Medicare's Proposed Physician Fee Cut Could Lead to Some Hard Decisions

Prevea Health's CMO says the proposed 2.8% cut in the 2025 Physician Fee Schedule could force providers to reduce or even cut some services.

A proposed 2.8% cut in Medicare reimbursements for physicians could force healthcare executives to make some painful decisions, the CMO of Prevea Health says.

"Our revenue is tied to payer contracts, which may be signed a couple of years in advance," says Paul Pritchard, MD, senior vice president and CMO of the Green Bay, Wisconsin-based multispecialty medical group. "The Medicare cuts in addition to us not being able to adjust our revenue streams have a dramatic effect.”

“We have been seeing decreases in revenue while our expenses have been climbing," he adds.

The pay cut is contained in the proposed 2025 Physician Fee Schedule, which was released by the Centers for Medicare & Medicaid Services on July 10. It proposes reducing the conversion factor for Medicare reimbursement from $33.29 this year to $32.36 in 2025.

The conversion factor is the number of dollars assigned to a relative value unit (RVU), which is a key element of physician payment by Medicare.

If that pay cut is included in the final rule later this year, it would be the fifth consecutive year that Medicare reimbursements have been cut. According to the American Medical Association, Medicare reimbursements have been cut by 29% since 2021.

According to Pritchard, those cuts have forced Prevea Health, which employs about 500 physicians and advanced practice providers, to make some cuts of their own.

"We have taken some steps such as reduction of staff, which has been primarily non-patient-facing staff such as administrative employees," he says. "We have consolidated certain service lines, particularly specialists. We have not reduced the number of physicians, but we have closed some sites. For example, in Green Bay, orthopedics is now consolidated at one site."

Pritchard said the Medicare reimbursement cuts aren’t happening in a vacuum.

"We experienced a significant reduction in the workforce because of the coronavirus pandemic," he says. "That has created inflationary pressure because healthcare employers are trying to get the same people to work for them. We have seen wages escalate and benefits escalate. Then you couple that with inflationary pressure from supply chain issues."

Potential impact of reimbursement cut

If the reimbursement cut goes into effect, Pritchard said Prevea Health will have to take a hard look at whether to continue providing some services and maintaining some sites of care.

"We will do what any business would do," he says. "We will look at services that are not profitable, which leads to difficult decisions. There are certain things we have done as a physician-run organization because we felt it was right for the community and not because it was profitable."

One such reduction, he says, could come in care management, which Prevea Health established as a service in 2009. While most of the care managers are unfunded positions, the medical group has taken funds out of managed care agreements and risk-based contracts to run the program.

"If we have to consolidate a service line and take it out of our rural areas, so we can have economies of scale, we would reduce access for patients in rural areas," Pritchard says. "But we may have to do this from a business perspective. We may not be able to continue to operate a clinic site in rural Wisconsin that sees 10 patients a day if our revenue continues to get cut."

Broad implications of reimbursement cut

There is widespread unease about private equity getting involved in healthcare and the high volume of healthcare mergers and acquisitions. The continuing Medicare reimbursement cuts are a prime reason for these developments, according to Pritchard.

"As you see your revenue go down, you must start joining larger systems, so that you can get capital, or you have to start reaching out to private equity to get capital," he says.

And the reimbursement cut trend, he added, is unsustainable.

"If you don't know what your capital is going to be because your revenue streams are being cut on a continuing basis, you are going to be reluctant to improve your services," Pritchard says. "The unknown makes it difficult to plan for the future."

"This annual exercise where we must reach out to the federal government to prevent a decrease in reimbursement is déjà vu all over again," he adds. "We have to figure this out because it is not sustainable, and the way it is going, it is only going to get worse."