Health Issues

Medicaid for children plays a vital role in covering kids in the United States. As of late 2024, more than 37 million children – almost half the nation’s children ^{– were enrolled in Medicaid or the Children’s Health Insurance Program (CHIP).}

But many families may not be aware of the state and federal guidelines that make their children eligible for coverage. Here are six facts about eligibility that might help if you need Medicaid for your children.

In nine states, there’s a “coverage gap” for some low-income adults who aren’t eligible for Medicaid and whose income is too low to be eligible for Marketplace subsidies. (Income generally must be at least 100% of the federal poverty level to qualify for Marketplace subsidies). ^{But there is no coverage gap for children, because Medicaid income limits for kids extend well above the federal poverty level in all states.}

Are my children eligible for Medicaid? You can use our federal poverty level calculator to get an idea of whether your kids might be eligible for Medicaid or CHIP.

Unlike private health insurance through the Marketplace, off-exchange from an insurer, or from an employer, there is no annual enrollment window for Medicaid. ^{An eligible person can enroll anytime. So if your kids are uninsured and you think they might be eligible for Medicaid or CHIP, you can apply for coverage on their behalf right away. You can} select your state on this page to see details about eligibility and the enrollment process.

And Medicaid can be retroactive by up to three months in most states, meaning that medical expenses your kids incurred recently might be covered after they enroll.

The specifics of these programs – including whether they’re voluntary or mandatory ^{– vary from one state to another, so you’ll need to} contact your state Medicaid office for details.

If your child has Medicaid in addition to other coverage, Medicaid is always the secondary payer. This means the other insurance will be primary, and Medicaid will only start to pay benefits after the claim has been processed by the primary insurance.

With limited exceptions, CHIP is not available to children who are eligible for coverage under a state health benefits plan. So if a parent works for the state and has access to family coverage under the state health benefits program, their children will generally not be eligible for CHIP.

And states can impose more restrictive limits on CHIP. For example, Utah does not allow a child to enroll in CHIP if the child could enroll in an employer-sponsored plan for less than 5% of the household’s income.

As is always the case with Medicaid and CHIP, the details vary by state. But if your child is disabled or has costly ongoing medical needs, you may find that they can qualify for Medicaid even if your household wouldn’t otherwise qualify based on income alone. You can reach out to the Medicaid office in your state to get more information.

There are several states with legislation pending in 2025 that would direct the state to seek federal approval for various terms of continuous Medicaid coverage for kids. They include Alaska, ^{Montana, Rhode Island, and Texas.}

Chronic, non-communicable diseases are the leading cause of death worldwide and make up 8 of the 10 top causes of death in the U.S. Across several chronic diseases, the U.S. has a higher burden of illness than peer nations. The reasons why are complex and include differences in how health care is managed, poverty, diet and exercise, and more.

This chart collection compares rates of chronic diseases such as obesity, diabetes, hypertension, chronic obstructive pulmonary disease (COPD), kidney disease, cancer, and depression in the U.S. to other countries of similar size and wealth, including Australia, Austria, Belgium, Canada, France, Germany, Japan, the Netherlands, Sweden, Switzerland, and the U.K.

The analysis is available through the Peterson-KFF Health System Tracker, an information hub dedicated to monitoring and assessing the performance of the U.S. health system.

President Trump has just signed an executive order outlining several proposals related to prescription drug prices, including efforts to “improve upon” the Inflation Reduction Act, a law signed by President Biden in 2022 with several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government. In the new executive order, the Secretary of HHS is directed to work with Congress to implement a change in the Medicare Drug Price Negotiation Program to delay negotiation of so-called “small molecule” drugs beyond 7 years after FDA approval under current law. This change would mean that small molecule drugs would be on the market longer before they are eligible to be selected for Medicare drug price negotiation, which could lead to higher Medicare prescription drug spending, higher prices, and potentially higher Medicare Part D premiums.

Under current law, high-spending drugs can be selected for negotiation if they are brand-name drugs or biological products without generic or biosimilar equivalents, and at least 7 years (for small molecule drugs) or 11 years (for biologics) past their FDA approval or licensure date when the list of drugs selected for negotiation is published by the Centers for Medicare & Medicaid Services (CMS). This translates into 9 years for small molecule drugs or 13 years for biologics following FDA approval when Medicare’s negotiated prices take effect. Consistent with the new Trump administration executive order, some members of Congress have proposed legislation supported by the pharmaceutical industry to exempt small molecule drugs from selection for negotiation for an additional 4 years so that both types of drugs would be on the market for 11 years prior to being eligible for selection and for 13 years prior to Medicare’s negotiated prices taking effect.

Compared to biologics, small molecule drugs, which often take the form of pills or tablets, are typically cheaper and easier to manufacturer, easier for patients to take, and less expensive on average. Consequently, the shorter timeframe for selection of small molecule drugs has been characterized by its critics as a so-called “pill penalty,” with the pharmaceutical industry claiming that making small molecule drugs eligible for negotiation sooner than biologics will discourage investment in these drugs. However, changing the law to further delay the selection of small molecule drugs for Medicare price negotiation would come at a cost to Medicare and beneficiaries by giving drug companies 4 additional years of setting their own prices on these drugs prior to being eligible for negotiation by the federal government, unless combined with other changes to prevent higher spending.

If Medicare was not allowed to negotiate prices for small molecule drugs until 11 years after FDA approval, rather than 7 years, more than half of the Part D drugs that were selected for price negotiation in the first or second rounds – 13 out of 25 – would not have been eligible at the time drugs were selected. During the first round of negotiation (for negotiated prices taking effect in 2026), 5 of the 10 selected Part D drugs would not have been eligible for negotiations, based on the number of years since they were approved by the FDA. For the second round of negotiation (for negotiated prices taking effect in 2027), 8 of the 15 drugs would not have been selected (Figure 1, ‘Selected drugs’ tab and Table 1).

A 4-year delay in selecting small molecule drugs for price negotiation would have exempted several drugs with high total gross Medicare Part D spending in the first and second rounds of negotiation. For example, Eliquis and Jardiance, 2 of the top 3 drugs based on total gross Medicare Part D spending selected in the first round, would have been ineligible that year based on their FDA approval dates. Similarly, 2 of the top 3 drugs selected in the second round, Ozempic/Rybelsus/Wegovy (semaglutide) and Trelegy Ellipta, would have been ineligible for selection based on their approval dates. (Despite having an injectable form like many biologics, Ozempic has a molecular structure that enables it to be regulated and approved under the same pathway as small molecule drugs.)

To illustrate the implications of this potential change, under current law, small molecule drugs qualified for selection in round two of negotiation if they were approved by the FDA at least 7 years before the February 1, 2025 publication date of the list of selected drugs, or February 1, 2018, which translates to 9 years before the round two negotiated prices take effect in 2027. Ozempic was approved on December 15, 2017, which is more than 7 years before February 1, 2025, and was eligible for selection in round two under current law. However, if selection of small molecule drugs had been delayed an additional 4 years, as has been proposed, Ozempic would have been ineligible for selection. By extending the period from 7 years to 11 years after FDA approval before small molecule drugs can be selected for negotiation, Ozempic would not be eligible for negotiation until after December 5, 2028, and would have 13 years following FDA approval before Medicare’s negotiated price took effect.

The 13 drugs that would have been ineligible to be selected for negotiations during the first and second rounds under a 4-year delay for small molecule drugs accounted for two-thirds of total gross Medicare Part D spending on the 25 selected drugs, or $61 billion out of $91 billion. The 5 small molecule drugs that would have been ineligible for selection during the first round of negotiations account for $32.4 billion (64%) of the $50.5 billion total gross Part D spending on all 10 selected drugs. This is based on spending between June 2022 and May 2023, the period used to determine gross Part D spending to select drugs for the first round of price negotiation (Figure 1, ‘Spending’ tab).

The 8 drugs that would have been ineligible for selection in the second round account for $28.7 billion (71%) of the $40.7 billion in total gross Part D spending on all 15 selected drugs. This is based on spending between November 2023 and October 2024, the period used to determine gross Part D spending to select drugs for the second round of price negotiations.

If small molecule drugs had been subject to an additional 4-year delay from their FDA approval date prior to being eligible for selection in the first two rounds of Medicare drug price negotiation, Medicare would have had to select several other drugs with lower total gross Part D spending in order to round out the list of selected drugs in each year. This suggests that enacting this change in law could increase Medicare spending relative to current law due to lower savings associated with drug price negotiation, with potentially higher drug prices and premiums for Part D enrollees. While the Trump administration’s executive order suggests that other reforms could be implemented to prevent an increase in overall costs to Medicare and beneficiaries associated with this policy change, it did not specify the details of those changes.

The financial health of rural hospitals has been an ongoing concern for some policymakers. More recently, these concerns have been amplified in the context of the concurrent budget resolution that passed the House and Senate in April 2025, with instructions for the House to reduce federal Medicaid spending by up to $880 billion or more over the next decade. The financial challenges of rural and other financially vulnerable hospitals have also been raised in the context of proposals to achieve Medicare savings through site-neutral payment reforms, which would align Medicare payment rates for a given outpatient service across different sites of care. Strains on hospital finances could have implications for both access to care as well as local economies, including in rural areas. Hospitals are the sixth largest employer nationally when comparing industry subsectors. As policymakers consider reductions in Medicaid and Medicare spending, some are considering options to support rural and safety-net hospitals.

In light of these policy discussions, this brief presents ten things to know about rural hospitals, using data from Medicare cost reports, the American Hospital Association (AHA) Survey Database, and other sources (see Methods for more details). Rural hospitals are defined as those in nonmetropolitan areas (and urban hospitals as those in metropolitan areas), in line with a definition used by the Medicare Payment and Advisory Commission (MedPAC), though there are several ways of defining “rural” (see Methods). The federal government also includes nonmetropolitan in its definition of “rural” for certain Medicare rural payment designations. Rural areas are further broken out in this brief into those that are adjacent to metropolitan areas and those that are not. Rural counties that are not adjacent to metropolitan areas are referred to as the “most rural” areas. The analyses focus on community hospitals or non-federal general short-term hospitals that comprise the majority of all hospitals, unless stated otherwise. (See Methods for additional information about the definition of rural and the analytic sample.)

Although rural hospitals more frequently have negative operating margins than urban hospitals, more than half had positive operating margins in 2023 (the most recent year of data available), and nearly one fifth (19%) had margins of at least 10%. Rural hospitals in states that have not adopted the Affordable Care Act (ACA) Medicaid expansion were more likely to have negative margins than rural hospitals in expansion states. Among rural hospitals, negative margins were more common among those in the most rural areas, while positive margins were more common among those that had more beds, higher occupancy, were affiliated with a health system, and were not government-owned in 2023.

