The Centers for Medicare & Medicaid Services (CMS) have released significant updates affecting Medicare payments for 2025. The changes, outlined in two final rules, will impact both physicians and hospitals, eliciting strong reactions from various medical associations and calls for legislative action.

Reduction in Physician Payments

Medicare payments to physicians and clinicians will be reduced by an average of 2.93% in 2025. The final rule (RIN 0938-AV33) reveals that the conversion factor, which determines provider reimbursement in traditional Medicare, will decrease by 94 cents, or 2.83%, from $33.29 in 2024 to $32.35 in 2025. This reduction is due to the expiration of a temporary 2.93% increase from 2024 and a budget neutrality adjustment for changes in service valuations.

Medical associations have expressed concern over the financial strain this reduction will place on physician practices, particularly those already operating on small margins. Bruce A. Scott, President of the American Medical Association (AMA), warned that the cuts could make it harder for practices to acquire new equipment, retain staff, take on new Medicare patients, and keep their doors open, especially in rural and underserved areas.

CMS finalized a slew of other changes to payment policy in its 3,088-page final rule and a separate rule on home health payment.

Here are some changes that stood out:

• Digital Therapeutics: The agency finalized a proposal that will allow payment for FDA-cleared software-based treatments for mental health known as digital therapeutics. Insurers and psychiatric organizations had raised concerns about insufficient evidence to determine the technology’s efficacy, while digital therapeutics groups applauded the initial proposal.
• Telehealth: Telehealth advocates secured several wins in the final fee schedule, including rules temporarily allowing telehealth providers to report their in-person care locations, even if they provide care from their home, and permitting audio-only virtual care permanently. But only Congress has the power to extend most of the eased pandemic-era rules surrounding virtual care. Some telehealth lobbying groups have warned of a potential gap in coverage if Congress waits until the 11th hour to do so — as it typically does.
• Home Health: CMS will give home health agencies a 0.5% aggregate boost in Medicare payment for next year, the agency said in its home health final rule, after proposing a 1.7% aggregate cut.

For a fact sheet on the CY 2025 Physician Fee Schedule final rule, please visit: https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2025-medicare-physician-fee-schedule-final-rule

To view the CY 2025 Physician Fee Schedule final rule, please visit: https://www.federalregister.gov/public-inspection/2024-25382/medicare-and-medicaid-programs-calendar-year-2025-payment-policies-under-the-physician-fee-schedule

For additional information about the Home Health Prospective Payment System, visit: https://www.cms.gov/medicare/medicare-fee-for-service-payment/homehealthpps and https://www.cms.gov/Center/Provider-Type/Home-Health-Agency-HHA-Center.

The final rule can be downloaded from the Federal Register at: https://public-inspection.federalregister.gov/2024-25441.pdf.

Increase in Hospital Outpatient and Ambulatory Surgical Center Payments

Conversely, Medicare will increase payments for outpatient services at acute care hospitals by $4.7 billion, or 2.9%, in 2025, bringing the total to $87.7 billion. Ambulatory surgical centers will also see a 2.9% increase, totaling $308 million, for a combined $7.4 billion in medical payments next year. These changes are part of the final rule (RIN 0938-AV35).

The rule includes new policies aimed at reducing maternal mortality and morbidity, increasing access to care, and advancing health equity. Key provisions include:

• Two months of continuous eligibility for children enrolled in Medicaid and the Children’s Health Insurance Program (CHIP) as mandated by the Consolidated Appropriations Act, 2023.
• An add-on payment to certain Indian Health Services and tribal facilities to improve access to high-cost drugs.
• The addition of equity measures to hospital outpatient, ambulatory surgical center, and rural emergency hospital quality programs.
• Simplified enrollment processes for former inmates to maintain Medicare coverage.

To view the final rule (CMS-1809-FC), which can be downloaded at: https://www.federalregister.gov/public-inspection/2024-25521/medicare-and-medicaid-programs-hospital-outpatient-prospective-payment-and-ambulatory-surgical

To view a fact sheet, please visit: CY 2025 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS 1809-FC) | CMS

Legislative Outlook and Challenges

It is the fifth consecutive year that doctors face a cut to Medicare payments unless Congress acts. The CMS updates have intensified efforts by physician groups to lobby Congress for a legislative solution. The AMA, along with other groups, is urging Congress to pass the Medicare Patient Access and Practice Stabilization Act of 2024 (H.R. 10073), introduced by Rep. Gregory Murphy (R-NC). This legislation aims to prevent the 2025 cut to the conversion factor and stabilize physician practices while a more sustainable solution is developed. Additionally, the AMA supports H.R. 2474, which proposes automatic annual pay increases for Medicare physicians based on inflation measures relevant to practice costs and general wage levels. 

While a one-year patch would cost several billion dollars, a Congressional Budget Office score for the 2015 legislation that updated the formula estimated it would add $141 billion to the federal deficit through 2025.

Rep. Larry Bucshon (R-Ind.), a retiring cardiothoracic surgeon and member of the GOP Doctors Caucus, emphasized the financial complexities, noting that funding another formula change is a significant challenge. He anticipates that Congress will need to implement some form of temporary patch for the 2025 cuts.

While CMS's final rules for 2025 present reductions and increases in Medicare payments, the overarching theme is the urgent need for Congressional action to ensure the financial sustainability of physician practices and continued access to care for Medicare beneficiaries in both the immediate and long term.

The Nelson Mullins federal advocacy team has extensive healthcare experience to bring clients an understanding of how the legislative, administrative, regulatory, and political processes operate on the Hill and at various state houses and, in turn, impact your industry and members.

Please reach out to Jake Kohn for any questions regarding this topic.