MedPAC's Modest Physician Payment Proposal: A Band-Aid on a Widening Wound

A controversial recommendation to increase Medicare physician reimbursement by just 0.5% has sparked debate about whether it's enough to sustain American healthcare 

In early December 2025, the Medicare Payment Advisory Commission (MedPAC) convened to discuss what might seem like good news for physicians: a proposed increase in Medicare reimbursement rates for 2027. But the devil, as always, is in the details. The recommendation—a mere 0.5 percentage point increase above current law—has left many questioning whether this constitutes progress or simply prolongs an unsustainable status quo. 

The Proposal: Small Numbers, Big Implications 

MedPAC's draft recommendation, discussed during their December 4-5 meeting, calls for Congress to raise physician payment rates by half a percentage point more than what current law dictates. Under the existing statute, payment rates are set to increase by 0.75% for clinicians participating in advanced alternative payment models and 0.25% for all others. The proposed bump would bring these figures to 1.25% and 0.75% respectively. 

While most commissioners expressed support for the draft recommendation, at least one voiced a stark reality: even with the increase, this could amount to a de facto pay cut when measured against inflation and rising practice costs. 

The Widening Gap: Inflation Versus Reimbursement 

To understand the controversy, one must examine the broader context. From 2000 to 2024, cumulative fee schedule updates totaled roughly 14%, while the Medicare Economic Index—which measures clinician input costs—grew approximately 56%. That's a staggering 42 percentage point gap between what physicians have received and what their costs have increased. 

The MEI, which peaked at 4.3% in 2022 during the height of inflation, has been moderating and is projected to reach 2.1% in 2027. Even at this reduced rate, the proposed updates fall short of keeping pace with rising expenses. Over the past five years, physicians have faced consecutive payment cuts, with 2025 marking a 2.83% decrease—the fifth consecutive year of reductions. 

Dr. Brian Miller of Johns Hopkins University highlighted this disconnect during the MedPAC meeting, noting that while last year's recommended update netted 3%, this year's amounts to negative 2.2%. His comment underscored a fundamental question: when does a modest increase above current law still constitute a cut in real terms? 

The Paradox of Access and Adequacy 

MedPAC's analysis presents something of a paradox. According to survey data gathered by Gallup between mid-July and early September, Medicare beneficiaries report better access to care than their privately insured counterparts. They experience shorter wait times for both routine and urgent appointments, find it easier to schedule follow-up visits, and express higher overall satisfaction with their healthcare experience. 

The numbers seem to support stability in the system. Physician participation in Medicare remains high, with the American Medical Association's 2024 survey indicating robust acceptance of new Medicare patients. The supply of clinicians billing under Medicare has grown substantially, with advanced practice registered nurses and physician assistants making significant contributions to provider availability. Primary care physician numbers, after declining for several years, have stabilized. 

Moreover, physician compensation has kept pace with inflation. Median physician compensation increased by 6% to reach $369,000, with overall compensation growing at roughly 3.5% annually since 2019. Revenue per Medicare beneficiary has risen by 4.1% from 2023 to 2024, driven largely by evaluation and management services, which saw a remarkable 10.9% increase in service units. 

Given these indicators, MedPAC argues that beneficiary access has not deteriorated and that massive payment increases may not be necessary to maintain the current level of care. But is maintaining the status quo enough? 

The American Medical Association Pushes Back 

The American Medical Association has taken a different stance, advocating for the Strengthening Medicare for Patients and Providers Act, which would update physician payments by 100% of the MEI. Their argument is straightforward: anything less than full inflation adjustment forces physicians to make difficult choices about practice sustainability. 

The AMA points out that accounting for inflation, Medicare physician payment has dropped 29% from 2001 to 2024—an average decline of 1.5% per year. This erosion, they argue, threatens not just physician income but the viability of practices, particularly in rural and underserved areas where Medicare patients often comprise a large percentage of the patient base. 

Bruce Scott, then-president of the AMA, framed the issue in stark terms: without adequate updates, physicians may eventually opt out of Medicare participation, directly impacting patient access to care. While current data doesn't show this happening yet, the AMA argues that waiting until access problems emerge is a dangerous game. 

Site-Neutral Payments: The Other Shoe Waiting to Drop 

Adding complexity to the payment landscape is MedPAC's ongoing interest in expanding site-neutral payment policies. The concept is deceptively simple: Medicare should pay the same amount for a service regardless of where it's performed, assuming it's safe and appropriate to provide that service in multiple settings. 

Currently, Medicare pays hospital outpatient departments significantly more than freestanding physician offices for many identical services. This payment differential has created financial incentives for hospitals to acquire physician practices, allowing them to bill at higher rates for the same care delivered in the same way—just under a different administrative umbrella. 

MedPAC's 2023 recommendation called for aligning payment rates for select services across ambulatory settings where safe and appropriate. The commission estimates that implementing such changes could redistribute approximately $7.5 billion in Medicare spending. For clinic visits alone—the largest single category—this could affect $3 billion in annual Medicare spending. 