1. Rural hospitals account for about one third of all community hospitals nationwide and at least a third of all hospitals in most states

About one third (35%) of all community hospitals were in rural areas in 2023 (Figure 1), or 1,796 rural community hospitals. Rural hospitals accounted for only 8% of all discharges nationwide, in part because they tend to be smaller and serve less densely populated areas, contributing to lower volumes than urban hospitals. Forty-six million people lived in rural areas in 2023 as it is defined in this issue brief, most of whom (88%) resided in a county with a hospital.

Rural hospitals operate in nearly every state (48) and account for at least a third of hospitals in most (31) states. In 17 states, rural hospitals accounted for at least half of all hospitals, including states in the Northwest, South, Midwest, and West. Rural hospitals accounted for at least 70% of hospitals in seven states, five of which border each other in the Great Plains: Montana, Nebraska, South Dakota, North Dakota, and Wyoming.

Over two fifths (44%) of rural hospitals were in areas that are not adjacent to metropolitan areas. These hospitals represented 3% of all hospital discharges and operated in 43 states. Fifteen million people lived in rural areas not adjacent to a metro area in 2023 compared to 31 million in rural adjacent areas.

Rural hospitals provide varying types of inpatient and outpatient services. For example, about half of rural hospitals provide obstetrics care (53%), intensive medical and surgical care (50%), and care through a certified trauma center (52%). In 2023, Medicare began to offer a new rural emergency hospital (REH) designation, which provides support to hospitals that operate 24/7 emergency departments but do not provide inpatient care, recognizing that some regions cannot support a broader suite of services.

Rural hospitals tend to have fewer beds, are less likely to be part of a broader health system, are less likely to have for-profit ownership, and are more likely to be government-owned than urban hospitals according to prior KFF analysis, and they are also more likely to have low inpatient occupancy rates. For example, as might be expected, a larger share of rural hospitals (50%) than urban hospitals (14%) have 25 or fewer beds. One third of rural hospitals are owned by a state or local government versus 10% of urban hospitals. About half of all rural hospitals are part of a broader health system, as compared to more than three quarters of all urban hospitals (52% versus 78%). Consolidation may allow providers to operate more efficiently and help struggling providers keep their doors open in underserved areas, but it could also reduce competition—which may lead to higher prices and lower quality—and make hospitals less responsive to their local communities.

2. Medicare covered a larger share of hospital discharges in rural than urban areas in 2023, while private insurance covered a smaller share and Medicaid covered a similar share

Medicare covered a larger share of discharges in rural versus urban areas (53% versus 45%) while Medicaid covered a similar share (19% versus 21%) and private insurance (not including Medicare and Medicaid plans) covered a smaller share (19% versus 24%). Private insurers generally reimburse at higher rates than Medicare and Medicaid.

With Medicaid covering about one fifth of discharges in rural areas, any substantial reduction in Medicaid spending could have a large impact on rural hospital finances, particularly given the lower margins of rural hospitals. In addition to providing primary coverage for many patients, Medicaid also provides secondary coverage for many beneficiaries who are dually enrolled in Medicare.

3. Medicaid covered nearly half of all births in rural areas, the vast majority of which were in hospitals, in 2023

Medicaid covered 1.5 million births in 2023—representing 41% of all U.S. births—and financed nearly half (47%) of births in rural areas (Figure 3). Births are the most common reason for a hospital inpatient stay. The vast majority (96%) of births in rural areas occurred in a hospital in 2023 according to KFF analysis of CDC data.

Decreases in Medicaid spending could accelerate the closure of obstetrics service lines in rural hospitals, in addition to affecting the availability of services at rural hospitals more generally. From 2010 to 2022, 238 rural hospitals closed obstetrics units while only 26 hospitals opened new units. Low Medicaid reimbursement rates and difficulty recruiting and retaining providers were cited as the biggest challenges to providing obstetrics care in rural areas, according to the Government Accountability Office.

4. A larger share of rural than urban hospitals had negative margins in 2023, though more than half of all rural hospitals had positive margins

Despite the government support that most rural hospitals receive, a larger share of rural hospitals had negative operating margins than did urban hospitals in 2023 (44% versus 35%) (Figure 4). A larger share of rural hospitals in areas that were not adjacent to a metropolitan area (i.e., that were in the most rural areas) had negative margins than did rural hospitals in areas adjacent to a metropolitan area (49% versus 40%). Operating margins reflect profit margins earned on patient care and other operating activities, rather than profits earned on other sources, such as investments.

At the same time, more than half (56%) of all rural hospitals had positive operating margins. Further, while about one sixth (15%) of all rural hospitals had margins less than -10%, about one fifth (19%) had margins greater than 10% (data not shown). In other words, financial conditions as measured by operating margins varied substantially across rural hospitals.

Rural hospitals may face financial and operational challenges for a number of reasons. For example, rural hospitals tend to have low patient volumes, stemming from low and declining populations in rural areas and rural patients bypassing local hospitals for treatment at urban facilities. Low patient volumes may lead to higher costs on average—e.g., to the extent that the fixed costs of operating a hospital, such as building upkeep and maintaining a minimum number of administrative and clinical staff, are spread across fewer patients—and limit the ability of rural hospitals to offer specialized services. Many rural areas also have a particularly hard time attracting and retaining health care workers.  Both urban and rural hospitals have encountered financial challenges since the start of the COVID-19 pandemic, including rising labor and supply costs, although there are signs that hospital finances have been recovering.

5. Among rural hospitals, positive margins were more common among those that had more beds, higher occupancy, were affiliated with a health system, and were not government-owned in 2023.

Large, high occupancy, system-affiliated, and non-government rural hospitals were more likely than other rural hospitals to have positive margins. While 56% of rural hospitals overall had positive margins, the share was larger among hospitals with at least 200 beds (73%), with occupancy rates of at least 75% (70%), and that were affiliated with a broader system (63%). For-profit and nonprofit rural hospitals also more frequently had positive margins (62% and 61% respectively) than rural hospitals overall.

While 44% of rural hospitals overall had negative margins, about half of rural hospitals that had 26-99 beds (52%) and were not affiliated with a broader health system (51%) had negative margins. The likelihood of having negative margins tended to decrease with lower occupancy rates and fewer beds, except that hospitals with 25 or fewer beds were less likely to have negative margins than average. That may reflect the fact that this group mostly includes critical access hospitals, which receive additional government support.

More than half of non-federal, government-owned hospitals (54%)—which make up a third of rural community hospitals—had negative margins. Most government-owned hospitals in rural areas included in this analysis are operated by a county or hospital district.

6. The ACA Medicaid expansion has helped improve hospital finances, and may especially benefit rural hospitals

State Medicaid expansion under the Affordable Care Act has had financial benefits for hospitals according to several studies. The financial impact of Medicaid expansion for at least certain measures may be most evident among rural hospitals, small hospitals, and hospitals that see a higher proportion of low-income patients, based on some of this research.

Half (50%) of rural hospitals in states that had not adopted the ACA Medicaid expansion as of the beginning of 2023 had negative margins in that year, compared to four tenths (41%) of rural hospitals in expansion states. Differences were larger among hospitals in the most rural areas (i.e. in rural areas not adjacent to metropolitan areas). In those regions, about six tenths (59%) of hospitals in non-expansion states had negative margins compared to less than half (45%) of rural hospitals in expansion states. Differences between expansion and non-expansion states could reflect the effects of expansion on hospital finances but could also reflect a variety of unique state circumstances, such as demographics, hospital ownership and cost structure, commercial reimbursement rates, and state and local health and tax policy.

About two thirds (69%) of the rural hospital closures from 2014 to 2024 occurred in states that had not expanded Medicaid at the time according to KFF analysis of data from the UNC Sheps Center. (The Sheps Center has a broader definition of “rural” than used in this brief, such as by including critical access hospitals in metropolitan areas).

7. Hospital closures outpaced openings in rural areas from 2017 to 2024, and many rural hospitals have dropped specific service lines over time.

From 2017 to 2024, 62 rural hospitals closed compared to 10 that opened, a net reduction of 52 hospitals. (Closures refer to hospitals that eliminate inpatient services—aside from those that convert to rural emergency hospitals—or cease operations altogether). Over the longer twenty-year period from 2005 to 2024, 193 rural hospitals closed according to the UNC Sheps Center (which uses a broader definition of “rural” than this brief). The small number of studies that have evaluated the association between consolidation with rural hospital closures and service eliminations have had mixed results.

Aside from closing altogether, rural hospitals have also dropped certain service lines over time. For instance, according to one analysis, the share of rural hospitals offering obstetrics care dropped from 57% in 2010 to 48% in 2022. The share among urban hospitals also dropped over that period (from 70% to 64%) but remained higher than in rural areas in 2022 (64% versus 48%). Government relief funds may have helped some rural hospitals stay open and maintain certain service lines during the COVID-19 pandemic. The new REH hospital designation in 2023 may have helped prevent some rural hospitals from closing according to MedPAC.

Rural hospital closures often raise concerns about access to care and the local economy. When a rural hospital closes, patients may have to travel further to obtain services, which could lead some to forgo care altogether. Closures may be especially problematic for people who have difficulty traveling long distances and for people with time-sensitive conditions, such as heart attacks and childbirth. Research suggests that rural hospital closures lead to increased unemployment (including among non-healthcare industries), lower income levels, and slower economic growth.

While there has been interest among some policymakers in sustaining rural hospitals, doing so may be difficult in certain scenarios—such as in areas with shrinking populations—and could involve tradeoffs. For instance, although rural hospitals can help the local population access care, it is also possible that some of the services they offer can be provided at a lower cost through telehealth or freestanding rural outpatient clinics. Further, while traveling to large regional hospitals may be burdensome for patients in some cases, it is also possible that these hospitals may offer higher quality of care in certain scenarios.

8. Medicare provides additional funding for the large majority (96%) of rural hospitals through special payment designations

Traditional Medicare includes special payment designations targeted towards rural hospitals that can increase payments through the inpatient and outpatient prospective payment systems (IPPS), by reimbursing hospitals based on their costs, or by providing monthly facility payments. The Medicare-dependent designation and an expansion of low-volume hospital adjustments are not permanent but have been renewed over time. Congress passed a continuing resolution in March 2025 that extends these policies through September 30, 2025, and proposed legislation in the Senate would make them permanent.

