Doctors Deserve More Than a Token Pay 'Raise' from Medicare

(Yurii Kibalnik/Dreamstime.com)

By Wednesday, 30 July 2025 04:40 PM EDT ET Current | Bio | Archive

The Trump administration is giving doctors a modest pay raise.

A proposal released this month by the Centers for Medicare and Medicaid Services would, among other things, implement the 2.5% hike in Medicare physician reimbursement established by the One Big Beautiful Bill Act, which President Trump signed into law July 4, 2025.

It's a start. Medicare has long underpaid doctors. And that reality endangers access to care for patients across the country.

The numbers are eye-opening.

Doctors are often thought of as well off.

But since 2001, doctors have seen reimbursement from Medicare drop by roughly one-third, after adjusting for inflation.

No business can stay afloat for long if its revenue is declining as its costs — things like office rent, administrative support, and operating expenses — are rising.

So, we shouldn't be surprised that doctors have been opting out of Medicare in increasing numbers. New research published in JAMA Health Forum this month found that the annual rate of physicians exiting Medicare has doubled since 2010.

The rate of exit among primary care physicians was over 4.4%.

Sadly, this situation is exactly what we should expect from central planning of the sort practiced by Medicare. In fact, other Medicare policies are exacerbating the flight of physicians from private practice.

Consider that Medicare reimburses more for medical services delivered at a hospital than it does for those same services when delivered in a physician's practice.

One recent analysis from Yale University's Tobin Center for Economic Policy estimated that reimbursement for initial preventive medical exams was more than 50% higher for hospitals than for office-based physician practices.

Such unequal — not to mention illogical — payment practices aren't just unfair to physicians. They pose a serious threat to healthcare access for all Americans.

Medicare, after all, isn't just one insurer among many.

It's the single largest healthcare payer in the country. It covers about one in five Americans. This means that even small underpayments to physicians can have enormous ripple effects across the health sector.

One of those effects has been an acute and worsening doctor shortage in many parts of the country. The United States is currently short an estimated 37,000 doctors, according to the latest figures from the Association of American Medical Colleges. And by 2036, that figure could more than double to 86,000.

It's impossible to separate these trends from matters of pay and reimbursement. According to a recent McKinsey report, nearly seven in 10 physicians who are considering leaving their current role — or the profession more generally — named a desire for better pay as a major reason why.

But the doctor shortage isn't being driven solely by an exodus of practicing physicians from the health system.

Fewer young people are interested in becoming doctors. Medical school applications reached their lowest levels in years in 2024, further underscoring just how unattractive a career in medicine has become.

The government must stop exacerbating the country's doctor shortage. It can start by raising physician reimbursement under Medicare -- and permanently indexing it to inflation.

Implementing a site-neutral payment system — so that hospitals and physician practices are reimbursed equally for the same care — is another way to help keep doctors from hanging up their stethoscopes.

In the long term, as my Pacific Research Institute colleague Wayne Winegarden argues in a paper published last month, we should consider giving Medicare beneficiaries direct control over their healthcare dollars, similar to how they receive their Social Security benefits.

Such a move would create a vibrant market for medical services virtually overnight, enabling doctors to compete for patients' business on price, quality, and value —and improving the welfare of buyers and sellers.

The One Big Beautiful Bill Act's upcoming increase in Medicare physician reimbursement represents a small step toward addressing our country's doctor shortage.

But Congress must do more to align payments with economic reality — and ensure that patients can access high-quality care when they need it.

Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It" (Encounter 2025). Follow her on X @sallypipes. Read Sally Pipes' Reports — More Here.

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