Medicare’s ‘efficiency’ cut will reduce access, not costs

Many physicians received another pay cut this year, courtesy of Medicare.

Under the program’s new physician fee schedule, Medicare reimbursement for the vast majority of physician-provided services will effectively decline by 2.5%.

Medicare officials justify the change as an “efficiency adjustment.” The theory is that doctors have gotten more productive over time — and therefore do not need to be paid as much for each unit of work.

That conclusion is detached from reality. Medicare has underpaid physicians for years. Further cuts will only make timely, high-quality medical care harder to come by.

The new fee schedule relies on a kind of accounting sleight of hand. Last year, Congress enacted a 2.5% statutory update to Medicare physician pay for 2026. That change increased the amount Medicare pays per unit of work.

But this year’s fee schedule also reduces the number of units assigned to each procedure. For many physicians, that reduction more than cancels out the purported increase in pay.

The result is lower revenue — in some cases as much as 20% less for physicians in certain specialties.

It is unclear how Medicare officials concluded that practicing medicine has become cheaper. The cost of operating a physician practice has increased by more than 60% since 2001. Medicare physician reimbursement has increased roughly 10% over that same period.

Adjusted for inflation, Medicare payments have actually declined by roughly one-third since 2001.

Ironically, Medicare itself has been a major driver of rising practice costs. Federal mandates have required physicians to invest heavily in electronic medical records systems. Reporting requirements tied to quality programs have added layers of administrative complexity.

These mandates have not made medicine more efficient, nor have they improved the quality of care. They have instead made it more bureaucratic. A study published in Annals of Internal Medicine found that for every hour physicians spend face-to-face with patients, they spend two additional hours on clerical work.

Doctors are increasingly functioning as data-entry clerks rather than caregivers.

The new pay cut also discourages the very investments Medicare claims to value. Why would a physician roll out artificial intelligence tools that reduce documentation burdens or streamline routine care if any productivity gains are simply captured by the government through lower reimbursement?

Some practices may respond to reimbursement cuts by limiting the number of Medicare beneficiaries they see — or selling their practices to hospitals or other corporate entities with the scale and administrative capacity to comply with Medicare’s many diktats. That would deprive seniors of choice and force them to wait longer for care.

The new fee schedule is not some expertly calibrated response to changing conditions in the health sector. It’s an exercise in government price-setting, designed to reduce the government’s health bill at the expense of patients and doctors.

Prices play an essential role in balancing supply and demand — and allocating scarce resources efficiently. But they can only do so when they reflect actual market conditions, not the whims of bureaucrats.

What Medicare needs is a payment model that introduces competition, transparency and patient choice — not one that treats physician labor as a cost center.

Reforms that move the program in that direction might include a system of site-neutral payments, so Medicare no longer pays more for care delivered in hospital settings than for the same care provided in physician offices.

Policy makers should also ensure that physician reimbursement keeps pace with inflation, so doctors are not forced to watch their pay erode as operating costs rise year after year.

At a minimum, Medicare must stop docking physician pay based on speculative claims of efficiency that do not reflect the realities of modern medical practice.

Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy and How To Keep It (Encounter 2025). Mike Koriwchak, MD, is vice president of the Docs4PatientCare Foundation and managing partner and a full-time practicing physician at ENT of Atlanta. Follow on LinkedIn or Instagram @thevoicedocatl.