A hospital may only be designated as one of the following:

• Critical access hospitals (CAHs) are rural hospitals with at most 25 beds that are a minimum distance from other facilities (with some exceptions) and meet other requirements. Medicare pays CAHs 101% of inpatient and outpatient costs (although with sequestration, it reimburses below cost). CAHs receive an estimated $3 to $4 billion in higher payments annually according to a 2022 MedPAC report. CAH is the most common designation, accounting for more than half (59%) of rural hospitals in 2023 (Figure 7).
• Sole community hospitals (SCHs) are hospitals that are the only source of short-term, acute inpatient care in a region. Medicare reimburses some SCHs at higher rates than they would have received under IPPS, including based on historical costs. Since 2006, CMS has also increased OPPS rates for rural SCHs. SCHs receive $0.8 billion in higher payments annually (including low-volume adjustments to SCHs) according to a 2022 MedPAC report.
• Medicare-dependent hospitals (MDHs) are small rural hospitals with high Medicare inpatient shares. Medicare pays MDHs higher rates based on historical costs if greater than IPPS rates. MDHs receive $0.1 billion in higher payments annually according to a 2022 MedPAC report.
• Rural emergency hospitals (REHs) are rural hospitals that operate 24/7 emergency departments but do not provide inpatient care. REHs are reimbursed at 105% of standard OPPS rates and receive monthly facility payments. This designation became available in 2023, recognizing that some areas cannot support a broader suite of services. MedPAC has estimated that REHs cost an additional $30 million in 2023, much lower than original CMS projections for 2023 ($408 million), possibly because fewer hospitals converted to REHs in 2023 than originally anticipated. Nineteen hospitals converted in 2023 (most of which did so in the second half of the year) and an additional 18 converted in 2024 according to the UNC Sheps Center.

There are two additional rural designations that can be applied to a hospital, with additional benefits:

• Low-volume hospitals (LVHs) are hospitals with few discharges that are a minimum distance from other facilities. They receive up to 25% higher payments through the IPPS. LVHs receive $0.4 billion in higher payments annually according to a 2022 MedPAC report.
• Rural referral centers (RRCs) are hospitals that generally either treat patients from across a large region or treat complex cases. Some RRCs are eligible for higher IPPS base payments, among other benefits. Although RRCs are sometimes referred to as a rural payment designation, most (73%) are not in rural areas based on KFF analysis of cost report data. There is no recent estimate for the value of this designation.

While these special payment designations are available for hospitals discharges covered by traditional Medicare, Medicare Advantage accounts for a rising share of discharges across the nation, and is growing more rapidly in nonmetropolitan areas, which may pose additional challenges for rural hospitals. Hospitals in rural areas and elsewhere have raised concerns about the growth of Medicare Advantage, pointing to payment delays and denials and lower reimbursement than traditional Medicare. According to the American Hospital Association, Medicare Advantage reimburses rural hospitals at lower rates than traditional Medicare on average. MedPAC has noted that Medicare Advantage plans do not pay REHs monthly facilities payments (in contrast to traditional Medicare), and at least some providers have said they do not receive increased Medicare Advantage payments equivalent to the payment bumps under traditional Medicare rural payment designations. Whether or to what extent rural hospitals experience revenue declines as Medicare Advantage covers a larger share of Medicare patients is unclear.

Other federal programs or policies also provide additional support for rural hospitals. For instance, Medicare adjusts IPPS and OPPS reimbursements based on the wages hospitals pay in a given area (known as the Wage Index), which generally results in lower reimbursement for rural hospitals. However, sole community hospitals and rural referral centers can be more easily reclassified to areas that receive higher reimbursements through the Wage Index. Many state Medicaid programs also have special payment rules for hospitals in rural areas, such as by paying higher rates or based on costs or through supplemental payments. HRSA also administers several programs providing grants, technical support, workforce development, and other assistance to rural hospitals and rural providers more generally. As another example, the Center for Medicare & Medicaid Innovation (CMMI) recently concluded its test of the Pennsylvania Rural Health Model, which provided rural hospitals with an all-payer global budget and was intended to reduce costs, increase quality, and improve the sustainability of rural hospital finances.

Rural hospitals can also benefit from other programs or payment policies that are available to certain hospitals across the country. This includes higher Medicare reimbursement for Disproportionate Share Hospitals, tax-exempt status for nonprofit hospitals, and participation in the 340B Drug Pricing Program, which requires manufacturers participating in Medicaid to sell outpatient drugs to eligible nonprofit and government providers at a substantial discount, with the intent of supporting entities caring for low-income and other underserved populations. In 2023, critical access and sole community hospitals alone purchased $1.5 billion in 340B drugs.

9. Even with additional funds, about half of sole community, Medicare-dependent, and low-volume hospitals had negative margins in 2023.

About half of sole community hospitals (49%), Medicare-dependent hospitals (52%), and low-volume hospitals (52%) had negative margins in 2023. As discussed below, there have been proposals to increase Medicare reimbursement for these facilities. A smaller share of critical access hospitals (40%) and rural referral centers (37%) reported negative margins in 2023 than hospitals in other designated categories, such as sole community hospitals.

10. Significant reductions in federal spending on health care under consideration would have direct or indirect implications for rural hospitals

The House and Senate passed a concurrent budget resolution in April 2025 with instructions for the House Energy & Commerce Committee to reduce the federal deficit by at least $880 billion over ten years, which the Congressional Budget Office and other analysts have confirmed would require significant cuts to Medicaid. Large reductions in Medicaid would likely have significant implications for hospitals, given that hospital care accounted for about one third of Medicaid spending in 2023. Options under consideration for reducing Medicaid spending include targeting state directed payments to hospitals or restricting states’ ability to fund Medicaid through provider taxes. Because provider taxes disproportionately fund supplemental payments to hospitals, restricting them as a revenue source is likely to result in lower funding for hospitals broadly, including for rural hospitals. Also being considered among other options is reducing the federal share of funding for Medicaid expansion, which has helped improve hospital finances. The hospital industry has been lobbying Congress against proposed cuts, arguing that reductions in Medicaid spending would threaten access to care at hospitals.

Also being discussed are site-neutral payment reforms that would achieve Medicare savings by aligning Medicare payment rates for a given outpatient service across different sites of care. These reforms would reduce payments to hospitals, with the impact varying based on the extent to which a given hospital relies on Medicare outpatient revenues and other factors. MedPAC estimated that one approach applying to on- and off-campus hospital outpatient departments (HOPDs) would lead to relatively large decreases in Medicare revenues for smaller and rural hospitals. Other research has found that off-campus HOPDs—the focus of some reforms—account for a smaller share of outpatient revenues in rural versus urban areas.

Some Members of Congress have expressed concern about the impact of site-neutral payment reforms on rural hospitals, though these reforms would likely not apply to many rural hospitals. Site-neutral payment reforms would likely only apply to OPPS reimbursement and would therefore not affect critical access hospitals, which are reimbursed based on costs and account for most rural hospitals (59%; see Figure 7). CMS has excluded sole community hospitals (20% of rural hospitals) from an existing regulation that extends site-neutral payments to clinic visits at off-campus HOPDs, and it is possible that future policies may do the same. Senators Cassidy and Hassan released a framework for site-neutral reforms in November 2024 that would reinvest some of the savings by increasing reimbursement for sole community, Medicare-dependent, and low-volume hospitals, as well as for urban and suburban safety-net hospitals and certain essential services.

Members of Congress have proposed various policies to prop up rural hospitals that could also be used to soften the impact of cuts to federal spending. For example, bills introduced during the last Congress would expand support for rural emergency hospitals, allow for increased reimbursement for Medicare-dependent and sole community hospitals, and eliminate Medicare sequestration for rural hospitals. More recently, Republicans released a menu of options for reducing federal spending in February 2025, which included an offsetting measure that would expand the rural emergency hospital program. Notably, the list of options did not include new sources of funding for urban safety-net hospitals, even though some of the major options for cutting spending would likely have a disproportionate impact on these facilities, including large cuts in Medicaid spending and reductions in Medicare uncompensated care and bad debt payments.

Methods

There are many different ways of defining rural areas, each of which would capture a different number of hospitals with different characteristics. The Appendix below includes examples of different definitions created by various federal agencies. This analysis defines rural as nonmetropolitan, in line with a definition used by MedPAC, and given the policy relevance of nonmetropolitan areas. The federal government defines “rural” areas as including nonmetro areas and other regions in some instances, such as when administering additional support through Medicare for critical access hospitals, Medicare-dependent hospitals, sole community hospitals, and rural emergency hospitals. Nonetheless, the definition of rural in this brief includes some areas that others would consider to be urban and excludes some areas that others would consider to be rural. For example, the Federal Office of Rural Health Policy (FORHP), which is part of HRSA, uses a broader definition of rural, noting that some large unpopulated regions, such as the Grand Canyon, are in metropolitan counties.

Data for this analysis came from the following sources:

• American Hospital Association (AHA) Annual Survey. Data from an annual survey of all hospitals in the United States and its associated areas. Used for analyses of rural hospital prevalence, hospital discharges, hospital services, payer mix, and system membership.
• RAND Hospital Data. A cleaned and processed version of annual cost reports that Medicare-certified hospitals are required to submit to the federal government. Used for analyses of hospital margins and special Medicare payment designations.
• UNC Sheps Center lists of rural hospital closures and rural emergency hospitals. The former tracks closures among short-term, general acute care, non-federal hospitals in nonmetropolitan and certain other areas and among critical access and rural emergency hospitals. Closure data was was matched to KFF data on Medicaid expansion status and date of expansion to determine the expansion status of a given state when a given rural hospital closure occurred. The latter was used to identify rural emergency hospitals.
• Census Bureau population estimates. This analysis relied on annual population estimates from July 1, 2023 (excluding U.S. territories) from the Census Bureau’s Population Estimates Program.
• MedPAC publications. MedPAC’s March 2025 Report and July 2022 Data Book were used to identify rural hospital openings and closures over time,

This analysis categorized counties and county equivalents as urban (metropolitan) or rural (nonmetropolitan) areas and divided rural areas into those that are or are not adjacent to metropolitan areas based on 2024 Urban Influence Codes from the USDA, as follows:

• Urban
  • 1: Large metro (in a metro area with at least 1 million residents)
  • 4: Small metro (in a metro area with fewer than 1 million residents)
• Rural, adjacent to a metro area
  • 2: Micropolitan, adjacent to a large metro area
  • 3: Noncore, adjacent to a large metro area
  • 5: Micropolitan, adjacent to a small metro area
  • 6: Noncore, adjacent to a small metro area
• Rural, not adjacent to a metro area (“most rural”)
  • 7: Micropolitan, not adjacent to a metro area
  • 8: Noncore, not adjacent to a metro area and contains a town of at least 5,000 residents
  • 9: Noncore, not adjacent to a metro area and does not contain a town of at least 5,000 residents

This analysis uses different groups of hospitals depending on the analysis, as described in the figure notes. Analyses primarily using AHA data focused on community hospitals—which are short-term, non-federal, general and specialty hospitals that are open to the general public—and exclude hospitals in U.S. territories. There were 1,796 community hospitals in rural areas in 2023, representing 92% of all hospitals in rural areas.

Analyses of hospital margins relied primarily on RAND Hospital Data and focused on non-federal general short-term hospitals, excluding those in U.S territories. Those analyses also included other sample restrictions, such as ignoring certain outlier values. Operating margins were approximated as (revenues minus expenses) divided by revenues after removing reported investment income and charitable contributions from revenues. The Methods section of a prior KFF analysis of operating margins includes additional details, such as the limitations of available financial data. Our analyses of margins included 1,690 hospitals in rural areas in 2023. Data for certain characteristics were missing for 1% or less of the sample with margins data.

