It’s hard to sustain an independent physician practice in today’s environment.
As Medicare physician payment rates fail to keep pace with inflation—actually when adjusted for the rise in practice costs, they have dropped by 33% since 2001, according to AMA research—physician practices are forced to make hard choices to survive. Do they join a hospital system? Do they join another multispecialty group and try to band together? Do they only take a certain number of Medicare patients—or none at all?
But Nariman Heshmati, MD, warns that physicians shouldn’t expect those financial challenges to just disappear when they join a larger system. He’s an ob-gyn who in 2024 left an executive health care leader position in Washington state to become the chief physician and operations executive for the large Lee Physicians Group in Fort Myers, Florida.
“There are some efficiencies,” he said, “but, ultimately, [large groups] are facing the exact same pressures and you can see it when you see these massive losses that some of the large organizations and large system have posted.”
Tough decisions have to be made because physicians for years have been forced to figure out how to keep paying for staff, innovative equipment and other rising costs while facing a pay cut from Medicare, which then trickles down to other payers reimbursing well below the cost of inflation. It’s why fixing the broken Medicare payment system is the top advocacy priority for the AMA.
Physicians don’t enter medicine to see some patients and not others depending who pays the bills, Dr. Neshmati said.
“We want to see everybody. But the same decision those small, independent practices have to make, large systems will ultimately have to make too,” he added.
And the choices are only getting tougher, thanks to Congress’ failure to stop the 2.83% Medicare physican payment cut that took effect Jan. 1. That pay cut comes even as the Centers for Medicare & Medicaid Services (CMS) has projected another 3.5% rise in the Medicare Economic Index, which measures the cost of running a medical practice.
“My worry is, if we don’t fix this, if we don’t make the reimbursement at least cover the cost of care, at some point you are going to see those larger systems start to close,” said Dr. Heshmati, who has long served in the AMA House of Delegates representing the Washington State Medical Association. He served as the association’s president-elect in 2023–2024.
Patients losing access to care
He noted that one large physician-owned practice in Seattle—called Seattle OB/GYN—that had served patients for more than 70 years did close its doors in 2023.
“They couldn’t afford to stay in business anymore,” Dr. Heshmati said. “And, so, if you think about it, it’s not only Medicare patients that don’t have access to those physicians, young women on commercial insurance had to go and find alternative places to get their care.”
Dr. Heshmati said he sees the same physician challenges in Florida that he saw in Washington because it’s a fiscal reality: If the cost of running a practice goes up annually and the reimbursement from Medicare goes down each year, it becomes unsustainable for anyone.
“If you go back years ago, we were saying, ‘Hey, this is becoming a problem.’ Fast-forward a few years, we're saying, ‘Hey, practices are starting to limit Medicare patients because they can't afford to see them and stay in business.’ Then you fast-forward a couple of years, we said, ‘Practices are struggling to stay afloat. They're taking out loans to stay open.’ Now we fast forward to where we are, those practices have now closed,” Dr. Heshmati said.
He said it hits home when a well-established, successful, highly regarded practice that everyone wanted to go to can’t make it in today, as physicians face Medicare payment cut year after year—drops that in turn result in lower payments from commercial insurers.
“One of the challenges that we have to understand is that when a practice closes—even if you fix Medicare, it’s not like that practice reopens. It’s not like that access to care comes back. It takes years to train physicians. It takes years to set up these practices and these systems. So, when we lose them, we may not get it back,” Dr. Heshmati said.
When Dr. Heshmati meets with elected officials and tries to highlight the real impact decisions on Capitol Hill have on patients in lawmakers’ districts, there are certain topics he gets pushback on.
But there’s no fight when he discusses the problems with today’s Medicare physician payment system.
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“I don’t hear from anyone that they think Medicare reimbursement is working. I don’t hear from anyone who thinks that we don’t need to fix this,” Dr. Heshmati said. “But we haven’t done anything to fix it. And I think that’s a very frustrating thing. We patch it. We want to fix this so we’re not coming back to Congress every year. We want a long-term fix so we can focus on other things because while we are focused on this, we are doing less innovation. We are investing less in the future of health care.”
The AMA is strongly encouraging physicians from around the country to come out in force for the AMA National Advocacy Conference in Washington, D.C., in February. The goal is to show Congress the real-life impact of the broken Medicare payment system on patients and on physician practices and the communities across America that doctors serve. Learn more and register now.
Fix Medicare Now
Proposals to fix the system exist.
Bipartisan bills that the AMA supports were introduced in the last session of Congress to make bigger, longer-term fixes to the nation’s largest single health care payer in a system that is already facing widespread physician shortages that threaten patient access to care:
- The Strengthening Medicare for Patients Provers Act would give physicians an annual Medicare payment updated tied to the Medicare Economic Index.
- The Provider Reimbursement Stability Act would reform the Medicare payment schedule budget-neutrality policies by, among other things, requiring that CMS reconcile inaccurate utilization projections based on actual claims and prospectively review the conversion factor accordingly.
The AMA will be working to have similar legislation introduced in the current session of Congress. The AMA also has a statutory proposal to replace the Medicare Incentive-based Payment System’s (MIPS) tournament model of payment adjustments with a more sustainable approach tied to annual payment updates. The “Data-Driven Performance Payment System,” which the AMA developed with substantial input from national medical specialty societies and physicians nationwide, also would give CMS incentives to share data with physicians and improve the measures.
Learn more with the AMA’s Medicare Basics series, which provides an in-depth look at important aspects of the Medicare physician payment system. With six straightforward explainers on budget-neutrality rules, MIPS, the Medicare Economic Index and more, policymakers and physician advocates can learn about key elements of the payment system and why they are in need of reform.
“We need to fix this,” Dr. Heshmati said. “Everyone agrees we need to fix this. We just need to do it. Let’s do it now so we can move on to figuring out how to keep this country healthy.”
