The Rising Challenges in Physician and Ambulatory Surgical Center Reimbursements

“It’s a new year which is bringing new challenges for physicians and ambulatory surgical centers. With rising operational costs and declining reimbursement rates, the healthcare industry is struggling to keep their practices a float.”

Providers continue to strive to provide the highest quality of care to their patients while working to navigate a challenging financial environment. We’ll explore the road ahead for physicians and ambulatory surgical centers into 2025.

Declining Reimbursement Rates

Last year, the Centers for Medicare and Medicaid Services (CMS) announced that they were cutting 1.25% in overall physician pay. They reduced the Medicare conversion factor to $32.74 which was a 3.4% decrease from 2023. As we enter 2025, CMS has proposed a further reduction which would set the conversion factor down to $32.36. Physicians are certainly not immune to the high rates of inflation felt across the economy. These decreases in payor reimbursement alongside rising costs are forcing providers to make difficult decisions to keep their practice operational.

“Physicians have faced the COVID pandemic and subsequent burnout. They have seen the costs soar for running a medical practice, while Medicare payment updates have offered too little relief.” – Dr. Jesse Ehrenfeld, President of the American Medical Association (AMA).

Rising Operational Costs

As we discussed, payor rates are coming down while providers are struggling to maintain their cost structures. A recent study came out that the total investment needed to support a full-time physician rose by over 8% year-over-year in 2024, reaching close to $330,000. Direct expenses including labor costs, equipment and supplies and overhead continue to ramp up. As the general public sees inflation at their local grocery stores, physicians see it in nearly all aspects of their business as well. The Medicare Economic Index published an increase of 4.6% which was the highest increase in over two decades.

Physician Groups are not being shy about the challenge facing their ability to provide the highest level of patient care.“To put it bluntly, Medicare plans to pay us less while costs go up,” American Medical Association President Bruce Scott, MD, stated “You don’t have to be an economist to know that is an unsustainable trend, though one that has been going on for decades. For physician practices operating on small margins already, this means it is harder to acquire new equipment, harder to retain staff, harder to take on new Medicare patients, and harder to keep the doors open, particularly in rural and underserved areas.”

Quote from American Medical Association – Congress must act as Medicare pay cut is set

Impact on Patient Access

Patients are also impacted by the challenge facing physicians. In the past, patients had more choices in regard to visiting physicians in private practice which could provide a more personalized and cost effective service. Unfortunately as reimbursement rates decline and costs rise, fewer physicians now work in private practice. In fact, from 2019 to 2021, over 100,000 physicians moved from their private practice into employment contracts. Back in the 1980s, 75% of physicians owned their own practice. That number has dropped below 45% as of 2024.

Patient advocate groups are concerned that more physicians in corporate healthcare systems will make it more challenging for less affluent patients. The continued cuts in reimbursement coinciding with rising costs are leading to consolidation of practices which lead to less options for patients.

Patients are also dealing with a rise in denial of claims and additional administrative burdens to get their healthcare costs covered. The Medical Group Management Association (MGMA) produced a report entitled “2023 Regulatory Burden Report” identified nearly 97% of providers experienced delays or denials in claims because of prior authorization requirements. Most of these procedures were considered necessary care. These prior authorization hurdles impact both the patient and provider as providers complain about the ability to speak with anyone regarding claim denials.

Third Party Liability Patients – Higher Costs, Added Burden

Third party liability patients are presenting a unique and significant challenge for providers. Given that these patients were commonly injured in accidents in which another party is at fault, they do not have a traditional payor to cover their medical expenses up front. While providers provide the care, they are faced with significant uncertainty regarding payment. Providers are forced to navigate complex subrogation or lien processes to recover costs which typically means delayed payment, costly litigation and the risk of non-payment altogether. If the provider does not properly identify a third-party liability carrier, there is a good chance that the health insurer simply denies the claim citing an involved third party liability claim as a reason. This uncertainty leads to extended accounts receivable time periods which disrupts cash flow and resources away from patient care.

Through the litigation process, providers are faced with a significant amount of discovery which requires them to produce not only documentation related to the patient care, but open up their financials regarding third party payer reimbursements and justification for their charge rates.

Medical Billing Expert Witness Testimony

Abacus Analytics medical billing expert witnesses are familiar with the challenges facing medical providers. Given their experience working in revenue cycle management and healthcare finance, they are dealing with these issues on a daily basis. Medical billing experts have been increasingly used in litigation to provide proper valuation of usual, customary and reasonable charges in third party liability claims. By bringing in a qualified expert with access to billions of data points, medical billing expert witnesses can provide significant value in the litigation process.

 

Michael Judkins

Michael is an avid medical billing expert and team member of Abacus Analytics and focuses on stories and articles in and around the medical billing industry.

Disclaimer: The views and opinions included in this blog post belong to their author and do not necessarily mirror the views and opinions of the company.  Our employees are obliged not to make any defamatory clauses, infringe, or authorize infringement of any legal right.

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