During their December meeting, commissioners discussed expanding site-neutral policies to include clinic visits in on-campus hospital outpatient departments and additional services in excepted off-campus provider-based departments. Some members expressed interest in pursuing these reforms, though the commission has not yet issued formal recommendations on the expanded scope. 

The hospital industry has vigorously opposed such changes. The American Hospital Association argues that site-neutral policies would disproportionately harm rural hospitals, which already operate on razor-thin margins. Rural hospitals face Medicare cuts of 2.5% under proposed reforms, which would push their average total Medicare margin from negative 17.8% to an alarming negative 21%. Such cuts could accelerate rural hospital closures and devastate the communities they serve. 

What the Data Shows—and What It Doesn't 

MedPAC staff acknowledged significant limitations in the available data. Fee-for-service claims lack clinical measures and patient-reported outcomes, constraining Medicare's ability to truly assess quality of care. The commission has previously recommended eliminating the Merit-based Incentive Payment System, citing structural flaws in how it attempts to measure physician performance. 

Instead, MedPAC relies on broader indicators: ambulatory care-sensitive hospitalizations remain below pre-pandemic levels, emergency department visits stay below 2020 baselines, and patient experience scores remain relatively stable. These metrics suggest the system isn't breaking, but they don't necessarily demonstrate excellence or even optimal performance. 

Commissioners raised important questions during the December meeting: What's driving the dramatic 10.9% increase in evaluation and management service units? Does this reflect greater clinical complexity, changes in documentation practices, or coding behavior adjustments? Without better data, these questions remain unanswered, yet they're crucial for understanding whether the system is operating efficiently. 

The Differential Update Dilemma 

Another wrinkle in the payment landscape involves the differential updates for clinicians participating in advanced alternative payment models. The gap between A-APM participants (0.75% increase) and non-participants (0.25% increase) is designed to incentivize value-based care arrangements. But MedPAC noted a peculiar timing problem: in the 2020s, this differential creates a very small incentive; by the 2040s, it will create an extremely large one. 

By 2045, A-APM clinicians' earnings could be 10.5% higher than their non-participating peers, assuming the differential compounds over time. This creates a policy challenge: the incentive is too small to drive behavior change now but could become so large in the future that it distorts the market and creates inequities that have nothing to do with care quality. 

The A-APM participation bonus is set to expire after 2026, which will eliminate one tool for encouraging alternative payment model adoption. MedPAC suggested extending this bonus through 2028 or 2029 to maintain participation while Congress determines the future of value-based payment initiatives. 

The Bigger Picture: Reforming the Foundation 

While the debate over a 0.5% increase dominates headlines, MedPAC has been working on more fundamental reforms to the physician fee schedule. In earlier 2025 discussions, the commission explored replacing the current update mechanism entirely with an annual adjustment based on a portion of MEI growth—specifically, MEI minus one percentage point. 

This approach would provide predictability for clinicians, beneficiaries, and policymakers while balancing access with financial sustainability. It acknowledges that full inflation adjustment hasn't historically been necessary to maintain access, while providing automatic updates that prevent the erosion of payment rates over time. 

The commission also discussed the need for Congress to direct regular updates to the cost data underlying relative value units—the building blocks of the fee schedule. Misvalued services can lead to oversupply of some procedures and undersupply of others, influencing everything from vertical consolidation in the healthcare industry to how non-Medicare insurers set their own rates. 

What Happens Next? 

MedPAC will vote on its final recommendations in January 2026, with the results included in its March 2026 report to Congress. These recommendations are advisory, not binding—Congress ultimately decides whether to act on them. Given the political complexities of healthcare policy and budget constraints, significant reform faces an uphill battle. 

Meanwhile, physicians continue to navigate a system where payment updates consistently lag behind cost increases, where administrative burden grows heavier each year, and where the promise of value-based payment has yet to fully materialize. Medicare beneficiaries, for their part, continue to receive care that appears adequate by most measures, though the sustainability of this arrangement grows more uncertain with each passing year. 

The 0.5% increase proposal represents MedPAC's attempt to chart a middle course—enough to signal recognition of physicians' concerns, not so much as to alarm budget watchdogs. But as Commissioner Miller's comment suggested, incremental adjustments to a flawed system may ultimately satisfy no one. The real question isn't whether half a percentage point is enough; it's whether the entire framework for physician payment needs fundamental reimagining. 

As healthcare costs continue to rise, as the Medicare population grows, and as the complexity of medical care increases, policymakers face difficult choices. They can continue with modest adjustments that maintain the status quo until something breaks, or they can pursue comprehensive reform that aligns incentives, updates payment methodologies, and ensures long-term sustainability. 

The December 2025 discussions at MedPAC suggest the commission recognizes the inadequacy of incremental approaches. Whether Congress will act on more ambitious reforms remains to be seen. For now, physicians, patients, and healthcare systems alike wait to see if a 0.5% increase represents the beginning of meaningful change—or simply another chapter in a decades-long story of managed decline. 

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