during the lame-duck session.
4. Lawmakers have until mid-March to pass legislation and avoid a government shutdown when December’s temporary funding measure expires. If passed, the “Medicare Patient Access and Practice Stabilization Act,” would prospectively cancel the 2.83% cut that took effect Jan 1.
5. The proposed adjustment would take effect April 1 and run through the rest of 2025, thereby leaving the year’s 2.83% Medicare pay cut in place for services provided from January to March. Services provided after the cutoff, however, would see a 6.62% increase — offsetting the pay cut, adjusting for inflation and prorating the first three months of pay cuts.
6. In addition to the AMA, many physician groups and organizations are also standing behind the new bill. AMA President Bruce Scott, MD, recently wrote, “Medicare payment rates have fallen by 33% over the past two decades, when adjusted for the costs of running a practice, leaving physicians struggling to figure out how they can continue to provide needed care to their elderly and chronically ill patients.”
7. Joining Rep. Greg Murphy, MD, R-N.C., in cosponsoring the legislation are Reps. Jimmy Panetta, D-Calif.; John Joyce, MD, R-Pa.; Raul Ruiz, MD, D-Calif.; Mariannette Miller-Meeks, MD, R-Iowa; Kim Schrier, MD, D-Wash.; Claudia Tenney, R-N.Y.; Ami Bera, MD, D-Calif.; Carol Miller, R-W.Va.; and Raja Krishnamoorthi, D-Ill.
How are physician payments calculated by Medicare?
Medicare pays physicians and other clinicians based on the physician fee schedule, which assigns payment rates for more than 10,000 services. For a detailed explanation on how this complicated process works, see this article by KFF.