The case for independent practice support payments: Why CMS should level the playing field

Independent primary care practices face an 87% payment disadvantage compared to hospital-owned practices providing identical services to identical patients. This gap isn't based on quality, outcomes, or patient satisfaction — it's a quirk of Medicare's place of service (POS) coding system combined with a fundamental mismatch between the physician fee schedule and actual practice costs that threatens the survival of independent practice.

Wait, hospitals get how much?

When an independent physician sees a Medicare patient for a routine office visit, they bill using POS code 11 (office) and receive approximately $116 for a 99213 under the non-facility rate. This single payment must cover the physician's professional work plus all practice overhead — staff salaries, rent, equipment, supplies, IT infrastructure, and regulatory compliance.

When that same patient sees a physician in a hospital-owned practice for the identical visit, the billing changes dramatically. The practice uses POS code 22 (on-campus outpatient hospital) and submits two separate claims:

• Professional fee: ~$103 for a 99213 a lower facility rate (Independent primary care about $116) (lower facility rate)
• Facility fee: ~$114 (billed separately by the hospital)(Independent primary $0)
• Total reimbursement: $217

The hospital collects 87% more revenue for the same clinical encounter, with the same physician performing the same work.

For a CPT 99214 (complex office visit):

• independent practice receives ~$150
• hospital receives ~$260 total

Look overhead for greater practice expenses

The Medicare Physician Fee Schedule fundamentally undercompensates for actual practice expenses. Research shows that overhead in medical practices ranges between 60% and 70% of revenue, with MGMA data consistently reporting that the average private practice has overhead accounting for approximately 60% of revenue. For smaller independent practices, this burden can approach or exceed 70%.

Yet the Medicare Physician Fee Schedule's practice expense component — which comprises about 45% of total relative value units (RVUs) — was originally based on historical physician charges rather than actual resource costs.

When Congress mandated the RBRVS system in 1989, it required separate calculation of physician work RVUs, practice expense RVUs, and malpractice RVUs. While physician work became truly resource-based (measuring time, skill, effort, and judgment), practice expense RVUs were calculated by multiplying historical Medicare allowed charges by the percentage of total practice revenues accounted for by overhead costs.

This created a fundamental inconsistency: The fee schedule mixed a resource-based system for physician work with a charge-based system for practice expense. This creates less incentive to overprovide some services and underprovide others.

In 1991, when the practice expense methodology was established, specialty-specific practice cost proportions ranged from 38% for neurosurgery to 50% for family practice. But today's reality is starkly different: actual practice overhead consumes 60% to 70% of revenue.

This means the fee schedule's practice expense component, rooted in 1991 charge data showing 40% to 52% overhead, now attempts to compensate for actual overhead of 60% to 70% — a gap of 10 to 30 percentage points that independent practices must absorb through physician income or donated time.

While CMS transitioned to a "bottom-up" practice expense methodology starting in the mid-2000s that uses actual cost data, operating costs continue rising at rates exceeding the consumer price index, and Medicare physician payments have declined in real terms for over two decades. The result is a fee schedule practice expense component perpetually chasing actual costs but never catching up.

This creates a structural underfunding problem: the fee schedule assumes overhead costs that no longer reflect reality. Independent practices report overhead consuming 60% or more of revenue, far exceeding what the fee schedule's practice expense RVUs compensate.

Doctors working for free

Beyond the overhead gap lies an even more insidious problem: the massive volume of uncompensated administrative work that independent practices must absorb.

Research shows it would take 27 hours or more per day for a primary care physician to fulfill all demands for a 2,500-patient panel. This isn't hyperbole — it's the documented time required to provide comprehensive primary care under current expectations.

Primary care physicians spend a median of 12-14 minutes on after-hours charting and inbox management per patient visit. These 14 additional minutes per visit are entirely uncompensated. For a physician seeing 20 patients daily, that's 4.7 hours of unpaid work every single day.

The uncompensated work includes:

• Prescription refills and prior authorizations
• Lab result review and patient notification
• Care coordination with specialists
• Patient portal messages and phone calls
• Insurance appeals and denials
• Quality reporting requirements
• Regulatory compliance documentation
• After-hours care coordination

Independent physicians provide after-hours coverage for their patients, fielding calls nights and weekends, often preventing emergency department visits through telephone triage and advice. This work is almost entirely uncompensated. Large hospital systems can rotate call coverage across multiple physicians or outsource to call centers, but small independent practices lack this infrastructure.

A little pay, a lot more paperwork

Before 2015, Medicare didn't reimburse providers for Chronic Care Management (CCM) work performed outside office visits. While CCM codes now exist, they require extensive documentation and care plan requirements that create additional administrative burden, and many physicians find the reimbursement inadequate for the time invested.