The analysis of the share of rural hospitals with special payment designations focused on non-federal general short-term and rural emergency hospitals (excluding those in U.S territories), which included 1,787 hospitals in 2023.

Relative to the size of its economy, the U.S. spends a greater amount on health care than other high-income nations. And while the U.S. has long had higher than average health spending, recent years have seen higher spending growth in peer nations. This chart collection compares health care spending in the U.S. and other OECD countries that are similarly large and wealthy, using data from the OECD Health Statistics database.

The slideshow is available through the Peterson-KFF Health System Tracker, an online information hub dedicated to monitoring and assessing the performance of the U.S. health system.

The cost of health care in the United States has continued to grow in recent years. Between 2022 and 2023, overall health spending rose 7.5%, and it is projected to rise another 4.2% in 2025.

A new issue brief authored by KFF and the Peterson Center on Healthcare examines market trends contributing to rising health costs and identifies several potential federal and state policy issues to watch throughout 2025, including high-cost drugs, federal funding cuts, and workforce shortages.

This brief is available through the Peterson-KFF Health System Tracker, an online information hub dedicated to monitoring and assessing the performance of the U.S. health system.

This slideshow explores trends in how costs affect access to health care in the U.S., including decisions to forgo or delay needed care and access to a usual source of care. Based on data from the 2023 National Health Interview Survey, more than 1 in 4 adults (28%) reported delaying or not getting health care due to cost.

The analysis also notes that Hispanic adults, non-elderly adults, adults in worse health (reported as fair or poor health status,) and uninsured adults are more likely to delay or forgo care due to cost. The slideshow also explores variations based on income and race.

The slideshow is available through the Peterson-KFF Health System Tracker, an online information hub dedicated to monitoring and assessing the performance of the U.S. health system.

From understanding health insurance terminology like “deductibles” and “copays” to deciphering the contents of a bill, consumers can face various barriers when trying to understand the costs associated with their health insurance coverage. This lack of understanding may contribute to frustration and cost-related problems and can have far-reaching effects on consumer health and finances. The KFF 2023 Survey of Consumer Experiences with Health Insurance (“KFF Consumer Survey”) found that 27% of insured adults reported that their health insurance paid less than they expected for a bill they received from a doctor, hospital, or lab in the past twelve months, the biggest cost-related problem consumers reported experiencing. Efforts to make cost information more readily available and easy to understand could help reduce some of these problems.

The first brief of this two-part series on navigating health insurance complexities and consumer protections focused on how consumers understand what their health insurance covers, what they do when coverage is denied, and what federal protections exist to ensure that the information available to them and coverage determinations are fair, accurate, and timely. This second brief focuses on KFF Consumer Survey findings about consumers’ understanding of health insurance costs and examines existing federal protections that seek to address barriers to understanding the cost of coverage and care, such as price transparency, self-service price estimator tools, and simplifying cost-sharing designs.

KFF Consumer Survey Findings: Consumer Understanding of Costs Associated With Health Coverage

The KFF Consumer Survey included a nationally representative sample of 3,605 U.S. adults ages 18 and older with health insurance. The survey asked consumers how well they understand costs associated with their health coverage, cost-related health insurance terminology, and the difficulty level of comparing cost-related insurance options such as premiums and deductibles.

Three out of ten adults (30%) said that it was somewhat or very difficult to understand how much they would have to pay out-of-pocket when they use their health insurance. Marketplace (41%) and ESI (34%) enrollees were more likely to report this difficulty compared to Medicaid (16%) and Medicare (20%) enrollees (Figure 1). Insured White (30%) and Hispanic (32%) adults were more likely to report that it was somewhat or very difficult to understand how much they will have to pay out of pocket when they use health insurance compared to Black adults (23%). Additionally, insured adults ages 18-29 (35%), 30-49 (35%) and 50-64 (30%) were all more likely to report that it was somewhat or very difficult to know how much they will have to pay out of pocket when they use health insurance compared to those ages 65 and older (18%).

One-quarter (25%) of insured adults said that it was somewhat or very difficult to understand specific terms that their health insurance uses such as “deductible,” “copay,” “coinsurance,” “prior authorization,” or “allowed amount.” Those with Marketplace coverage (32%) and ESI (27%) were more likely to report that it was somewhat or very difficult to understand these terms compared to those with Medicaid (22%) and Medicare (19%) (Figure 1). Furthermore, Hispanic adults (31%) were also more likely to report difficulty in understanding these terms compared to White (23%) or Black (22%) adults. Insured adults between the ages of 18-29 (29%), 30-49 (30%), and 50-64 (25%) were all more likely to report difficulty in understanding these insurance terms compared to those ages 65 and older (17%).

One in four (25%) insured adults reported that it was somewhat or very difficult to compare the copays and deductibles for each plan option. Those with ESI (27%) and Marketplace (31%) coverage were more likely to report having this problem compared to those with Medicaid (13%) or Medicare (22%) (Figure 2). A larger share of insured White (24%) and Hispanic (27%) adults reported difficulty comparing the copays and deductibles for each option than Black (19%) adults. Additionally, insured adults ages 18-29 (28%) and those ages 30-49 (27%) were more likely to report that it was somewhat or very difficult to compare the copays and deductibles for each option compared to those ages 65 and older (21%).

About one in five (19%) insured adults reported that it was somewhat or very difficult to compare the monthly premiums for each coverage option. Those with Marketplace coverage (25%) were more likely to report having this issue compared to those with ESI (19%), Medicaid (12%), or Medicare (17%) (Figure 2). Insured Hispanic adults (22%) were more likely to report difficulty comparing the plan premiums than White (17%) adults. Insured adults ages 18-29 (24%), 30-49 (20%), and 50-64 (19%) were all more likely to report that it was somewhat or very difficult to compare the monthly premium for each option compared to those ages 65 and older (13%).

Federal Consumer Protections that Seek to Address Barriers to Understanding the Cost of Coverage and Care

The KFF Consumer Survey indicates that many consumers have gaps in understanding what they will have to pay for the services they need before they receive care. Federal reforms related to health insurance costs aim to simplify and standardize cost sharing, set guidelines for the coverage of certain health benefits, and promote price transparency. Some of these changes may enable consumers with private coverage to better understand their coverage options and out-of-pocket obligations for covered benefits. This section focuses primarily on federal protections for individuals with private health insurance (individual and employer-sponsored), though public programs like Medicare and Medicaid have established many consumer protections as well.

Providing Consumers with Cost Specific Information: Price Transparency

Federal reforms to private insurance aim to increase price transparency and promote competition among hospitals and among insurers, reduce health care costs, encourage patients to price-shop at different facilities by providing an estimate of patient out-of-pocket costs for a health care service or prescription drug, and help consumers make better plan selections. Reforms would allow consumers to look for price information about a service in at least three ways:

Search listed pricing information available on hospital and plan websites: Most hospitals in the U.S. are required to establish, update annually, and make public on the internet a comprehensive machine-readable file containing a list of their “standard charges” for all items and services that they provide. Standard charges are the regular rates established by hospitals for items and services. Standard charges alone are generally of less value to insured consumers when determining their out-of-pocket costs than the “allowed amount,” which is the maximum amount a specific health plan will pay for a covered benefit. This hospital price transparency requirement was included in the Affordable Care Act (ACA), with more extensive federal regulations (incorporating additional forms of pricing, including allowed amounts) issued in 2019 and effective in 2021. Separate federal price transparency standards require employer-sponsored plans and insurers to post on a publicly accessible internet site three machine-readable files disclosing different forms of pricing information specific to each plan: in-network provider-negotiated rates, historical out-of-network allowed amounts (the maximum amount a plan will pay for a covered health service received from an out-of-network provider), and prescription drug rates. Health plans and insurers must update these machine-readable files at least monthly and clearly state when it was last updated. This “Transparency in Coverage” requirement was created by 2020 regulations interpreting a provision in the ACA related to consumer transparency. These postings have been required since 2022, although full implementation of the prescription drug reporting was delayed.

The information posted to date under these two requirements is anything but consumer-friendly, as experts have noted their own problems evaluating the data. Data scientists and other researchers have reported finding this information overwhelming and sometimes inaccurate and difficult to decipher. As third-party entities aggregate this data to assist employer plans to make purchasing decisions and public policy researchers to evaluate costs, consumers themselves likely have limited ability to use the raw data on their own. There are few studies of the consumer experience with this machine-readable data, especially whether they know it is available, and their ability to understand and use it.

Use a self-service or price estimator tool: In an effort to alleviate the complexity and possible confusion that was perhaps anticipated by policymakers when requiring the posting of large amounts of data in digital files, federal rules also require that more “consumer-friendly” tools be available so that consumers can obtain information about out-of-pocket costs before they get a service or drug. Under the hospital transparency regulation, hospitals must also compile and display online a “consumer-friendly” list of at least 300 “shoppable” services (e.g., having a baby, getting a hip replacement), including 70 services specified by the Centers for Medicare & Medicaid Services (CMS) and any additional procedures chosen by the hospital. The list must include a plain language description of each procedure, discounted cash prices, payer-specific (i.e., private insurers, Medicare, Medicaid) negotiated prices, and de-identified minimum and maximum negotiated prices for all third-party payers for an item or service. As an alternative to this “consumer-friendly” list, a hospital can instead create and maintain an online price estimator tool that:

• Provides estimates for at least 300 shoppable services (including the 70 CMS-required services).
• Is displayed on the hospital website for easy access (i.e., does not require payment or the creation of an account to use the estimator tool); and
• Allows consumers to obtain an estimate of the amount they will be expected to pay the hospital for the shoppable service before they receive it.

The Transparency in Coverage regulation requires plans and insurers to provide cost-sharing information via an internet self-service tool that consumers can use to obtain personalized out-of-pocket estimates for in- and out-of-network health care items and services (including prescription drugs and medical equipment). Plans and insurers must make other information—such as the negotiated rate for a service, and whether the service is subject to prior authorization—available through a billing code or service description search. This rule was fully effective in 2024.

In addition, in 2020 Congress passed and President Trump signed the Consolidated Appropriations Act (CAA), which required plans and insurers to make a “price comparison tool” available on the internet, in paper form, and by telephone. Since this tool is similar to the Transparency in Coverage self-service tool, federal agencies state in guidance that they have deferred enforcement of this CAA price comparison tool requirement.

Review an Explanation of Benefits before care is received (Advanced Explanation of Benefits (AEOB)): In addition to the transparency initiatives above, Congress also included in the CAA another transparency-related protection—the Advanced Explanation of Benefits—to help consumers better understand their expected out-of-pocket cost for a service before they receive it so they can budget and/or compare cost to other providers. This was part of the No Surprises Act, a group of consumer protections included as part of the CAA.

When scheduling care or upon request health care providers and facilities must provide a personalized good faith estimate of the provider’s expected charges to the consumer’s employer plan or insurer. The plan or insurer must then use this information to create an Advanced Explanation of Benefits for the consumer that includes standard Explanation of Benefits information such as the provider’s expected charge, what the plan expects to pay, and the amount the consumer is expected to pay.

