Medicare physician pay has fallen 33.0% since 2001 once adjusted for inflation in practice costs, according to the American Medical Association. Over that same 24-year stretch, the AMA reports the cost of running a medical practice rose 59.0%, while the payment rate for treating Medicare patients stayed nearly flat in nominal dollars.
The gap between those two lines, flat payment against rising overhead, is the single number practice executives should carry into every budget conversation involving Medicare patient volume. It shapes staffing decisions, equipment purchases, and whether a practice can keep treating Medicare patients at the same rate at all.
How the Conversion Factor Actually Moved
The Medicare Physician Fee Schedule pays for services using a single number called the conversion factor, multiplied against a relative value for each code. In 2001, that conversion factor was $38.2581, according to the Federal Register's final rule for that year. By 2025, it had dropped in nominal terms to $32.35, based on the American College of Cardiology's summary of the 2026 final rule.
For 2026, CMS finalized two separate conversion factors for the first time: $33.5675 for physicians in qualifying Alternative Payment Models, a 3.77% increase from 2025, and $33.4009 for everyone else, a 3.26% increase, the AMA reported. Both 2026 figures still sit below the 2001 starting point in raw dollars, before any adjustment for what a dollar buys today.
Where the 2026 Increase Actually Came From
The 2026 conversion factor increase looks like relief on paper, but the American College of Cardiology's analysis of the final rule traces 2.5 percentage points of it directly to a one-year provision in the One Big Beautiful Bill Act, not a permanent policy change. Strip that out and the underlying statutory update is far smaller: current law sets a permanent annual update of just 0.25% for most physicians and 0.75% for those in qualifying alternative payment models, the AMA reports.
Meanwhile, CMS itself projects the Medicare Economic Index, the government's own measure of practice cost inflation, will grow 2.7% in 2026, according to Medical Economics' coverage of the final rule. A 0.25% statutory update against a 2.7% cost-inflation projection is the same gap that produced the 33.0% real-terms decline since 2001, playing out again in a single year.
A Fifth Straight Year of Cuts Before the Patch
Before the 2026 one-year patch, physicians had absorbed a 2.8% payment cut that took effect in January 2025, the AMA reported, marking a fifth consecutive year of reductions to the conversion factor. The AMA's own tracking put practice cost growth at 3.5% for 2025 alone, meaning even that year's cut compounded on top of a cost base that was still climbing.
CMS also finalized a -2.5% efficiency adjustment to the work relative value units assigned to most non-time-based codes in the 2026 rule, a change the American College of Cardiology reports will apply on a three-year cycle going forward and touches an estimated 91.0% of physician services. That adjustment lowers the wRVU side of the payment formula independent of the conversion factor, so a practice can see its conversion factor rise and its actual payment for a given code fall in the same year.
What Reform Proposals Are on the Table
The Medicare Payment Advisory Commission, an independent panel that advises Congress, has pushed for a structural fix rather than another one-year patch. In its June 2025 report, MedPAC recommended replacing the current 0.25% and 0.75% statutory updates with a permanent formula tied to the Medicare Economic Index, specifically MEI minus 1 percentage point, according to an AMA press release on the report. For March 2026, MedPAC applied that formula and recommended an update of MEI minus 1 percentage point for the coming year, the same release states.
Separately, the AMA reported that H.R. 879, the Medicare Patient Access and Practice Stabilization Act, would add a 2.0% increase on top of current law if enacted. Neither proposal has been signed into law as of this writing, and both would still need to close a gap built up over 24 years to fully offset it.
| Year | Conversion factor | Change | Source |
|---|---|---|---|
| 2001 | $38.2581 | Starting point | Federal Register, CY2001 final rule |
| 2025 | $32.35 | -2.8% from 2024 | AMA / American College of Cardiology |
| 2026, non-APM | $33.4009 | +3.26% from 2025 | CMS 2026 final rule, via AMA |
| 2026, qualifying APM | $33.5675 | +3.77% from 2025 | CMS 2026 final rule, via AMA |
Note: the 2026 figures include a one-year, 2.5 percentage point provision from the One Big Beautiful Bill Act that does not carry forward as permanent policy.
What This Means for Independent Practices
A practice with a Medicare-heavy payer mix is running its Medicare book of business at 33.0% less purchasing power than it had in 2001, even after the 2026 increase, based on the AMA's inflation-adjusted figure. That gap built up over 24 years, and it shows up every time a lease renews, a staff raise comes due, or new equipment needs financing.
The permanent statutory update of 0.25% for most physicians, against a CMS-projected 2.7% cost-growth rate for 2026 alone, means the gap keeps widening in any year without a special legislative patch like the one that lifted 2026 payment. Practices that track their own cost growth against their actual conversion-factor-driven Medicare revenue each year get an early read on whether next year's fee schedule update, patch or no patch, will keep pace.
Sources
- American Medical Association, "Medicare physician pay has plummeted since 2001. Find out why," April 21, 2025
- American Medical Association, "MedPAC calls for long-term Medicare physician payment reform," June 12, 2025
- American Medical Association, "What to expect from the 2026 Medicare Physician Fee Schedule," December 11, 2025
- Medical Economics, "2026 Medicare reimbursement: 'Inadequate physician payment has real-world consequences,' AMA says," October 3, 2025
- American College of Cardiology, "CMS Releases 2026 Physician Fee Schedule," October 31, 2025
- Federal Register, "Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 2001," November 1, 2000
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