MedPAC calls for long-term Medicare physician payment reform

CHICAGO — In its report to Congress released today, the Medicare Payment Advisory Commission (MedPAC) recommends a major overhaul to how Medicare updates physician payments. In calling for a long-term, inflation-adjusted approach that better reflects the cost of providing care, MedPAC’s recommendation better supports practice viability and matches an approach supported by the American Medical Association (AMA). 

MedPAC proposes replacing the current 0.25% and 0.75% updates with a permanent, inflation-based formula tied to the Medicare Economic Index (MEI), such as MEI minus one percentage point.

This recommendation marks a major policy shift from minuscule, arbitrary adjustments toward long-term systemic reform. It reflects growing concern that current payment levels are falling behind rising practice costs—jeopardizing access to care, especially in underserved areas.

“This is a pivotal moment for Medicare payment reform,” said AMA President Bobby Mukkamala, M.D. “MedPAC recognizes that continuing with inadequate updates is unsustainable. Linking payments to the actual cost of providing care is essential to ensure that patients can access the services they need.”

Adjusted for inflation in practice costs, Medicare physician payment declined 33% from 2001 to 2025. According to CMS data, practice costs increased by 3.5% this year alone, while a 2.8 percent payment cut has been in effect since January. House and Senate bills have been introduced that would temporarily reverse the damaging 2.8 percent cut and provide a much-needed 2 percent positive payment update.

The problem of decreasing Medicare payment  for physician services has been on Congress’ radar for years. In the recently House-passed reconciliation bill, lawmakers included an update for 2026 that substantially accounts for inflation. This represents a foundational step toward ensuring that Medicare payments keep up with inflation over the long term, as they do for other Medicare providers.

The commission’s recommendation builds on its earlier decision in March to recommend an update of MEI minus 1 percentage point for 2026. This report goes further, advocating for this structure to be adopted as the new annual baseline for Medicare physician payment updates.

“For those who study Medicare—such as the experts at MedPAC—and those of us on the front lines of health care, this is a pivotal agreement on the path toward Medicare payment reform,” Dr. Mukkamala said. “It just makes sense that payment must keep pace with increasing costs as it does for hospitals. The AMA appreciates that MedPAC sees it that way as well and has been responsive to physicians on the front lines.”

Created to advise Congress on Medicare policy, MedPAC’s nonpartisan guidance is advisory but informs legislative policy discussions. The full report can be found here.