Inside Medicare’s Physician Payment Reform Illusion of Inaction

Congress’s failure to deliver comprehensive Medicare physician payment reform can look like political paralysis, but a firsthand account of the policymaking process describes a different reality: behind each annual cliff fight lie months of negotiation, technical drafting and procedural maneuvering that rarely become visible to the public. In a perspective based on work as a Robert Wood Johnson Foundation Health Policy Fellow on the U.S. Senate Finance Committee, physician Tracey L. Henry examines the disconnect between broad agreement that Medicare’s physician payment system is unstable and the political, fiscal and procedural barriers that have repeatedly prevented durable reform. The central challenge is not recognizing the need for stable payment. It is translating that recognition into a predictable, financially sustainable framework while reconciling competing priorities inside and outside Congress.

The latest dispute opened with the Centers for Medicare & Medicaid Services’ proposed 2027 Medicare Physician Fee Schedule rule, released in July 2026. Despite positive statutory updates for 2027, the proposed conversion factors would decline from their 2026 levels, renewing a familiar debate over what Congress should do about physician payment. The sequence is now predictable: CMS publishes a proposed rule, clinicians and advocacy groups raise concerns, Congress is pressed to intervene, and lawmakers frequently produce another short-term adjustment. Since 2021, Congress has provided temporary physician-payment relief in five of the six calendar years from 2021 through 2026. Henry’s central claim is that this apparent inaction is less an absence of work than a recurring failure to reach agreement over financing, timing, procedural strategy and policy design.

Medicare’s scale makes every adjustment consequential. The program covers more than 67 million people, roughly one in five Americans, and nearly half of Medicare spending flows through Part B. Physician services alone account for approximately one-quarter of all national spending on physician and clinical services. Medicare pays for more than 10,000 services through the Physician Fee Schedule. Payment for each service is based on three components—physician work, practice expense and professional liability insurance—combined into a relative value unit. Those units are geographically adjusted and converted into dollars using a conversion factor. Statutory updates under the Medicare Access and CHIP Reauthorization Act of 2015, known as MACRA, then modify payments, while strict budget-neutrality requirements limit the program’s ability to finance higher spending.

The budget-neutrality rule has a particularly sharp consequence. If changes to payment policy increase Medicare spending by more than $20 million, CMS must offset the added cost. In practice, this often means reducing the conversion factor for all physicians, producing a downward adjustment even when an individual service is not the target. Because specialties share a constrained pool of dollars, gains for one group can become reductions for another. The 2025 conversion factor decreased by 2.83%, corresponding to an estimated 2.93% average payment cut for physicians and other clinicians. The threshold is exceptionally small compared with the scale of the program: annual Medicare Physician Fee Schedule spending exceeds $90 billion. Even raising the threshold from $20 million to $50 million, for example, would remain modest relative to total spending, although any higher threshold would need to be paired with a decision about offsets or additional federal spending.

Congress can intervene by temporarily raising the conversion factor, but such legislation does not alter the structure that produces the shortfall. When an extension expires, the same cycle begins again. Temporary legislation can provide meaningful short-term relief to clinicians facing rising practice costs, inflation, workforce shortages and growing administrative demands, yet it also postpones the harder choices. Henry points to the failed end-of-year negotiations in 2024, when Congress did not pass a package containing physician-payment relief, and to the March 2025 attempt to advance the Bipartisan Health Care Act through unanimous consent. That effort was blocked on March 14 and the bill did not advance. Behind the public account of a bill that failed were congressional staff members testing legislative language, assessing possible vehicles, negotiating policy details and determining whether a proposal could attract enough support. Henry’s experience illustrates that a sound policy idea is only the beginning of lawmaking; relationships, procedural strategy, persistence and timing are also required.

Regulatory work continues even when congressional deliberations stall. Through annual rulemaking, CMS can reconsider how services are valued, test new payment arrangements and strengthen incentives for primary and accountable care, but it cannot independently rewrite the statutory framework governing annual physician-payment updates. Congress included a temporary 2.5% increase in physician payment for 2026 in H.R. 1, enacted in July 2025. CMS subsequently finalized the calendar-year 2026 Physician Fee Schedule with two conversion factors: one for qualifying participants in Advanced Alternative Payment Models and another for other clinicians. Compared with 2025, the final conversion factors increased by 3.77% for qualifying alternative-payment-model participants and by 3.26% for other clinicians. The final rule also sought to rebalance payment toward primary care through an efficiency adjustment affecting many procedural services while exempting evaluation and management codes.

