Medicare’s Paltry Doctor Payments Are Price Controls In Disguise

Specialist physicians will receive a significant pay cut from Medicare next year. That’s the main takeaway from the 2026 physician fee schedule released by the Centers for Medicare and Medicaid Services in October.

For years, physician reimbursement from Medicare has stagnated, even declined. Doctors are responding by leaving the profession or limiting the number of patients they’ll see, particularly those covered by public health plans like Medicare.

Congress needs to fundamentally change how Medicare pays doctors. Failing to do so will deprive countless patients—especially seniors—of timely access to care.

Among the many alterations in physician pay included in CMS’s new rule is a -2.5% “efficiency adjustment” for around 7,000 different services, including outpatient procedures and surgeries.

The chief consequence of this change will be a stark reduction in what Medicare pays many specialists. Commenting on a draft version of this rule earlier this year, the American Medical Association estimated that the new fee schedule will translate into a 10% to 20% cut for more than one-third of the nation’s oncologists. Thirty-seven percent of gynecologists and obstetricians are also expected to see their pay reduced.

These are only the latest examples of decades of declining reimbursement from Medicare. Between 2001 and 2025, Medicare physician pay fell by 33% after adjusting for inflation.

In a functional market, falling prices are usually a sign of falling demand. But in the market for primary care doctors and specialist physicians, demand from seniors is rising. The U.S. population is aging, and enrollment in Medicare is growing.

The federal government dictates the prices of physician services for seniors, through the Medicare physician fee schedule. These Soviet-style price controls have resulted in shortages in the supply of physician services.

The share of physicians leaving clinical practice has increased in recent years, rising from 3.5% in 2013 to nearly 5% in 2019, according to a study published in October in Annals of Internal Medicine. That translates into tens of thousands fewer doctors treating patients. If current trends continue, the United States will be short as many as 86,000 physicians by 2036.

This combination of escalating shortages and falling physician pay suggests that Medicare is compensating physicians below market value, as my colleague Wayne Winegarden points out in a recent paper.

By capping physician pay, Medicare is making it difficult for many practices to keep their doors open. It’s pushing physicians away from private practice and into hospital employment. And it’s making it harder for beneficiaries to find care.

The new CMS fee schedule will only accelerate this grim cycle. Fortunately, there are a number of promising ways to address this situation.

The most straightforward solution would be to get Medicare out of the doctor-paying business altogether. Winegarden proposes that Medicare be converted into a direct cash-benefit program that deposits funds tax-free into health savings accounts that beneficiaries own and control.

In effect, Medicare would pay seniors and empower them to seek care that best suits their needs and budget. Providers would have to compete for beneficiaries’ business on price and quality. Over time, a functional market would emerge, where quality and value steadily increase.

Such a large-scale reordering of the program won’t happen overnight. So in the meantime, lawmakers could adopt more incremental reforms. For instance, simply indexing Medicare physician pay to inflation would go a long way toward alleviating the problem.

Directing Medicare to pay the same rates for procedures and services regardless of where they’re performed is another good idea.

Right now, hospitals receive much higher reimbursements than ambulatory surgery centers or doctor’s offices for a whole host of procedures and services, from colonoscopies to echocardiograms. That makes no sense. Site-neutral payment reform, which would level up payments across sites of care, could deliver the savings Congress needs to permanently peg physician pay under Medicare to inflation.

The current process by which Medicare pays doctors amounts to a complicated system of government price controls—one that is fueling physician shortages and compromising the quality of care available to millions of seniors. The latest CMS rule only exacerbates this already dire situation.

It’s time to compensate physicians for the value they deliver—not punish them with cuts that drive them out of the market.