Physicians treating Medicare patients have seen their real income drop by more than 33% since 2016, fueled by stagnant reimbursement, growing Medicare Advantage enrollment and surging operating costs, according to a report published Aug. 18 by Omniscient Health, a data science, research and consulting firm.

As financial pressure mounts, some health systems are pulling out of Medicare Advantage entirely, and more physicians may soon scale back their Medicare panels or exit the program altogether.

Becker’s spoke with Meade Monger, PhD, CEO of Omniscient Health and coauthor of the report, about what these converging forces could mean for physician sustainability, Medicare access and the broader healthcare system.

Editor’s note: Responses were lightly edited for length and clarity.

Question: With physicians losing more than a third of their Medicare income since 2016, how close are we to a tipping point where treating Medicare patients becomes financially untenable for most practices?

MM: Doctors are caught between a rock and a hard place. Medicare patients make up a large part of many practices. According to KFF,

There are roughly 67 million Medicare patients;
Nearly half of the $1 trillion in gross Medicare benefit spending in 2023 (49% or $493 billion) was spent on Part B services;
Medicare Part B spending accounts for 25% of all national spending for physician and clinical services make up about 20% of all;
And 54% of all Medicare members are in MA plans.

This is a double-edged sword for healthcare providers. Opting out completely from Medicare would inevitably inflict serious volume reduction issues, but serving Medicare patients causes financial hardships for physicians. To get on stronger financial footing, doctors could drop the MA plans that are their biggest loss-leaders.

We’re already seeing health systems reaching a breaking point. The Healthcare Financial Management Association found that 19% of health systems have stopped accepting at least one MA plan while another 61% planning to do so or actively considering it. Of course, these steps affect the doctors who are treating MA patients.

Nonetheless, if the gap keeps widening between cost and payment, more doctors will be forced to scale back on Medicare patients, shift the practice focus away from seniors and/or reduce their patient panel and cut overhead and other costs accordingly.

Q: If current MA payment and administrative trends persist, could we see a “two-tier” Medicare system emerge, where seniors on Medicare Advantage plans have far fewer provider choices than those on traditional Medicare?

MM: It is unclear how many providers understand how much less they are paid from MA vs traditional Medicare. Naturally, as they develop a better understanding of the cost and payment imbalance and realize the negative impact on their ability to cover their costs by treating MA patients, this could very well lead to more of a two-tier Medicare system. The challenge will be balancing the increasing patient demand for MA vs. the declining physician demand for MA.

Q: Given that commercial insurers often benchmark rates to Medicare, how might this reimbursement decline ripple out to the broader healthcare payment system?

MM: Many commercial payers benchmark to Medicare but set their reimbursements above the Medicare rates. A few years ago, KFF reported that private insurance paid 143% of Medicare rates, on average, ranging from 118% to 179% of Medicare rates across studies, for physician services.

As Medicare payments to physicians drop — and inflation further erodes their value — private insurers, which often base their rates on Medicare’s, also keep their own payments low. Medicare rate cuts often propagate into commercial fee schedules directly via percent-of-Medicare contracts or indirectly via leverage in negotiations.

As Medicare rates decline and cause profitability challenges, physicians try to make up for this with commercial-based revenue. But success is bound to be limited: If commercial rates also drift down based on Medicare benchmarks, practices face system-wide margin erosion.

Q: What are the potential downstream effects (e.g., on emergency department overcrowding, patient outcomes, healthcare spending, etc.) if seniors increasingly delay or forgo care due to restricted access?

MM: Seniors may face a grim future. If the inadequate reimbursement rates continue, the trend will lead to less patient access to healthcare providers because of a shrinking population of physicians willing to accept Medicare. In turn, it will increase ER visits because of requirements to treat all patients (EMTALA). Deferred diagnoses, treatments and chronic-disease management drive avoidable complications, with worse outcomes including higher mortality and poorer quality of life due to functional decline. At the same time, deferred care will drive higher costs for treating for sicker patients.

Q: If current trends continue, what will the Medicare physician landscape look like in 10 years?

MM: Extrapolating the last 10 years over the next 10 years would not be even financially sustainable for healthcare providers. There would be different impacts based on the types of physicians. Some physicians see more elderly patients than others based on specialty.

Physicians employed by health systems are also directly affected. The American Hospital Association estimates that hospitals have negative 13% margins on Medicare services. Medicare services constitute 25% of hospital care and commercial insurance covers 37%, according to AHA. With payments negatively impacted by declining Medicare rates, a continuation of past trends into the future will essentially wipe out operating margins.

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