Medicare Cuts In 2025: Navigating Private Practice Challenges

By: Greg Caesar

Greg Caesar, Senior Director and Partner at Medfluence Advisors, a bespoke healthcare consulting firm.

Medicare’s 2.83% reimbursement reduction for 2025 poses significant financial challenges to private practice surgeons. Over the past 20 years, I’ve worked with surgical practices across the U.S. and internationally, and I’ve seen the compounding impact of consecutive reimbursement cuts slowly disrupt the stability of previously healthy private practices. The popularity of physician-owned private practices has declined in the past decade, falling from about 60% in 2012 to around 46% in 2022.

Based on my conversations with numerous practice owners from all over the country, I hear growing concerns about how to maintain independence amid skyrocketing costs, increasing administrative complexity and dwindling reimbursements.

Some practices are implementing efficiency measures to help offset rising costs and sinking reimbursement, while others are considering private equity partnerships or selling their practice altogether to sustain operations. These decisions aren’t easy, but preparation is essential to develop thoughtful strategies rather than resorting to reactive cost-cutting.

Understanding The 2025 Medicare Cuts

The Centers for Medicare and Medicaid Services announced that the Medicare conversion factor will drop from $33.29 to $32.35 in 2025. This is the fifth consecutive year of Medicare payment reductions.

Compounding the issue, the Medicare Economic Index forecasted a 3.5% increase in practice costs for 2025. Over the past two decades, Medicare physician payments have decreased by 29% when adjusted for inflation, according to the American Medical Association. The combination of higher expenses and lower payments, along with greater administrative burden, creates a “perfect storm” for surgical practices.

Who Could Be Hit Hardest

Practices with a payer mix heavily dependent on Medicare—particularly those with more than 40% of patients covered by Medicare—likely face the greatest risk. For small-margin practices, these cuts may be especially difficult to manage.

While the reductions apply exclusively to Medicare rates, the ripple effects could influence private-payer fee schedules that often benchmark against Medicare. Without timely government intervention or practices making strategic adjustments, I believe the financial strain could lead to practice closures or decisions to limit services for Medicare patients. This scenario could pose a threat to access to care, particularly in rural and underserved areas where healthcare resources are already scarce.

Strategies For Success

While CMS estimates a 0% overall impact for some specialties, these projections exclude the 2.83% reduction in the conversion factor, according to the American Academy of Otolaryngology-Head and Neck Surgery. One certainty remains: The 2025 Medicare changes are challenging but manageable with proactive planning.

Through years of consulting and collaborating with healthcare practices, I’ve identified a few strategies that can empower practices to adapt, remain competitive and thrive in an evolving financial landscape. These strategies address both immediate challenges and long-term sustainability, ensuring practices are equipped to weather changes while maintaining high-quality patient care.

1. Operational Efficiencies

Simple adjustments can yield significant results. For example, understand the lifetime value of a type of patient; then, become intentional about marketing to that patient type, and build efficiencies to support and improve the patient experience for those types of patients.

To best calculate the potential lifetime value of a particular patient type, consider factors like frequency of follow-up, expected procedures for a particular disease state, time to treat and possibility of complications. Also, consider adjacent disease states that could impact the lifetime value of a patient.

For example, an optometrist would factor in the annual eye exam, as well as the average revenue from eyeglasses and contact lenses (and adjust for the number of patients who purchase both glasses and contacts). Next, they would subtract the cost for the annual eye exam and average lens, frame and contact lens costs to establish an annual revenue. Then, they’d multiply that by the average number of years a patient stays with the practice. Finally, subtract patient acquisition costs to help understand the real lifetime value of a patient.

With this data in hand, practices can tailor their marketing efforts to the patient types that generate the highest lifetime value.

Practices may also extend clinic hours to best accommodate patients who desire appointments outside of the normal 8 a.m. to 5 p.m. window. For example, consider offering Saturday mornings and hiring a mid-level provider to expand access to care in your practice, boost revenue and improve patient satisfaction. Start small with one additional morning or evening session to gauge the impact before committing to broader changes.

2. Revenue Diversification

Practices can also explore additional revenue streams to reduce dependency on Medicare payments. For example, The Intake, by Tebra, suggested introducing ancillary services related to your specialty, bringing pharmacy services in-house to enhance convenience for patients and renting out excess space.

I suggest regularly reviewing space utilization in your practice; underused areas represent lost revenue opportunities, as these spaces could house ancillary services or be subleased to others for maximum revenue and limited waste.

3. Smart Technology Adoption

Leverage technology like online scheduling, automated reminders and telehealth to streamline operations. I recommend starting with a single system, measuring its impact and expanding once it’s optimized.

In my business, for example, we implemented process management software. The intent was to reduce emails and improve the efficiency of project completion. While it didn’t dramatically reduce emails, it did significantly increase the trackability of tasks within the projects. However, keep in mind that it can take time and requires effort for these investments to pay off. It took my small but nimble business nearly a year and two failed launches of this new process management software to actually see results. This is often the case with process changes—it’s easy to revert to old habits, and adapting to new systems can be challenging.

Looking Ahead

Medicare cuts are a wake-up call for surgical practices. This is a fluid topic, as members of Congress introduced a bill in January to offset the pay cut. Regardless of the outcome, practices will need to embrace innovation, focus on patient care and plan strategically to not only survive but also thrive.

By taking proactive steps—including improving efficiency, diversifying revenue or adopting technology—practices can navigate these challenges successfully. Remember, patients notice the difference between cost-cutting and thoughtful adaptation. Focus on changes that enhance the patient experience while maintaining financial stability, and be careful to implement one or only a few tactics at a time while measuring results. Remember, change can be hard, but adaptation and persistence will pay off.

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