Highlights of the 2025 Medicare Physician Fee Schedule

The Failed “Doc Fix”

The Centers for Medicare & Medicaid Services (CMS) released its finalized Medicare Physician Fee Schedule (MPFS) for calendar year (CY) 2025. The finalized fee schedule cut payments to physicians, and Congress declined to step in and mitigate the cuts in its last-minute legislation to fund the federal government for another three months. This article discusses the provisions contained in the MPFS final rule and the failed “doc fix” legislation.

On November 1, 2024, the Centers for Medicare & Medicaid Services (CMS) released its finalized Medicare Physician Fee Schedule (MPFS) for calendar year (CY) 2025, aiming “to strengthen primary care, expand access to preventive services, and further access to whole-person care.”[1] The finalized fee schedule cut payments to physicians, and Congress declined to step in and mitigate the cuts in its last-minute legislation to fund the federal government for another three months. This article discusses the provisions contained in the MPFS final rule and the failed “doc fix” legislation.

Payment Rate Updates for MPFS

CMS cut physician payment rates in the 2025 MPFS final rule by 2.93%, while simultaneously stating that it anticipates provider expenses to increase by 3.6% in 2025, meaning the 2.93% reduction effectively amounts to a 6.4% cut.[2] The conversion factor declined by $0.94, to $32.35—a 2.83% reduction from 2024’s conversion factor of $33.29—marking the fifth straight year that CMS has decreased physician payment rates.^[3] 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.^[4] This conversion factor is updated annually 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.^[5] All physician services, except anesthesia services, use a single conversion factor.^[6] The CY 2025 decrease “reflect[ed] 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.”[7]

After the publication of the final rule, provider associations lobbied Congress to pass legislation ameliorating the cuts. A 2.5% increase to physician payments (nearly canceling out the cut), as well as two-year extensions for the telehealth waivers and flexibilities, was included in the originally proposed continuing resolution in December 2024.[8] However, that original spending bill (as well as a second proposed bill) was politically torpedoed. In an effort to keep the government open, legislators passed a last-minute, stripped-down spending bill that included a three-month extension of the telehealth waivers and flexibilities (until April 1, 2025), but excluded increases to Medicare physician payments.[9] Thus, additional updates to the MPFS, as well as any comprehensive reform, will be delayed until at least 2025; the first chance will be in March, when the current continuing resolution is set to expire.

Telehealth Changes

The Consolidated Appropriations Act, 2023 temporarily extended telehealth flexibilities, which have been in place since the start of the COVID-19 public health emergency, until December 31, 2024.[10] CMS finalized the flexibilities it could under its authority with the 2025 MPFS Final Rule. For example, CMS will continue to allow certain practitioners to directly supervise auxiliary personnel via virtual means and allow teaching physicians to be virtually present when furnishing telehealth services involving residents in teaching settings.[11] Additionally, a number of services were added to the Medicare Telehealth Services List, including caregiver training services (on a provisional basis) and counseling and safety planning interventions for PrEP (on a permanent basis).[12] However, the power to permanently expand telehealth ultimately lies with Congress. Should Congress not act prior to January 1, 2025, geographic and location restrictions will return (i.e., Medicare beneficiaries across the U.S. will not be able to receive services in their home and other previously-disallowed locations), as will limitations on the types of practitioners who can provide telehealth services to Medicare beneficiaries.[13] The one exception to these limitations is behavioral telehealth, which can continue to be provided to the patient in their home.[14]

As noted above, the December 2024 spending bill extended current telehealth flexibilities through March 31, 2025.[15] Extended telehealth flexibilities include:

• Removal of geographic requirements and expanding originating sites,
• Expansions of the practitioners eligible to furnish telehealth services,
• Extension of telehealth services for FQHCs and rural health centers,
• Delayed in-person requirements for mental health services, and
• Hospital at Home program.[16]

While legislation to permanently extend Medicare telehealth coverage floated around Capitol Hill for most of 2024, no bill was ultimately passed despite bipartisan support.

Industry Reaction

National provider associations uniformly condemned the MPFS final rule’s cuts to physician payments. The American Medical Association (AMA) criticized both CMS and Congress, stating, “To put it bluntly, Medicare plans to pay us less while costs go up. You don’t have to be an economist to know that is an unsustainable trend .…”[17] America’s Physician Groups (APG) also expressed their disappointment, pivoting to urging Congress to “blunt the crippling effect of the fee cuts.”[18] Similarly, the American Group Management Association (AMGA) communicated its concern that “the cut may force AMGA members to lay off staff and clinicians, further exacerbating patient access to care; not accept new Medicare beneficiaries as patients; and delay investments in social drivers of health.”[19] The AMGA also implored Congress to prevent the cuts from taking effect by passing legislation before the end of the year.[20] The Medical Group Management Association (MGMA) weighed in, stating that “CMS and Congress have once again overlooked the sobering financial realities facing our nation’s medical practices … further increasing the gap between practice expenses and reimbursement rates. Today’s final rule throws the financial viability of physician practices into question and threatens beneficiary access to care.”[21] In addition, MGMA sent a letter to congressional leaders imploring them to resolve the significant reimbursement challenges faced by providers. In particular, MGMA asked for leaders’ consideration of three issues: “averting the finalized cut to Medicare payment and providing an inflationary update for 2025, passing prior authorization reform, and extending telehealth flexibilities.”[22]

