Medicare Reimbursement Challenges Threaten Rural Office-Based Medical Practices

Independent, office-based medical practices in rural areas are facing sustainability challenges due to Medicare’s outdated Physician Fee Schedule, which fails to cover the true costs of advanced medical procedures performed outside hospital settings.

Originally designed in 1992 to reimburse physicians’ labor only, the Medicare payment system has not kept pace with advancements in outpatient care that now include complex interventions. Recent CMS data reveals that reimbursement rates for over 300 office-based services fall below direct costs, pressuring many solo or small practices to close, sell to hospitals, or be acquired by private equity, leading to declining access and rising healthcare costs.

Data shows a significant reduction in rural independent physicians over recent years, with consolidation into hospitals or private equity firms causing Medicare costs to increase by three to five times without commensurate improvements in quality. This shift undermines patient access to affordable care in familiar, community-based settings. The experience of practitioners like Dr. Saravanan Kasthuri illustrates the financial hardship caused by reimbursement cuts as steep as 40-50% over five years, threatening the viability of independent providers serving vulnerable populations.

The 2026 Physician Fee Schedule proposes modest rate increases for office-based providers, marking a positive but insufficient step toward financial viability. Suggested reforms include separating supplies and equipment reimbursement from physician labor fees and introducing a technical fee schedule similar to hospital payments. Such changes could better reflect the costs of delivering complex procedures in outpatient environments.

Beyond economics, independent practices offer personalized care tailored to patient needs, emphasizing accessibility and continuity that larger systems often cannot replicate. The loss of these providers would reduce patient choice and increase reliance on costly hospital-based care. For rural patients traveling long distances for treatment, maintaining local office-based services is critical to timely and affordable healthcare.

In summary, preserving independent office-based medical care is essential to sustaining affordable access and maintaining high-quality standards in underserved communities. Reforming Medicare reimbursement policies to align with modern outpatient practices will be a key factor in reversing the decline of rural providers and mitigating consolidation-driven cost increases.