By Rebecca Pifer

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. A powerful hospital lobby 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, a 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.

“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,” said Bruce Scott 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.

Congress normally steps in to stop the worst of the cuts before they go into effect. A bipartisan bill has already been introduced in the House to stop the payment reduction and boost physicians’ Medicare reimbursement next year.

However, legislators have to act before the end of the year. That tight deadline creates an “end-of-year panic,” Scott said.

Physician groups, have lobbied for a permanent, annual inflation-based update to Medicare physician payments in lieu of the current system.

Other changes to the Hospital Outpatient Prospective Payment System

The CMS finalized the first-ever maternal health and safety standards for hospitals on Friday, including staffing requirements for obstetrical units, stricter quality assessments and staff training requirements.

Regulators also established requirements for emergency services readiness, with the goal of better preparing hospitals to care for patients in emergencies, including pregnant women. Inadequate emergency care for pregnant women is a topic heavy in the public eye since the Supreme Court overturned the constitutional right to an abortion two years ago, restricting access to lifesaving medical care in some conservative states.

Hospitals applauded the focus on maternal health, but raised concerns that the new standards are tied to an overly punitive enforcement measure.

Facilities that don’t meet the obstetric standards will be booted out of Medicare, losing access to the program’s almost 68 million beneficiaries.

“While we appreciate that the final rule provides hospitals with additional implementation time and greater flexibility in how they meet certain requirements, we remain concerned about CMS’ excessive use of Conditions of Participation to drive its policy agenda,” commented Thompson.

Yet regulators said the changes are necessary to improve the U.S.’ poor maternal health outcomes, which are some of the worst out of all developed nations.

The final rule also solidifies continuous coverage requirements for children in safety-net insurance programs from the Consolidated Appropriations Act passed two years ago.

States are now required to keep children eligible for Medicaid and the Children’s Health Insurance Program enrolled in the coverage for 12 continuous months, regardless of their family’s ability to pay premiums. Previously, continuous coverage was optional for states.

Last fall, the CMS released guidance to states to implement the continuous coverage requirement, which was effective at the start of this year. As of May, 46 states had implemented the 12-month extension, though a few were lagging behind or seeking a more limited expansion, according to health policy research firm KFF. Florida has also sued the CMS to stop it from enforcing the requirement in a case that is currently on appeal.

Regulators also finalized higher payments for non-opioid treatments for pain relief and for high-cost drugs dispensed at Indian Health Services and tribal hospital outpatient departments.

The rule should also make it easier for recently incarcerated individuals to access Medicare services.

Other changes to the Physician Fee Schedule

In the physician payment rule, the CMS tweaked the Medicare Shared Savings Program, the largest value-based arrangement in traditional Medicare, to incentivize provider participation.

Growth in the model has slowed over the past few years amid shaky buy-in from providers, many of which are leery to take on financial risk.

Now, accountable care organizations with a history of savings can get an advance on those funds from the government to invest into staffing or additional services, regulators said. The CMS is also hiking the benchmark for ACOs that serve more patients from rural and underserved communities as an incentive for those providers to enter and remain in MSSP.

The CMS also established billing for advanced primary care management services, like around-the-clock access to care and care plan development.

Physician groups applauded the move as a way to weave value-based care models into traditional Medicare. The Primary Care Collaborative, a trade association representing the primary care industry, called it “an important first step down a path toward permanent payment reform.”

The CMS also finalized a few expansions of telehealth access, including permanently covering audio-only services.

In separate rules also finalized Friday, the CMS raised rates for home health providers by 0.5% next year, well above regulators’ proposal in June of a 1.7% rate cut.

The CMS also bumped payments for providers treating Medicare beneficiaries with end-stage renal disease by 2.7%.