Implementation of this provision of the law has been challenging, according to CMS, as it will require coordination between providers and plans, and likely the development and testing of a single industry-wide electronic interchange standard. The agencies involved had convened an industry working group as well as consumer testing with prototype Advanced Explanation of Benefits. The rule’s 2022 effective date has been delayed.

Although the Advanced Explanation of Benefits has not yet been implemented, providers and facilities must provide a good faith estimate to uninsured and self-pay patients upon request or in advance of a scheduled service, within a specified timeframe. If the final bill is $400 or more above the good faith estimate, consumers may be able to dispute the bill through a patient-provider dispute resolution process. Eligible consumers may submit a complaint to CMS if the provider did not give the patient a good faith estimate or if the provider does not honor a dispute resolution in the patient’s favor.

Simplifying Cost Sharing and Other Consumer Out-of-Pocket Payments to Limit Cost and Address Complexity

The ACA ushered in new federal requirements to limit out-of-pocket spending for consumers with private insurance, with protections that set parameters for the design of certain health plan options and limited cost sharing so that it is the same whether the consumer has employer coverage or other private coverage on- or off- Marketplace. Marketplace plans have gone further through standardized plan options. The No Surprises Act’s reforms address balanced billing, eliminating it for certain services. All look to make costs more understandable and predictable for patients. These protections include:

Maximum out-of-pocket limit: All non-grandfathered private plans are required to set an annual cap on cost sharing for essential health benefits received in-network. These dollar limits are adjusted each year. For the 2025 plan year, the maximum out-of-pocket limit is $9,200 for self-only coverage and $18,400 for family coverage. Once a consumer reaches the maximum out-of-pocket limit, the insurer is required to cover 100% of the cost of essential health benefit services received in-network for the remainder of the plan year.

Ban on annual and lifetime dollar limits: All private plans, including grandfathered plans, are prohibited from imposing annual or lifetime dollar limits on coverage for essential health benefits, whether for in-network or out-of-network services. An annual dollar limit refers to the maximum amount an insurer would pay for covered benefits within a given year, whereas a lifetime dollar limit is the total dollar amount that a health plan would pay for as long as a consumer was enrolled in the plan. Prior to the passage of the ACA, an estimated 70 million people in large employer plans, 25 million in small employer plans, and 10 million with individual coverage had lifetime limits on their health coverage.

Zero-dollar cost sharing for certainpreventive services: Under the ACA, all private, non-grandfathered plans must cover a range of preventive services and not apply cost sharing, including:

• Evidence-based screenings and counseling for adults recommended by the U.S. Preventive Services Task Force (USPSTF) with an “A” or “B” rating such as cancer screenings, prenatal care, and medications that help prevent heart disease
• Routine immunizations for adults and children recommended by the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices such as influenza, measles, and COVID-19
• Preventive care for infants, children, and adolescents recommended by Health Resources and Services Administration’s (HRSA) Bright Futures Program such as well-child visits, autism screening, and fluoride supplements
• Additional preventive services for women as recommended by HRSA’s Women’s Preventive Services Initiative such as contraception, breast cancer screening, and breastfeeding supplies and support

Marketplace standardized plan options: Plans in the Marketplace are separated into categories — Bronze, Silver, Gold, or Platinum — based on the amount of cost sharing they require. In general, plans with lower cost sharing have higher premiums, and vice versa. For example, Bronze plans have the highest cost sharing but lower premiums, and Platinum plans have the lowest cost sharing but higher premiums. There can be substantial variation in plan details, even within the same insurer (e.g., premiums, provider networks, covered benefits, plan network types).

Standardized plan designs (also known as “easy pricing”) were created to simplify and streamline plan comparison and selection offered on the federally facilitated Marketplace (FFM), state-based exchanges using the federal platform (SBE-FPs), and some state-based Marketplaces (SBMs) by applying the same deductibles, copays, coinsurance, and out-of-pocket maximums to each category of essential health benefits across all Easy Price plans in the same metal level. For example, in 2025, the annual deductible for covered services under all Gold level Easy Price plans is $1,500, regardless of insurer. By contrast, other non-standardized Gold level plans might have different deductible and copay amounts.

Standardized plan design options were also designed to improve affordability by covering certain services before the deductible is met. All Easy Price plans must waive the deductible and instead apply a fixed dollar copay (e.g., $30 for a Gold Easy Price plan) for the following items and services: primary care and specialist office visits, urgent care visits, outpatient visits for mental health and substance use disorder treatment, physical therapy visits, and generic and preferred-brand drugs.

Not all Marketplace plans are standardized, though Marketplace plans must offer a standardized plan option at every product network type, metal level, and throughout each service area where they offer non-standardized plan options. Insurers can still choose to offer non-standardized plan options in the individual market but are limited to two plan options per product network type (i.e., HMO, PPO, EPO, POS) for plan year 2025.

Research has shown that having too many choices can confuse consumers and lead to them choosing suboptimal coverage. As implemented to date, HealthCare.gov’s requirement to offer standardized plan options may have increased, not decreased, the number of plan choices consumers face. Though consumers in most areas will continue to have a large number of plan choices for the foreseeable future, over time, that number may become more manageable.

Prohibition on balance billing for certain out-of-network care: Also known as “surprise medical bills,” balance billing can occur in medical emergencies, when insured patients are not necessarily able to choose an in-network hospital or provider as well as in non-emergencies when patients inadvertently receive care from an out-of-network provider at an in-network facility. In these cases, patients can be liable for the balance bill from the provider plus any cost sharing under their health plan. As of 2022, many of these types of balance bills are now prohibited under the No Surprises Act. The No Surprises Act generally protects patients with individual and employer-sponsored insurance by:

• Requiring private health plans to cover these out-of-network claims and apply in-network cost sharing for certain covered benefits.
• Prohibiting out-of-network providers, facilities, and providers of air ambulance services from billing patients more than in-network cost sharing for certain out-of-network care.
• Requiring providers and facilities to provide patients with written notice explaining surprise billing protections, who to contact for concerns about potential violations, and how they can waive billing protections if they choose to do so.

Looking Forward

Consumer understanding of their coverage costs can play a significant role in seeking needed health care. One study found that lower health literacy scores were associated with consumers delaying or forgoing preventive care due to perceived health care costs. While better consumer education and outreach can help, the inherently complicated and profit-driven insurance and health care system includes few incentives to provide consumers with individualized and impartial assistance. However, several existing consumer protections, if implemented and enforced, as well as a broader health policy focus on how to improve the consumer experience, could make a difference.

Focus on price transparency: Despite a deregulatory agenda and recent cuts to agency staff, the Trump administration has directed the agencies to better enforce price transparency regulations. However, these machine-readable files with lists of prices and procedure codes currently have limited value to help consumers directly without an impartial analysis of the data and user-friendly vehicles to describe the information. Price estimators, also required as part of the Transparency in Coverage rule, have the potential to have more value to patients. However, while consumers may want an estimate of their expected out-of-pocket costs for a covered benefit, their awareness of the existence of these estimator tools and the likelihood of using them will influence how effective the regulation is at achieving its aims. Research conducted before and after its implementation showed mixed results on the consumer experience using these tools and their effectiveness in lowering out-of-pocket costs and health care costs overall. There is also concern that consumers will conflate high-cost with high-value care when price estimator tools do not incorporate quality metrics, potentially leading to higher health care spending. In an era of rapid developments in digital technology and artificial intelligence, ways to improve, consumer test, and standardize these tools and encourage their use may be one area of future focus.

Spotlight on cost-sharing protections: Getting renewed attention in the coming months and years are standardized cost-sharing designs that have or have the potential to provide more transparency and predictability about out-of-pocket costs for consumers. The U.S. Supreme Court will decide a case that could end free coverage of certain preventive care services recommended by the U.S. Preventive Services Task Force. A decision in that case is expected later this year. Consumers also await implementation of the Advanced Explanation of Benefits, as a key tool for patients to get cost information upfront. The coordination between plans and providers required for this initiative could go a long way to help patients often caught in the middle between plans and providers not working with each other in the best interest of consumers.

Finally, look for more attention to prescription drug costs and a cost-sharing protection that has been in place across all private insurance for over a decade, the maximum out-of-pocket limit, or cost-sharing limit. Many people who take certain high-cost medications receive financial assistance from drug manufacturers to offset their out-of-pocket costs. In recent years, private plans (excluding those offered to federal workers) have increasingly applied copay accumulators and copay maximizers when an enrollee receives this manufacturer assistance. Under these types of adjustment programs, the amount of financial assistance an enrollee receives does not count toward an enrollee’s out-of-pocket obligations, including the maximum out-of-pocket limit. Research has found that there is little transparency in how these programs operate and research has demonstrated that consumers are not always aware that their health plan contains these features. After a court challenge and a recent change in essential health benefit regulations, the federal government might be poised to confirm and clarify that cost sharing includes amounts received from pharmacy financial assistance programs and that plans must count those amounts toward the maximum out-of-pocket limit.

Continuing state-level initiatives to improve cost transparency: State-level initiatives that aim to improve cost transparency and help prevent medical debt could play a larger role if federal enforcement and regulations concerning consumer protections are stalled. New York, for example, enacted a bill in 2024 that bans a common provider practice, requiring patients to agree to cover the costs of a bill that their insurer does not cover before services are rendered (referred to as a “consent-to-bill” form) and requiring providers have a discussion with their patients about costs of services before signing this form. Although the state has indefinitely delayed full implementation of this law, the requirement for providers to discuss costs with the patient before asking them to sign the consent-to-bill form would still apply.

States continue wide-ranging activity to address high prescription drug costs in private insurance as public concern about high prescription drug costs continues to mount. For example, pharmacy benefit manager (PBM) practices have been criticized for driving up prices and for being shrouded in secrecy. In response, many states have passed laws that aim to improve PBM transparency and reporting requirements, prohibit PBM policies that prevent pharmacists from telling patients when a lower-cost option might be available, and prohibit PBMs from steering enrollees to PBM-owned pharmacies, among others. Whether these laws apply to all private insurance, including self-insured private employer plans, is an open question.

March 10^th, CMS issued a proposed rule that seeks to change how plans sold on and off the Affordable Care Act’s (ACA) Marketplaces (plans for individuals and small businesses), would cover gender affirming care services, which the rule calls “coverage for sex-trait modification.” The rule proposes, beginning plan year 2026, to prohibit insurers from covering gender affirming care as an essential health benefit (EHB), which could lead insurers to drop coverage or shift costs to individuals and states.

