Physician Reimbursement Declines Amid Rising Workload and Inflation Pressures

Recent research from Kaufman Hall highlights a troubling trend for U.S. physicians: they are working more but receiving lower compensation when adjusted for inflation. Medicare reimbursement rates for physician services have declined by 29% from 2001 to 2024, largely because payments are not adjusted for inflation and must remain budget neutral. Medicaid rates are even lower, and higher payments from commercial insurers often do not compensate for these shortfalls, putting increased financial pressure on practices.

This sustained reimbursement squeeze is coinciding with inflationary pressures and rising labor costs, which have eroded profit margins for many physician practices. Consequently, a notable number of practices have either sold to larger healthcare corporations like hospitals or insurance companies or shut down entirely. To cope, some physicians are shifting towards elective procedures or concierge medicine models, which often limits patient access to standard medical care.

The issue is poised to intensify as millions of Americans are expected to lose health insurance coverage due to recent legislative changes, including provisions from a significant GOP tax and policy law and the expiration of subsidies for Affordable Care Act plans. Lower insurance coverage further threatens physician revenue streams and patient access to care.

Legislative interest in addressing physician reimbursement has been noted, with bipartisan support for linking Medicare payment updates to a cost inflation measure; however, legislative progress has stalled. Meanwhile, the Centers for Medicare & Medicaid Services (CMS) has introduced a 2.5% base rate increase for Medicare physician payments in the upcoming year. Yet, the overall impact will vary significantly depending on specialty and practice site, causing mixed reactions among providers.

Additional CMS efforts include expanding Medicare Advantage (MA) plan audits and investing in technology and workforce to address review backlogs. Congressional discussion on reforming pharmacy benefit managers (PBMs) is also anticipated following upcoming legislative activity. The intersection of reimbursement challenges, regulatory adjustments, and market dynamics underscores a period of significant transition and uncertainty for physician compensation and healthcare access in the U.S.