The Biden administration has finalized 2025 Medicare reimbursement rates for physicians and hospital clinics that providers agree aren’t large enough in light of rising costs.
Physicians will see their Medicare rates drop 2.9% next year. The decrease, which is in line with regulators’ initial proposal this summer, means $1.8 billion less in funding going to doctors in 2025.
Meanwhile, the CMS finalized a 2.9% rate update for hospital outpatient departments and ambulatory surgery centers, up from the 2.6% regulators proposed this summer. Hospitals should get an additional $2.2 billion next year from the new rates, according to the CMS.
That’s on top of a 2.9% rate jump for inpatient care spurring $2.9 billion in additional funds that regulators finalized in August.
Despite their payments rising, hospitals decried the update as inadequate. Powerful lobby the American Hospital Association argued the rates will make it harder for hospitals to invest in patient care, cybersecurity and their workforce.
“Medicare’s sustained and substantial underpayment of hospitals has stretched for almost two decades, and today’s final outpatient rule only worsens this chronic problem,” Ashley Thompson, the AHA’s senior vice president of public policy analysis and development, said in a statement.
Clamor from providers that Medicare rate updates are insufficient is nothing new, and should be taken with a grain of salt. U.S. providers are indeed grappling with rising inflation and labor shortages, but earnings reports from major hospital operators show most chains have posted high profit margins over the past few years thanks to returning patient volumes, strong investment returns and contributions from outpatient facilities.
And for-profit facilities will see a higher increase in Medicare payments next year than other types of operators, at 4.9%, according to the 2025 outpatient payment rule finalized on Friday.
In comparison, nonprofit hospitals and government-owned hospitals will have payments increase by an estimated 3.1% and 2.6%, respectively.
The rate increase should modestly help for-profit hospitals’ earnings next year, TD Cowen analyst Ryan Langston said in a note on Sunday.
However, doctors — especially those that operate their own practices — tend to be in a tougher spot, facing the same inflationary pressures as larger organizations without the scale to easily centralize administrative functions, diversify revenue or take similar actions to cut costs.
All told, physician practices tend to operate on smaller margins, so rising costs make it more difficult to keep a practice going, according to experts.
Meanwhile, Medicare reimbursement for physician services has declined 29% from 2001 to 2024 when adjusted for inflation, according to the American Medical Association.
“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,” AMA President Bruce Scott said in a statement.
Yet regulators’ hands are somewhat tied, given a statutory requirement that updates to rates in the annual physician fee schedule be budget neutral.