While the policy aim of the proposed rule aligns with the administration’s Executive Orders on gender and limiting access to gender affirming care, certain provisions of these orders are currently subject to preliminary injunctions and the agency states that the proposal “does not rely on the enjoined sections of the executive orders in making this proposal.” Instead, CMS writes that they are proposing the prohibition “because coverage of sex-trait modification is not typically included in employer-sponsored plans, and EHB must be equal in scope to a typical employer plan…” CMS does not provide support for this assertion, instead stating that they find that “0.11 percent of enrollees in non-grandfathered individual and small group coverage market plans utilized sex-trait modification during PYs 2022 and 2023.” Utilization of gender affirming care services is expectedly low in the population overall because only a small share of the population is transgender and not all transgender people seek gender affirming medical care. Further, utilization of a service may be a poor proxy for how commonly it is covered. There are other cases where a small share of the population uses a service that is generally covered by insurance. For example, there were fewer than 5,000 heart transplants in the US in 2023 (equaling one ten thousandth of a percent of the population) but public and commercial insurance typically covers this service.

Coverage of gender affirming care services in employer plans is fairly common. KFF’s 2024 Employer Health Benefit Survey found that about one-quarter (24%) of large employers (200 or more workers) stated they covered gender-affirming hormone therapy, a plurality of respondents did not know if they covered these services (45%), and less than one-third (31%) did not offer coverage.  The largest firms in the country (5,000 or more workers) employ 43% of people with job-based coverage and were significantly more likely to report covering hormone therapy in their largest plan (50% offered coverage, 18% did not know). In 2023, KFF’s Employer Health Benefit Survey found a similar trend relating to gender-affirming surgery. Among large employers (200 or more workers) offering health benefits, 23% provide coverage for gender-affirming surgery in their largest health plan, with 40% indicating they did not know.  More than 60% of the largest firms provide coverage for gender-affirming surgery (and 12% did not know). While for both services, there was uncertainty among employers over the details of coverage, many large employers provided coverage. 2022 data from Mercer and 2025 data on fortune 500 company coverage from HRC found, as KFF did, that coverage rates are particularly high among the largest employers (where most US workers are covered).

If implemented, the proposal would likely have an impact on access and costs for individuals and states. Some plans might drop coverage and while plans could cover gender-affirming services outside of their EHB package, consumers would not be assured the same cost-sharing and benefit design protections as for services included in the EHB package. Costs accrued for gender affirming care would not be required to count towards deductibles or out-of-pocket maximums, and would not be protected from lifetime limits, increasing out-of-pocket liability. Given that transgender people are more likely to be living on lower-incomes than cisgender people, higher costs could pose a particular challenge. Increases in out-of-pocket costs would likely deter enrollees from accessing gender-affirming care services, which are medically necessary and recommended by practically every major US medical association.

States, including about half that prohibit transgender care related exclusions, could also be faced with defraying the cost of covering these services under certain scenarios. The proposal states “if any State separately mandates coverage for sex-trait modification outside of its EHB-benchmark plan, the State would be required to defray the cost of that State mandated benefit as it would be considered in addition to EHB….However, if any such State does not separately mandate coverage of sex-trait modification outside of its EHB-benchmark plan, there would be no defrayal obligation..”

The proposal also raises questions about whether the policy would violate the ACA’s major sex nondiscrimination protections (under Section 1557).  Sec. 1557 protects against sex (and other) discrimination in health care and while the Trump Administration has suggested that it will view these protections based on biological sex assigned at birth only, courts can and have said that those protections extend to sexual orientation and gender identity. This interpretation also differs from the opinion issued by the Supreme Court in the Bostock case which found employment sex-based nondiscrimination protections extend to sexual orientation and gender identity.

More than 67 million people—20% of the U.S. population—receive their health insurance coverage through the federal Medicare program. Among the most commonly used services that Medicare covers are physician services and other outpatient services covered under Medicare Part B. In 2021, 9 out of 10 beneficiaries in traditional Medicare used physician and other Part B medical services. Nearly half of the $1 trillion in gross Medicare benefit spending in 2023 (49% or $493 billion) was spent on Part B services. Medicare Part B spending accounts for 25% of all national spending for physician and clinical services.

Each year, the Centers for Medicare & Medicaid Services (CMS) updates Medicare payments for physician services and other Part B services through rulemaking, based on parameters established under law. In November 2024, CMS finalized a 2.83% decrease in the physician fee schedule conversion factor, a key aspect of physician payment rates under the Medicare program. This resulted in an average payment cut of 2.93% to physicians and other clinicians, which took effect on January 1, 2025 and remains in effect today. Congress considered but did not enact legislation to reverse the cut in Medicare physician payments in the year-end spending bill and in the 2025 continuing resolution that funds the government through the end of the fiscal year (Figure 1). Some policymakers continue to push for a fix, which is reportedly under consideration for inclusion in an upcoming budget reconciliation bill.

Efforts by lawmakers to address the Medicare physician payment cut for 2025 are the latest in a series of legislative actions to provide short-term increases to physician payment rates under Medicare to avoid similar reductions in fees. The payment cut finalized for 2025 follows the expiration of temporary funds under the Consolidated Appropriations Act of 2024, which provided a 2.93% increase to physician payments for a portion of 2024 to stave off scheduled cuts.

Over the years, physician groups and some policymakers have called for broader reforms to stabilize Medicare payments to physicians and other clinicians, and have expressed concerns that instability and loss of revenue could push physicians to opt out of the Medicare program, creating potential access problems for Medicare beneficiaries. Physicians are not required to take Medicare patients, but most do; virtually all (98%) of non-pediatric physicians accept Medicare’s standard payment rate for all Medicare covered services, and just 1% opted out of the program in 2024.

MedPAC and others have raised additional concerns about issues such as the long-standing gap in compensation between primary care and specialty care clinicians, the efficacy of quality-based payment incentives through the Quality Payment Program (QPP), and the influence of medical specialty groups and interests through the American Medical Association/Specialty Society Relative Value Scale (RVS) Update Committee, otherwise known as the RUC. The RUC issues annual recommendations to CMS on physician payment rates, and CMS has historically adopted most of these recommendations each year. These issues have drawn the attention of policymakers in recent years, including Robert Kennedy Jr., the Trump administration’s new Secretary of the Department of Health and Human Services (HHS), who has voiced interest in aspects of Medicare physician payment reform, such as increasing incentives for primary and preventive care, as well as bringing greater transparency to the operations of the RUC and potentially reducing the AMA’s influence over payment rates.

This issue brief answers key questions about how Medicare pays physicians and other clinicians, and reviews policy options under discussion to reform this payment system. The brief is focused primarily on the physician payment system used in traditional Medicare. Medicare Advantage plans have flexibility to pay providers differently and currently there is no systematic publicly-available information on how much Medicare Advantage plans pay providers. (See Appendix for a glossary of relevant programs, legislation, and terms.)

1. What is the Medicare physician fee schedule?

Medicare reimburses physicians and other clinicians based on the physician fee schedule, which assigns payment rates for more than 10,000 health care services, such as office visits, diagnostic procedures, or surgical procedures. For services provided to traditional Medicare beneficiaries, Medicare typically pays the provider 80% of the fee schedule amount, while the beneficiary is responsible for a coinsurance of 20%. Physicians who participate in Medicare agree to accept this arrangement as payment in full (known as accepting “assignment”) for all Medicare covered services. Non-participating physicians receive 5% lower Medicare payments, but may accept “assignment” on a claim-by-claim basis and may choose to bill beneficiaries for larger amounts by charging additional coinsurance, up to 15% more than the Medicare-approved amount for the cost of a covered service. A third group of physicians opt out of the Medicare program altogether, and instead enter into private contracts with their Medicare patients, are not limited to charging fee schedule amounts, and do not receive any reimbursement from Medicare. Just one percent of all non-pediatric physicians opted out of the Medicare program in 2024.

Physician fee schedule rates for a given service are based on a weighted sum of three components: (1) clinician work, (2) practice expenses, and (3) professional liability insurance (also known as medical malpractice insurance). These three components are measured in terms of “relative value units” (RVUs). Together these three components represent the overall cost and effort associated with a given service, with more costly or time-intensive services receiving a higher weighted sum. Each component is adjusted to account for geographic differences in input costs, and the result is multiplied by the fee schedule conversion factor (an annually adjusted scaling factor that converts numerical RVUs into payment amounts in dollars). Fee schedule services are each associated with a unique service code, which allows clinicians to seek reimbursement for the care they provide on a service-by-service basis.

Payment rates specified under the physician fee schedule establish a baseline amount that Medicare will pay for a given service, but payments may be adjusted based on other factors, such as the site of service, the type of clinician providing the service, and whether the service was provided in a designated health professional shortage area. Physicians can also receive quality-based payment adjustments under the Quality Payment Program (QPP) (see question 7).

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2. How does Medicare update physician payment rates?

Annual updates to the physician fee schedule include statutorily-required updates to the conversion factor under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (see question 6), as well as other adjustments to reflect the addition of new services, changes in input costs for existing services, and other factors. Included in these adjustments are periodic changes to the RVUs assigned to fee schedule service codes, based in part on the recommendations of a multispecialty committee of physicians and other professionals, known as the AMA/Specialty Society RVS Update Committee (RUC) (see question 3).

Under current law, the projected cost of all changes to the physician fee schedule must be budget neutral. That is, the changes may not raise total Medicare spending by more than $20 million in a given year. This requirement was established by the Omnibus Budget Reconciliation Act of 1989 to address concerns that constraints on physician fees for specific services would lead to increases in service volume and growth in Medicare spending for physician services over time. The law requires CMS to adjust fee schedule spending when projected costs exceed the $20 million threshold, typically by decreasing the conversion factor relative to the statutory update called for by MACRA.

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3. What is the role of the RUC in determining physician payment rates?

The AMA/Specialty Society RVS Update Committee (RUC) is a volunteer committee of physicians and other professionals, formed by the American Medical Association (AMA) in 1991 to advise CMS on the relative weighting of service codes under the physician fee schedule, the primary mechanism used by CMS to set relative payments for physician and clinical services. The RUC is an independent body and its operations are not directly overseen by Congress or CMS. Further, because the RUC is not an official federal advisory committee, it is not bound by federal standards around transparency, membership balance, and other operating requirements applied to many similar committees. The RUC includes representatives from the AMA and other professional organizations, as well as members appointed by a range of national medical specialty societies.

Each year, CMS identifies potentially misvalued services for RUC review based on statutory criteria and public nomination. Potentially misvalued services may also be identified by the RUC itself, while new or recently revised service codes are identified by a separate AMA panel, known as the Current Procedural Terminology (CPT) Editorial Panel. The RUC then consults with various medical specialty societies, who decide which services they wish to review and develop recommendations on the clinician work, practice expenses, and other factors associated with payment for each service. A final list of recommendations for reviewed services is compiled by the RUC based on a committee vote and referred to CMS.

