Doctors providing care for Medicare patients face yet another bureaucratic payment cut in 2025. Thankfully, Congress is considering granting them relief. But doctors need more than another temporary patch.

233 members of the House of Representatives have signed a bipartisan letter to block the impending 2.8 percent Medicare physician payment cut next year. Members are also calling for a yearly update reflecting the real cost of delivering medical services.

This strong bipartisan concern is more than welcome. The broken physician reimbursement system is over three decades old, and doctors are reaching a breaking point.

Medicare’s bureaucratic payments and price controls have proven counterproductive. Furthermore, to cope with its deficiencies, Congress has repeatedly resorted to a tiresome pattern of last-minute fixes to stave off the payment cuts, an annual ritual that sometimes worsens and doesn’t even begin to resolve the program’s multiple problems.

>>> Prescription: Reform Medicare Physician Payments

Doctors are feeling the squeeze. Since 2001, Medicare reimbursements have plunged 29 percent when adjusted for inflation, even as medical practice costs have climbed steadily higher. This widening gap between revenue and expenses threatens healthcare providers' financial viability, independence, and, by extension, their ability to maintain high-quality patient care.

The impact goes beyond mere dollars and cents, and exacerbates looming challenges like impending physician shortages and rising job burnout. Seniors in rural and medically underserved communities will bear the heaviest burden.

Make no mistake. If Congress simply reverses next year’s impending physician pay cut or merely tweaks future payment updates, the hard work of fixing this broken system will remain unfinished business. Going forward, the real issue is whether Congress will adopt bold or timid Medicare payment reforms. Lawmakers could merely tweak Medicare’s complex payment formula, or they could lay the groundwork for more aggressive market-based reforms.

In a new Heritage Foundation report, we propose a menu of policy options to address the immediate payment cuts as well as long term payment changes, to expand patient access, and restore the doctor-patient relationship.

First, Congress should halt the fee-for-service (FFS) rate cut effective next year. In its place we suggest a temporary inflation-based update by using the Chained Consumer Price Index (C-CPI). Its projections are slightly lower than the Consumer Price Index (CPI). Capturing the dynamics of month-to-month market responses to changes in pricing, however, C-CPI is a more accurate measure of inflation than the CPI.

Understandably, some medical organizations prefer the more robust Medicare Economic Index (MEI), measuring rising medical practice costs. But the MEI is projecting a sharp 3.6% increase next year. So, using MEI would only accommodate, not control, Medicare's rapid spending growth.

The C-CPI offers a more reasonable balance: an approach that would provide doctors with a measure of predictability while assuring our debt-ridden nation a modicum of fiscal responsibility. Note that last year, over a 12-month period, the C-CPI recorded a 2.8% increase—matching the next year’s Medicare payment cut. Doctors would be better off under this metric than the Medicare status quo.

Second, Congress should give Medicare doctors a greater opportunity to participate in Medicare’s performance bonus program. Under current law, physicians are able to secure such performance bonuses if they participate in a Medicare -designated advanced Alternative Payment Model (APM). To expand physicians’ access to the APM bonus program, Congress should expand the designations to include certain Medicare Advantage (MA) plans as an APM. Streamlining rules to recognize certain qualified MA plans as APMs would reduce administrative burdens while enabling doctors to escape from Medicare’s rigid and outdated Fee-for-Service (FFS) system.

Third, Congress should take action to restore the traditional doctor-patient relationship. To this end, lawmakers should adopt popular medical price transparency policies. Bipartisan legislation to that effect has already passed the House of Representatives. Congress should build on these transparency initiatives. Lawmakers should adopt health market reforms that ensure that providers are compelled to compete on prices, and patients are empowered to make informed and cost-conscious care decisions.

Within a fully price-transparent environment, Congress should also at least reconsider the 33-year-old Medicare restriction on balanced billing—the ability of a doctor to charge an amount above the Medicare price cap. Lawmakers, however, should only do so after authorizing a demonstration project assessing the impact of lifting such a restriction on patient cost, access and provider competition.

>>> A Triage Plan for Medicare

In the same vein, Congress should also reverse the bizarre policy that inhibits private contracting for Medicare patients outside of the Medicare program; a privilege practically reserved for the wealthy. Medicare patients should be able to spend their own money on a legal medical procedure and contract privately with a doctor of their personal choice for any reason they wish, and doctors should not be punished, as they are today, by being excluded from reimbursement from the Medicare program for two full years if they enter into such a contract with a willing patient. That’s why private contracting is so rare. Current Medicare law is thus an unprecedented violation of personal freedom and privacy.

Fourth, Congress should provide the same Medicare payment for a medical procedure whether it is performed in a hospital setting or a physician’s office. Such “site neutral” payment would help level the playing field between giant hospital systems and medical practices. Such a Medicare payment change would also have a positive “spill-over” effect on private health care markets; it would intensify competition in these markets and secure substantial personal as well as program savings.

Finally, Congress should open up the Medicare program to Direct Primary Care (DPC) options, where patients, if they wish, can pay a flat fee for primary care services and secure personalized medical care from a trusted physician. For financing such a program, Congress could offer the option of specialized accounts for Part B services in traditional FFS Medicare and allow Medicare Advantage plans to offer a DPC arrangement as part of their annual health insurance options.

Rooted in a 35-year-old legislative experiment that was theoretically and practically flawed from the beginning, the Medicare physician payment system has demoralized doctors and failed to generate rational economic incentives for the delivery of economically efficient, high quality patient care. Instead, we have experienced a long and unhappy record of failed patchwork and piecemeal “fixes”—Volume Performance Standards, the Sustainable Growth Rate (SGR), the Merit Based Incentive Payment System (MIPS)—that have often created new problems in place of the deficiencies they were supposed to remedy.

It will take a substantial amount of time and much legislative hard work to reform this system, but the goal is worth it. A flexible, competitive Medicare program that compensates doctors fairly, creates strong incentives for the delivery of high-quality care, and restores the traditional doctor-patient relationship.