For 2027, CMS is seeking input on redesigning primary-care payment, including how primary care should be valued, how payment should account for emerging technologies and whether prospective primary-care payment could be used within the Medicare Shared Savings Program. The proposal would replace G2211 with a modifier that increases associated evaluation and management payment by 16%, as well as a separate modifier providing a 32% increase for eligible clinicians participating in the Shared Savings Program or Long-term Enhanced ACO Design model. Henry describes these changes as a positive step toward strengthening primary care, but they also reveal the limits of regulatory action. CMS can adjust service valuations, experiment with payment models and strengthen incentives for coordinated care; Congress sets the statutory updates and budget rules that determine whether temporary relief becomes permanent.

Unstable payments are not merely an inconvenience for physicians. Henry notes that inadequate and unpredictable updates can affect access to care, contribute to burnout and accelerate attrition from medical practice, particularly in primary care, although payment policy alone does not explain those outcomes. A nationwide longitudinal analysis of 712,395 physicians caring for Medicare beneficiaries found that attrition from clinical practice increased from 3.5% in 2013 to 4.9% in 2019. A more recent study of more than 37,000 physicians across 160 U.S. organizations found that in 2024, more than one in five physicians intended to leave their organization. Physicians identified improved workflow efficiency, more consistent staffing and enhanced compensation as factors that could influence their reconsideration. Another study found that physicians who perceived their compensation to be fair reported greater work satisfaction and decreased intentions to leave their practices. These findings do not establish that Medicare fee changes caused the reported workforce trends, but they show why payment uncertainty belongs in discussions about workforce stability.

Potential reforms expose the trade-offs that have slowed legislative action. Permanently tying annual payment updates to the Medicare Economic Index, which reflects changes in medical practice costs, would improve predictability but could increase federal spending, forcing Congress to identify a funding source or spending cut or accept a larger budget. Raising the $20 million budget-neutrality threshold could reduce recurring across-the-board cuts. Allocating more resources toward primary care could better support longitudinal and coordinated care, but doing so under budget neutrality could intensify competition or opposition from affected specialties. These choices help explain why agreement on the need for reform has not produced consensus on how to finance it or distribute payments. The design challenge is a system that is patient-centered, adequately compensates clinicians and restrains growth in annual spending. The Senate Finance Committee’s 2024 white paper on strengthening chronic care through physician payment reflected bipartisan agreement that greater predictability and stability are needed, but agreement on a problem does not settle the solution.

After CMS released the 2027 proposed rule in July 2026, bipartisan lawmakers introduced the Patients First Act of 2026, H.R. 9693. The proposal would establish a permanent inflation-based payment update tied to the Medicare Economic Index, modernize budget-neutrality requirements, replace the Merit-Based Incentive Payment System with a streamlined clinician-driven quality program and preserve incentives for alternative payment models. More than a decade has passed since Congress enacted comprehensive physician-payment reform with MACRA in 2015. The new proposal represents another attempt to move beyond temporary fixes, but its introduction does not establish that the measure will become law. Henry’s perspective ultimately argues for a system aligned with the economic realities of medical practice, the value of primary care and chronic-disease management, and the clinical needs of patients. The lesson is that public inaction and policymaking activity can occupy the same landscape: quiet legislative periods may conceal intense negotiations, regulatory rules may reshape payment while legislation stalls, and temporary increases can provide short-term relief without resolving the structural choices needed for long-term stability.

Subject of Research: A policy perspective on the legislative, fiscal and regulatory barriers to Medicare physician payment reform.

Article Title: The Illusion of Inaction: Lessons from Medicare Physician Payment Reform

Article References: Henry, T. L. (2026). The Illusion of Inaction: Lessons from Medicare Physician Payment Reform. Journal of General Internal Medicine. https://doi.org/10.1007/s11606-026-10933-2

Image Credits: AI Generated

DOI: 10.1007/s11606-026-10933-2

Keywords: Medicare, physician payment, health policy, Medicare Physician Fee Schedule, CMS, budget neutrality, primary care, MACRA, alternative payment models, physician workforce, Illusion, Inaction