CMS is not required to adopt recommendations issued by the RUC, but it does so in a majority of cases. The AMA reports an average annual acceptance rate of 90% from 1993 to 2025. Over the years, MedPAC and others have raised concerns about the influence of the RUC, which is largely composed of specialty physicians with a financial stake in the recommendations they are producing, and noted several methodological issues with the data used to develop RUC recommendations (see question 8). MedPAC has called for CMS to develop internal processes to validate RUC recommendations by independent means. More recently, HHS Secretary Kennedy has raised concerns about the lack of transparency and relative lack of oversight of RUC operations by CMS, as well as the influence of the AMA in setting payment rates for physicians, which has brought renewed attention to the issue (see question 9).

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4. How have physician payment rates changed in 2025?

CMS recently finalized payment changes for 2025, which include a 2.83% decrease to the physician fee schedule conversion factor relative to 2024. This decrease reflects the following adjustments: (1) the expiration of temporary funds approved by Congress under the Consolidated Appropriations Act of 2024, which increased payments by 2.93% for all fee schedule services furnished between March 9, 2024 and December 31, 2024, (2) a 0% statutory increase for 2025 under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), and (3) a modest 0.02% budget neutrality adjustment. The combined impact of these adjustments is a 2.93% decrease in average payments to physicians and other clinicians, which went into effect on January 1, 2025.

As of March 2025, Congress has not passed legislation to address this payment cut. A provision to reduce (though not fully eliminate) the cut was included in an early version of the year-end Continuing Resolution (CR) filed in December 2024, similar to the temporary payment adjustments instituted by Congress in prior years, but was removed from the version signed into law. Congress also considered, but did not include, legislation in the subsequent CR enacted in March 2025, but some policymakers continue to push for a fix, which is reportedly under consideration for inclusion in an upcoming budget reconciliation bill.

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5. How did the 2025 payment rule address issues related to primary care, telehealth, and other health care priorities?

Recent changes to the physician fee schedule also include several measures designed to improve health care access and increase support for preventive services, behavioral health, and management of chronic disease. These measures are part of an ongoing effort by CMS and the Department of Health and Human Services (HHS) to strengthen primary and preventive care and address long-standing concerns about the gap in compensation between primary and specialty care physicians (see question 8). The final payment rule for 2025 introduces the following key changes:

• CMS has added new billing codes to the physician fee schedule intended to streamline payment for advanced primary care management. This change bundles several existing services related to care management, interprofessional consultation, and other care components into single codes, stratified by patient medical and social complexity, which may be billed on a monthly basis.
• CMS has added new billing codes related to caregiver training for direct care services and supports, allowing clinicians to bill for time spent training caregivers on specific clinical skills such as techniques to prevent ulcer formation, wound dressing changes, and infection control, and has expanded existing billing options for trainings dedicated to caregiver behavior management and modification.
• CMS has finalized several provisions aimed at improving beneficiary access to telehealth, such as broader coverage of audio-only services and increased flexibility in the use of telehealth for treatment of opioid use disorder (OUD). Safety planning interventions and PrEP counseling have been added to the Medicare Telehealth Services list on a permanent basis, and caregiver training services have been added on a provisional basis.
• Absent further action from Congress, many of the other telehealth restrictions that were in place prior to the COVID-19 pandemic will come back into effect on April 1, 2025. These include restrictions limiting telehealth coverage to beneficiaries in rural areas, and requiring beneficiaries to travel to an approved site, such a clinic or doctor’s office, when receiving telehealth services. However, CMS has extended certain limited flexibilities under its authority through December 2025, such as provisions that allow Rural Health Centers (RHCs) and Federally Qualified Health Centers (FQHCs) to serve as distant site providers for all covered telehealth services, and allow providers to use their currently enrolled practice location in place of their home address when providing telehealth services from home.
• CMS has also added new billing codes for a range of other primary and behavioral health services, such as cardiovascular risk assessment and care management, use of digital mental health treatment devices, and safety planning interventions for patients at risk of suicide or overdose, among others.
• CMS has finalized several updates to the Quality Payment Program (QPP) to improve the accuracy of quality reporting and reduce administrative burden for providers participating in the Merit-based Incentive Payment System (MIPS). (For a more detailed description of the QPP and MIPS, see question 7).

The new rules also include updates to the Medicare Shared Savings Program (MSSP), a permanent accountable care organization (ACO) program in traditional Medicare that offers financial incentives to providers for meeting savings targets and quality goals, as well as other changes related to payment for preventive vaccine administration, opioid treatment programs, evaluation and management of infectious diseases in hospital inpatient or observation settings, and a variety of other health services.

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6. How have Medicare payments to physicians changed since the implementation of MACRA?

Medicare has revised its system of payment for physician services numerous times over the years (Figure 1). The current payment system was established under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and includes two primary components: (1) a schedule for annual, statutorily-defined updates to the conversion factor, a key determinant of payment rates under the physician fee schedule, and (2) a new system of bonus payments and quality-based payment adjustments under Quality Payment Program (QPP) (see question 7).

The physician payment system established by MACRA was intended to stabilize fluctuations in payment caused by the prior system under the Medicare Sustainable Growth Rate (SGR) formula, which set annual targets for Medicare physician spending based on growth in the gross domestic product (GDP). Under the SGR, if physician spending exceeded its target in a given year, payment rates would be cut the following year, while spending that was below the target led to increased rates. As with the current system, rates were subject to further adjustment for budget neutrality if the projected cost of all fee schedule spending was projected to increase by more than $20 million for the year.

The SGR was established by the Balanced Budget Act of 1997 to slow the growth in Medicare spending for physician services, but the formula garnered criticism, as growth in service volume and rising costs led to several years of spending on physician services that exceeded the growth target, necessitating payment cuts from 2002 onward. Between 2002 and 2015, Congress enacted 17 short-term interventions (so-called “doc-fixes”) to delay the cuts and provide temporary increases to physician payments, but did so without repealing the SGR, which resulted in accumulated deficits over time.

MACRA permanently eliminated the SGR formula, preventing a 21.2% cut in physician fees slated for 2015 and replacing it with 0% statutory increases to the conversion factor through 2025 (later raised to 0.5% from 2016-2019), followed by modest annual increases from 2026 onward. These updates are set by MACRA and do not vary based on underlying economic conditions. However, subsequent adjustments to preserve budget neutrality and supplemental payments provided by Congress may result in conversion factor updates that are higher or lower than the statutorily-required update in a given year.

Although MACRA has stabilized payments under the physician fee schedule to some degree relative to the years leading up to its enactment, rates have continued to fluctuate over the last decade. Due to strict budget neutrality requirements, CMS has limited flexibility to adjust payment rates for new or undervalued services without offsetting the costs elsewhere in the fee schedule. This often takes the form of budget neutrality adjustments to the conversion factor, such as a -10.20% adjustment in 2021 and a -2.18% adjustment in 2024. Since 2021, Congress has provided several short-term increases to fee schedule rates to boost payment during the COVID-19 pandemic and to offset budget-neutrality cuts, raising concerns that the cycle of “doc-fixes” under the SGR formula has not been wholly avoided under MACRA.

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7. How does the Quality Payment Program (QPP) factor into physician payments?

The Quality Payment Program (QPP), which launched in 2017, was established by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) to create financial incentives for health care providers to control costs and improve care quality. The QPP includes two distinct pathways for participation: (1) incentive payments for participants in qualified advanced alternative payment models (A-APMs) and (2) performance based payment adjustments under the Merit-based Incentive Payment System (MIPS).

A-APM Incentive Payments: Physicians and other clinicians who participate in qualified A-APMs, such as select accountable care organizations (ACOs) and others, are eligible for bonus payments if they meet certain participation thresholds. A-APMs are a type of value-based care model in which the provider bears some financial risk for the costs of care in a defined setting, such as treatment of a specific condition or primary care services for a group of beneficiaries, typically by sharing in a portion of financial savings and losses relative to a benchmark. Incentive payments to increase participation in A-APMs are part of a broader goal by CMS to have all traditional Medicare beneficiaries in some type of accountable care relationship by 2030.

Each year, A-APM clinicians qualify for bonus payments based on their participation during the Qualifying APM Participant Performance Period (January 1 – August 31) two years prior. Under MACRA, qualifying A-APM clinicians received a 5% bonus in payment years 2019 through 2024 (performance periods 2017 – 2022). Congress subsequently extended these bonus payments to include a 3.5% bonus in 2025 and a 1.88% bonus in 2026. A-APM bonus payments are scheduled to be phased out in favor of annual 0.75% increases to the conversion factor for qualifying A-APM clinicians (relative to smaller 0.25% increases for all other clinicians). These conversion factor updates will begin in 2026, and A-APM bonus payments will be fully retired in 2027.

Roughly 386,000 clinicians qualified for A-APM bonuses in 2024, based on the 2022 performance period, a nearly fourfold increase from 99,000 in 2019, the first year A-APM bonuses were available. At the same time, A-APMs are not evenly distributed throughout the country, and participation among non-physician providers and certain physician specialties remains relatively low, suggesting that additional strategies may be needed to encourage wider adoption of these models. Further, MedPAC and others have noted that the scheduled conversion factor updates for qualifying A-APM clinicians will be relatively small in the first few years after A-APM bonuses are retired, though their effects will compound over time, and have cautioned that additional incentives may be needed to prevent attrition in A-APM participation during this transition.

Merit-based Incentive Payment System (MIPS): Clinicians who do not participate in A-APMs, or do not meet the participation criteria for A-APM bonus payments, are subject to additional reporting requirements under MIPS, which adjusts payments up or down depending on a clinician’s performance on certain quality metrics. As with A-APM bonuses, payment adjustments under MIPS are based on performance two years prior. Clinicians are required to participate in MIPS if they are eligible, but many are exempt, such as those in certain specialties (e.g., podiatrists), those in their first year of Medicare participation, and those who serve a low volume of Medicare patients.

Payment adjustments under MIPS are required to be budget neutral. Adjustments are capped each year (between +9% and -9% in 2025), and savings generated from clinicians who incur negative adjustments are used to fund positive adjustments for those who qualify. Because a relatively small share of clinicians have incurred negative adjustments each year since MIPS was implemented, positive adjustments have generally been much lower than the annual cap. In 2023 for instance, roughly 600,000 clinicians received positive adjustments up to +2.34%, based on the 2021 performance year, while just 23,000 clinicians received negative adjustments down to -9%. MedPAC estimates that another 460,000 clinicians were ineligible for either an A-APM bonus or MIPS adjustment due to low Medicare patient volume or other exemption criteria.

Clinicians who participate in MIPS have traditionally selected from a large set of quality measures and other clinical metrics to report on each year. While this structure was intended to give clinicians flexibility to choose the metrics best suited to their practice, it has also been criticized by physician groups and experts for increasing the reporting burden on participants, and for making comparisons between participants less clinically meaningful and more difficult to assess. In an effort to address these concerns, CMS has introduced several more streamlined reporting options. The newest of these allows clinicians to choose from smaller, bundled subsets of reporting metrics tailored to particular specialties or medical conditions, known as MIPS Value Pathways (MVPs).