This payment structure creates an existential crisis for independent practices. Operating costs increased 11.1% in 2025 alone, while Medicare physician payments have declined in real terms for over two decades.

For a typical independent primary care physician generating $600,000 in annual revenue, overhead costs approach $360,000 to $480,000 per year. That physician must see approximately 14 patients per day, 240 days per year, just to cover overhead before earning any income. And this calculation doesn't include the one to three hours of daily uncompensated administrative work performed after clinic hours.

Small independent practices lack the economies of scale that hospital systems leverage to absorb administrative burden. Rural hospitals, which face similar scale challenges, allocate a larger proportion of operating budgets to administrative costs precisely because they cannot spread fixed costs across large patient volumes.

Independent practices face identical disadvantages. They have no shared IT infrastructure across multiple sites, no centralized billing and compliance departments, no call center to handle after-hours patient calls, higher per-unit costs for supplies, technology, and services, full regulatory and quality reporting burden without dedicated administrative staff.

Every hour of uncompensated inbox work falls directly on physician time. A full-time primary care physician in an independent practice performs the equivalent of 1.2 FTE work but gets paid for only 1.0 FTE, with the extra 0.2 FTE consisting entirely of uncompensated administrative tasks.

Yet research consistently shows independent practices deliver lower cost per patient, fewer preventable hospitalizations, and lower readmission rates than hospital-owned practices.

Why hospitals buy medical practices

The current payment system doesn't just disadvantage independent practices — it actively finances their elimination. When a hospital acquires an independent practice, overnight revenue increases 87% simply by changing the POS code from 11 to 22. The same physician, same office, same services, but the hospital extracts an additional $101 per primary care visit through the facility fee.

This windfall explains why hospital ownership of physician practices has surged. Independent practices cannot compete when hospitals can afford to pay acquisition premiums funded by future facility fee revenue that independents can never access.

Independent practices don't have the financial reserves to weather the consolidation pressure. They operate on thin margins, with physicians donating one to three hours daily of uncompensated administrative work to keep practices viable. When faced with rising costs, stagnant reimbursement, mounting uncompensated work, and hospital competitors collecting nearly double the payment for identical work, independence becomes financially unsustainable.

Here’s a solution to the problem

CMS should create an independent practice support payment that recognizes both the full overhead burden independent practices carry without hospital economies of scale and the extensive uncompensated care coordination and administrative work they perform.

The rationale is straightforward:

• Independent practices bear 100% of overhead costs without ability to spread fixed costs across hospital-wide operations, yet the fee schedule's practice expense component covers only a fraction of actual costs
• Smaller practices face disproportionately higher administrative costs per patient, identical to the challenges documented in rural hospitals
• Independent physicians perform one to three hours daily of uncompensated administrative work — inbox management, care coordination, after-hours calls, prior authorizations — that hospital-employed physicians can delegate to centralized administrative staff
• Current payment disadvantages independent practices by 87% despite evidence they deliver better value — lower costs, fewer preventable admissions, lower readmissions
• The payment gap directly finances consolidation that increases total healthcare costs without improving quality

The independent practice support payment would bridge the overhead gap between actual practice expenses and fee schedule compensation. It would also recognize the care coordination and administrative work performed outside billable visits while compensating the scale disadvantage that prevents independent practices from achieving hospital-system efficiencies. But it would recognize the value of after-hours accessibility and continuity of care that independent practices uniquely provide.

This isn't primary care asking for preferential treatment. It's correcting a structural disadvantage that penalizes the very practices that deliver superior value while requiring physicians to donate hours of daily uncompensated work to subsidize an inadequate payment system.

Creating a level playing field

In sum: Medicare payment policy currently rewards hospital consolidation and penalizes independence. The physician fee schedule undercompensates for actual practice expenses, the POS coding system creates an 87% payment advantage for hospital-owned practices, and the system expects independent physicians to absorb one to three hours daily of uncompensated administrative work that hospital systems delegate to staff.

If CMS truly values competition, innovation, and cost-effective care delivery, it must address the compounding payment disparities driving independent practices toward extinction. An independent practice support payment would level the playing field, compensate physicians for the invisible work they currently donate, and preserve the practice model that delivers superior value for patients and taxpayers.

The alternative is continued consolidation, facility fees that increase costs without improving care, and the loss of the personalized, comprehensive primary care that independent practices uniquely provide.

Robert Resnik, M.D., MBA, is a board-certified internal medicine physician practicing in Cary, North Carolina. He earned his medical degree from Eastern Virginia Medical School and completed his residency at East Carolina University. He also holds an MBA from Duke University.