Reviewed by Michael Nelson, MD, FCCP
This year’s final rule provided the long-expected but unwelcome news of a cut in the 2025 Medicare conversion factor (CF). The Centers for Medicare & Medicaid Services (CMS) finalized a 2025 CF of $32.3465—a 2.8% cut from the 2024 CF and the fifth year in a row the CF has been cut.
The CF is a complicated formula devised by Congress to establish the annual payment update for Medicare Part B payments to physicians and other Part B providers. The annual CF is a dollar value ($32.3465 in 2025) that is multiplied by the relative work value of a physician service to determine the allowable Medicare reimbursement rate for each service. The annual CF is adjusted to account for growth in the total Medicare beneficiary population, medical inflation, changes in Medicare law and regulation, and the prior year’s growth in Medicare physician services.
It is important to note that if growth in Medicare physician services stays below target growth rates, then the next year’s payments will likely increase. However, if the past year’s growth in physician service spending exceeds the target, the next year’s payments will be reduced to bring overall spending on Medicare physician services in line with spending targets. The Medicare CF is established Congressional law, and CMS has no regulatory flexibility to change the formula that determines the CF.
Unfortunately, the current formula does not adequately project growth in physician spending; for the past five years, it has led to five straight years of cuts to the Medicare CF. While Congress has intervened periodically to avert payment cuts—most recently in 2024 to give a partial-year positive payment—Congress has not yet changed the underlying CF formula that has led to persistent cuts to the annual CF updates. While the cut in the 2025 CF is unwelcome news, there is hope for congressional relief. A bill has been reintroduced in the House of Representatives to prevent the looming 2.8% cut in Medicare physician payments. The bipartisan Medicare Patient Access and Practice Stabilization Act was initially introduced last year by Representatives Greg Murphy (R-NC) and Jimmy Panetta (D-CA) and joined by several other influential members of the House of Representatives.
Fixing the Medicare physician CF for 2025 is expected to be a high priority as Congress considers must-pass legislation during the “lame duck” session. For the past five years, the Medicare program has cut payments to physicians and other Part B providers. If enacted, the bill would eliminate the 2.8% cut in 2025 and provide a positive update that is equal to half the Medicare Economic Index.
CHEST and the American Thoracic Society stand united with the physician community in demanding Congress to take urgent action to reverse the 2025 cut in Medicare physician reimbursements. While reversing the 2025 cut is of immediate importance, we also call on Congress to make fundamental changes to the Medicare physician payment formula to provide predictable payment updates that reflect the economic reality faced by physicians.
Originally published in the December 2024 issue of the American Thoracic Society’s ATS Coding & Billing Quarterly. Republished with permission from the American Thoracic Society.