Meanwhile, associations commended other MPFS provisions. MGMA applauded CMS for finalizing several telehealth policies and APG and the National Association of ACOs (NAACOS) expressed their general approval of the MSSP changes.[23] However, NAACOS remains “concerned about unresolved issues that threaten ACO participation in the Shared Savings Program,” namely “increasingly reduced financial targets over time” and new quality reporting requirements.[24]

In response to the urging of provider associations, a new, bipartisan bill was recently introduced in the U.S. House of Representatives that would increase physician pay by 4.73%,[25] turning CMS’s 2.93% pay cut into a 1.80% increase (which equates to half of the Medicare Economic Index for 2025[26]). The bill has garnered support from 155 medical organizations, including the AMA and MGMA.[27]

When adjusted for inflation, MPFS reimbursement has declined 29% since 2001.[28] 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.[29] 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.”[30] While provider associations have been calling for a more comprehensive overhaul of physician payment updates, to avoid such end-of-the-year overrides, it is unlikely that any legislation will be passed this year given there are only 12 legislative days left in 2024 (beginning December 1^st), meaning that any wholesale changes to the MPFS are likely delayed for at least another year.

This article was previously published by HCC, Health Capital Topics, Volume 17, Issue 11, November 2024, and is republished here by permission.

[1]     “HHS Finalizes Physician Payment Rule Strengthening Person-Centered Care and Health Quality Measures” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/press-releases/hhs-finalizes-physician-payment-rule-strengthening-person-centered-care-and-health-quality-measures (Accessed 11/12/24).

[2]     “New Bill Aims to Increase Physician Pay, Block Medicare Cuts” By Marie DeFreitas, HealthLeaders, November 7, 2024, https://www.healthleadersmedia.com/cfo/new-bill-aims-increase-physician-pay-block-medicare-cuts (Accessed 11/12/24); “HHS Finalizes Physician Payment Rule Strengthening Person-Centered Care and Health Quality Measures” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/press-releases/hhs-finalizes-physician-payment-rule-strengthening-person-centered-care-and-health-quality-measures (Accessed 11/12/24).

[3]     “Calendar Year (CY) 2025 Medicare Physician Fee Schedule Final Rule” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2025-medicare-physician-fee-schedule-final-rule (Accessed 11/12/24).

[4]     “Physician and Other Health Professional Payment System” Medicare Payment Advisory Commission, Payment Basics, October 2024, https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_Physician_FINAL_SEC.pdf (Accessed 11/12/24).

[5]     “Physician and Other Health Professional Payment System” Medicare Payment Advisory Commission, Payment Basics, October 2024, https://www.medpac.gov/wp-content/uploads/2024/10/MedPAC_Payment_Basics_24_Physician_FINAL_SEC.pdf (Accessed 11/12/24).

[6]     Ibid.

[7]     “HHS Finalizes Physician Payment Rule Strengthening Person-Centered Care and Health Quality Measures” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/press-releases/hhs-finalizes-physician-payment-rule-strengthening-person-centered-care-and-health-quality-measures (Accessed 11/12/24).

[8]      “Telehealth and doctors win, PBMs lose as government funding deal nears” By Michael McAuliff, Modern Healthcare, December 17, 2024, https://www.modernhealthcare.com/politics-policy/telehealth-flexibilities-doctor-pay-pbms-government-spending-bill (Accessed 12/23/24).

[9]        “Congress votes to keep government open, abandons health package” By Michael McAuliff, Modern Healthcare, December 20, 2024,  https://www.modernhealthcare.com/politics-policy/spending-bill-house-healthcare-package (Accessed 12/23/24).

[10]   “Bill to extend telehealth flexibilities clears House committee” By Tanya Albert Henry, American Medical Association, August 15, 2024, https://www.ama-assn.org/practice-management/digital/bill-extend-telehealth-flexibilities-clears-house-committee (Accessed 11/12/24).

[11]   “HHS Finalizes Physician Payment Rule Strengthening Person-Centered Care and Health Quality Measures” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/press-releases/hhs-finalizes-physician-payment-rule-strengthening-person-centered-care-and-health-quality-measures (Accessed 11/12/24).

[12]   “Calendar Year (CY) 2025 Medicare Physician Fee Schedule Final Rule” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2025-medicare-physician-fee-schedule-final-rule (Accessed 11/12/24).

[13]   “HHS Finalizes Physician Payment Rule Strengthening Person-Centered Care and Health Quality Measures” Centers for Medicare & Medicaid Services, November 1, 2024, https://www.cms.gov/newsroom/press-releases/hhs-finalizes-physician-payment-rule-strengthening-person-centered-care-and-health-quality-measures (Accessed 11/12/24).