MVPs were introduced in 2023 as an optional alternative to reporting under traditional MIPS, and included a preliminary set of reporting pathways aimed at specific clinical contexts, such as primary care, treatment of heart disease, and supportive care for neurodegenerative conditions. CMS has added new MVPs each year since the option was introduced, including 6 in 2025, with the eventual goal of replacing all reporting under traditional MIPS with MVPs in future years. The purpose of this shift is to reduce administrative burden by offering providers smaller, more targeted sets of reporting metrics to choose from, as well as to allow for more clinically meaningful assessments by comparing outcomes among similar clinicians who choose to report under the same MVP.

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8. What concerns have been raised about the physician fee schedule?

Criticism of the physician fee schedule has focused on four primary concerns about the way in which Medicare pays physicians and other clinicians. These include: (1) the overall adequacy of Medicare payments to cover medical practice costs and incentivize participation in the Medicare program, (2) the gap in compensation between primary and specialty care clinicians, (3) the influence of the AMA/RVS Update Committee (RUC) and medical specialty groups in determining relative payment rates for fee schedule services, and (4) the success of the Quality Payment Program (QPP) in achieving its goal of incentivizing quality improvements and cost-efficient spending.

Payment Adequacy: Over the years, physician groups and some policymakers have expressed concern that payment rates under the physician fee schedule have not kept pace with inflation in medical practice costs. Practice expenses are one component of the relative-value calculation used to determine payment rates for fee schedule services, but the requirement to preserve budget neutrality makes it difficult for CMS to increase payment for some services without also decreasing payment in other areas, such as by lowering the fee schedule conversion factor (see question 6). Statutory increases to the conversion factor under MACRA are not scheduled to begin until 2026, and do not vary based on underlying economic conditions, which may make it more challenging for some physicians to adapt to changing financial demands.

Core to these concerns is the possibility that loss of revenues could lead some physicians to opt out of the Medicare program, which could create access issues for Medicare beneficiaries. National surveys and other analyses have generally found that beneficiaries report access to physician services that is equal to, or better than, that of privately-insured individuals, with similar or smaller shares reporting delays in needed care or difficulty finding a physician who takes their insurance. A recent KFF analysis found that just 1% of all non-pediatric physicians had opted out of Medicare in 2024, suggesting that the current fee structure has not substantially discouraged participation. Moreover, MedPAC estimates that virtually all Medicare claims (99.7% in 2023) are accepted on “assignment” and paid at the standard rate (see question 1), with beneficiaries in traditional Medicare facing no more than the standard 20% coinsurance rate. At the same time, analyses by KFF and others have found that physicians in some specialties, such as psychiatry, opt out of Medicare at higher rates, which may impact access to these services over time.

Loss of revenue may also lead some physician practices to merge with (or be acquired by) larger health systems or hospitals, a process known as “vertical consolidation.” Vertical consolidation may offer certain benefits to physicians, such as greater economy of scale for practice expenses, lower administrative burden, and access to costly resources such as medical imaging equipment, and may be attractive to physicians who are otherwise struggling to meet their practice costs. While consolidation may be associated with some benefits to patients as well, such as improvements in care integration and coordination between providers, it may also lead to higher out-of-pocket costs and lower care quality by reducing market competition. Further, Medicare generally pays more for a given service provided in a hospital outpatient department than it does for the same service provided in a freestanding physician office, which can lead to increased costs for beneficiaries and higher program spending over time. Policymakers are currently exploring options to align Medicare reimbursement rates between these settings, known as “site-neutral payment reforms.”

Primary Care Compensation: A second concern with the current payment system is that Medicare does not adequately pay for primary care services, as reflected by the gap in Medicare payments between primary and specialty care clinicians. Payments under the physician fee schedule are generally higher for clinical procedures, such as surgeries and diagnostic tests, than for non-procedural services, such as preventive care provided during an office visit. While many clinicians provide a mixture of procedural and non-procedural services, primary care clinicians often dedicate a larger share of their time to non-procedural care. Further, MedPAC has expressed concern that this imbalance encourages clinicians of all specialties to increase their use of more costly and profitable services, such as unnecessary imaging, screenings, and diagnostic tests, at the expense of high-value, but less profitable, services, such as patient education, preventive care, and coordination across care teams, which can impact the quality of patient care and lead to higher physician spending over time.

MedPAC notes that clinical procedures often see gains in efficiency due to technological improvements and other factors, which reduce the time and effort needed to provide them. If fee schedule rates are not adjusted to reflect these improvements, these services may become overvalued over time. By contrast, non-procedural services often involve more fixed time constraints, such as time spent communicating with patients or coordinating with other providers, and are unlikely to see similar gains, contributing to the gap in compensation between these service types.

Due to budget neutrality requirements, efforts to directly increase payment for non-procedural services under the physician fee schedule in order to boost payments for primary care have often necessitated across-the-board payment cuts in the form of decreases to the fee schedule conversion factor (see question 6). Further, physicians may offset any expected reductions in revenue by increasing service volume over time, or by increasing their use of higher intensity, and more highly compensated, service codes, leaving the gap in payment rates relatively constant. These constraints make it difficult for CMS to meaningfully address differences in payment between primary and specialty care, and have led some policymakers to voice concerns that the current budget neutrality requirements are too rigid.

Role of the RUC: The American Medical Association (AMA) and the RUC play a substantial role in annual decision-making around the relative weighting of service codes under the physician fee schedule, the primary mechanism used by CMS to set relative payment rates for physician and clinical services (see question 3). While CMS is not required to adopt recommendations issued by the RUC, it does so in a majority of cases. MedPAC has raised several methodological concerns with the data used by the RUC to develop its annual reports, which are largely based on recommendations from medical specialty societies. These include a lack of transparency, as well as low response rates and total responses on the various member surveys that inform medical specialty society recommendations, which make it difficult for CMS to validate RUC recommendations by other means.

Other concerns raised about the RUC include the overrepresentation of specialty physicians on the committee, and the potential for conflicts of interest when RUC members recommend changes to relative payments for primary and specialty care services. In contrast to federal advisory committees, which are typically formed by Congress, the office of the President, or executive branch agencies, the RUC is an independent committee overseen by the AMA. For this reason, it is not held to the same operating requirements as many other similar committees, which adhere to certain criteria around transparency and membership balance.

To ensure that fee schedule services are not overvalued, MedPAC has recommended that CMS develop internal processes for validating RUC recommendations, such as by collecting data from clinical practices on the number of clinician hours dedicated to commonly-billed services. Pilot studies commissioned by CMS and the Department of Health and Human Services (HHS) have attempted to validate the clinician time component of small subsets of fee schedule services using methods such as analysis of electronic health records, direct observation of clinical procedures, and independently-collected physician surveys. These projects may serve as a blueprint for future work, though implementing these and similar methods on a large scale would likely require significant time and staff investment.

Role of the QPP: QPP programs such as the Merit-based Incentive Payment System (MIPS) and bonus payments for Advanced Alternative Payment Model (A-APM) clinicians are designed to create incentives for quality improvement, care coordination, and the provision of high-value services (see question 7). While the share of clinicians who qualify for A-APM bonuses has more than tripled since the QPP began (from roughly 99,000 to 386,000 in the 2017 and 2022 performance periods, respectively), some policymakers have argued that greater incentives are needed to encourage providers to take on the financial risks and high startup costs associated with these models, particularly as A-APM bonus payments are phased out in favor of relatively smaller conversion factor adjustments in the coming years.

Additionally, MedPAC has voiced concern that MIPS, the quality-based payment program for clinicians who do not participate in A-APMs, imposes too large of a reporting burden on those who participate, while at the same time offering relatively weak incentives to improve quality and control costs. As noted earlier, a large share of clinicians are exempt from the program, and because few participants receive negative adjustments, positive adjustments are relatively modest. The administrative burdens associated with MIPS may be partially addressed by the shift towards MIPS Value Pathways (MVPs) in place of traditional quality reporting, and further assessment of this option will likely take shape as the program is phased in.

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9. What policy proposals have been put forward to address concerns with Medicare’s current physician payment system?

In addition to bipartisan legislation that directly addresses the 2025 payment cuts that took effect January 1, 2025, policymakers and others have put forward a number of strategies to revise the current Medicare physician payment system. These include measures to stabilize physician fee schedule payments from year to year, provide additional support to primary care and safety-net providers, and create stronger incentives for efficient spending, care coordination, and participation in Advanced Alternative Payment Models (A-APMs).

In 2025, MedPAC recommended a one-time inflation-based increase to physician payment rates in 2026 (equal to the projected increase in the Medicare Economic Index minus one percentage point), similar to recommendations from past years. While MedPAC has weighed the possibility of recommending annual updates for inflation, it has not done so to date, focusing instead on targeted strategies to bolster payments to primary care clinicians and safety-net providers. For instance, in light of findings that clinicians often receive lower revenue for treating low-income Medicare beneficiaries, MedPAC has recommended raising payment in these instances by 15% for claims billed by primary care clinicians and 5% for claims billed by non-primary care clinicians, to encourage clinicians to treat these populations.

MedPAC has voiced support for the goals behind the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the Quality Payment Program (QPP), including the financial incentives offered to A-APM participants under current law (see question 7), while also recommending changes to the design of the QPP, including the elimination of the Merit-based Incentive Payment System (MIPS). MedPAC has noted that the ongoing shift from traditional MIPS to MIPS Value Pathways (MVPs) addresses some concerns related to administrative complexity and participant comparisons, but a large share of clinicians remain exempt from MIPS reporting and incentive payments have generally remained relatively small (see question 8). In place of MIPS, MedPAC has recommended establishing a voluntary program designed to mimic the structure of A-APMs and other alternative payment models, allowing clinicians to transition into these models more gradually.

Several bills introduced in the last Congress indicate interest in strategies such raising or modifying the budget neutrality threshold, or offering separate conversion factor updates for primary and specialty care services, which would allow CMS greater flexibility to adjust payment rates to reflect evolving policy priorities without necessitating a mandatory payment cut. The Senate Finance Committee has held several hearings on physician fee schedule reform, and released a whitepaper in 2024 outlining a range of options to stabilize conversion factor updates from year to year, extend access to telehealth, and incentivize continued participation in A-APMs, among other reforms.

More recently, House Republicans included adjustments to the physician fee schedule in a menu of potential policy actions circulated in January 2025. The Secretary of the Department of Health and Human Services (HHS), Robert F. Kennedy Jr., has expressed a particular interest in Medicare physician payment reform, and has called for bringing greater transparency to the operations of the AMA/RVS Update Committee (RUC) (see question 3), as well as exploring options for reducing the role the RUC plays in annual decision-making around physician payments.

A decade after the passage of MACRA, Congress’s last major overhaul of how Medicare pays physicians, interest in broader reforms to Medicare’s physician payment system, beyond addressing the physician fee cuts finalized for 2025, is gaining steam. Designing payment approaches that address concerns raised by interested parties to compensate physicians adequately while restraining spending growth represents a challenge for policymakers.

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Appendix