[14]   Ibid.

[15]   “Congress votes to keep government open, abandons health package” By Michael McAuliff, Modern Healthcare, December 20, 2024, https://www.modernhealthcare.com/politics-policy/spending-bill-house-healthcare-package (Accessed 12/23/24).

[16]   “Shutdown Update: American Relief Act Sustains Crucial Telehealth Flexibilities” By Mollie R. Cummins, PhD, RN, FAAN, FACMI, telehealth.org, December 21, 2024, https://telehealth.org/shutdown-update-american-relief-act-sustains-crucial-telehealth-flexibilities/ (Accessed 1/2/25).

[17]     “Congress must act as Medicare pay cut is set” Statement by Bruce A. Scott, MD, November 1, 2024, https://www.ama-assn.org/press-center/press-releases/congress-must-act-medicare-pay-cut-set (Accessed 11/13/24).

[18]      “Scheduled Medicare Physician Fee Cuts Now In Congress’s Lap With Publication Of The Final 2025 Rule, APG Says” America’s Physician Groups, November 1, 2024, https://www.apg.org/news/scheduled-medicare-physician-fee-cuts-now-in-congresss-lap-with-publication-of-the-final-2025-rule-apg-says/ (Accessed 11/13/24).

[19]     “AMGA Calls on Congress to Stop Medicare Cuts” American Group Medical Association, November 1, 2024, https://www.amga.org/about-amga/amga-newsroom/press-releases/11012024 (Accessed 11/13/24).

[20]     Ibid.

[21]      “CMS Physician Fee Schedule Provokes Protests Among Providers” By Mark Hagland, November 4, 2024, https://www.hcinnovationgroup.com/policy-value-based-care/article/55240499/cms-physician-fee-schedule-provokes-protests-among-providers (Accessed 11/13/24).

[22]      “MGMA Appeals to Congress to Address MD Reimbursement Issues” By Mark Hagland, Healthcare Innovation, November 12, 2024, https://www.hcinnovationgroup.com/policy-value-based-care/news/55242299/mgma-appeals-to-congress-to-address-md-reimbursement-issues (Accessed 11/13/24).

[23]      “CMS Physician Fee Schedule Provokes Protests Among Providers” By Mark Hagland, November 4, 2024, https://www.hcinnovationgroup.com/policy-value-based-care/article/55240499/cms-physician-fee-schedule-provokes-protests-among-providers (Accessed 11/13/24).

[24]      Ibid.

[25]      “H.R.10073 – Medicare Patient Access and Practice Stabilization Act of 2024” Congress.gov, https://www.congress.gov/bill/118th-congress/house-bill/10073/text (Accessed 11/12/24); “New Bill Aims to Increase Physician Pay, Block Medicare Cuts” By Marie DeFreitas, HealthLeaders, November 7, 2024, https://www.healthleadersmedia.com/cfo/new-bill-aims-increase-physician-pay-block-medicare-cuts (Accessed 11/12/24).

[26]      “MGMA Appeals to Congress to Address MD Reimbursement Issues” By Mark Hagland, Healthcare Innovation, November 12, 2024, https://www.hcinnovationgroup.com/policy-value-based-care/news/55242299/mgma-appeals-to-congress-to-address-md-reimbursement-issues (Accessed 11/13/24).

[27]      “Murphy Introduces Bipartisan Legislation to Protect Medicare for Physicians and Patients” Press Release, U.S. Congressman Gregory F. Murphy, MD, October 29, 2024, https://murphy.house.gov/media/press-releases/murphy-introduces-bipartisan-legislation-protect-medicare-physicians-and (Accessed 11/12/24).

[28]      “Medicare physician pay has plummeted since 2001. Find out why.” By Tanya Albert Henry, American Medical Association, June 17, 2024, https://www.ama-assn.org/practice-management/medicare-medicaid/medicare-physician-pay-has-plummeted-2001-find-out-why (Accessed 11/13/24).

[29]     Letter to The Honorable Mike Johnson, The Honorable Hakeem Jeffries, The Honorable Charles Schumer, and The Honorable Mitch McConnell, from Anders Gilberg, Medical Group Management Association, dated November 12, 2024, Re: MGMA Legislative Imperatives for the End of 2024, available at: https://www.mgma.com/getkaiasset/a1658e5f-2577-49bf-a5ed-14e33cd85ec0/11.12.2024_MGMA%20End%20of%20Year%20Letter.pdf (Accessed 11/13/24).

[30]      “MGMA Appeals to Congress to Address MD Reimbursement Issues” By Mark Hagland, Healthcare Innovation, November 12, 2024, https://www.hcinnovationgroup.com/policy-value-based-care/news/55242299/mgma-appeals-to-congress-to-address-md-reimbursement-issues (Accessed 11/13/24).

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Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA, ABV, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals, as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.

Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to tzigrang@healthcapital.com.

Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.

Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to jbailey@healthcapital.com.