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AAOS Now / Issue: Oct 2025 / residency01

AAOS Now

Published 10/19/2025
|
Bradley A. Lezak, MD, MPH; Joseph A. Bosco III, MD, FAAOS
Residency

The resident perspective on Medicare physician payment: History, current concepts, and future implications

Editor’s note: This article is part of a series on the importance of healthcare advocacy for orthopaedic surgery residents. Part one provided an overview of key healthcare advocacy topics relevant to musculoskeletal care. Part two explored the skills residents gain from engaging in healthcare advocacy.

For orthopaedic surgery residents, Medicare payment issues impact training hospitals, resources, and future practice environments. Although residents may not directly manage the tension between high-quality care and declining reimbursements, awareness of its effects on their future can create anxiety. Financial challenges limit resources, impacting both patient care and the quality of surgical training. Understanding the history of Medicare helps explain the current challenges orthopaedic surgeons face.

History of Medicare and orthopaedic surgery
Medicare, established in 1965 as part of President Lyndon B. Johnson’s “Great Society” initiatives, provided health insurance for Americans aged 65 and older, as well as younger individuals with disabilities. Before its inception, nearly half of older Americans lacked health insurance, leaving them vulnerable to medical expenses. Initially, Medicare included Part A (hospital services) and Part B (physician services), funded by payroll taxes, general revenue, and premiums. Over time, it expanded with Part C (Medicare Advantage) in 1997 and Part D (prescription drugs) in 2003.

A significant reform came with the adoption of the Resource-Based Relative Value Scale in 1992, which replaced payment rates based on physicians’ charges. This model standardized payments using relative value units (RVUs), which accounted for work, practice expenses, and malpractice costs.

RVUs are adjusted geographically and multiplied by a conversion factor to determine reimbursement. However, this centralized pricing mechanism often disconnects compensation from the rising demand for procedures such as total joint arthroplasty (TJA).

In 2021, the Centers for Medicare & Medicaid Services (CMS) introduced rule changes that reduced reimbursement for orthopaedic procedures. Work RVUs for TJA dropped from 20.7 to 19.6, and the conversion factor decreased from $36.09 to $34.90. Although office-based Evaluation and Management codes saw increases in RVUs, surgeons focusing on TJA experienced reduced compensation.

Medicare has been gradually moving away from a system that disproportionately rewards procedures and imaging toward one that better values physician time, decision-making, and coordination of care — also known as cognitive-based care.

This shift emphasizes non-surgical services, such as preoperative risk modification and patient management. Budget-neutrality mandates have required cuts in some areas to offset increases elsewhere, creating financial constraints for procedural work. This shift impacts orthopaedic surgeons, who must balance operative and nonoperative care.

Impact on orthopaedic surgery residents
Orthopaedic procedures are complex and resource-intensive but often undervalued under Medicare. This undervaluation hinders hospitals from investing in critical resources, delays surgeries, and limits treatments, all which ultimately reduce residents’ exposure to diverse surgical techniques. These factors diminish education and quality of patient care.

Additionally, the current payment model raises concerns for residents’ future practices. Reduced reimbursements push surgeons to adopt high patient volumes, risking care quality and increasing burnout.

Financial pressures may deter residents from subspecialties reliant on Medicare. This can exacerbate issues with access to high-demand fields, including trauma and joint reconstruction.

Residents must also consider Medicare’s evolving policies, which emphasize cognitive-based care and value-based payment models. Adapting to alternative payment systems, such as bundled payments and accountable care organizations, will be crucial for navigating the future healthcare landscape. These challenges and opportunities will significantly shape their careers and quality of care they deliver.

Opportunities for residents to engage in advocacy
Now is a crucial time for orthopaedic surgery residents to engage in advocacy regarding Medicare physician-payment reform. Organizations such as AAOS and the orthopaedic subspecialty societies, as well as national medical societies such as the American Medical Association, have been at the forefront of lobbying for the Medicare payment system to better reflect the complexities and demands of orthopaedic surgery. Residents, though early in their careers, can play a pivotal role in supporting these efforts by staying informed and getting involved in advocacy initiatives that will drastically impact their future practices and careers.

AAOS has consistently advocated for a few key policy proposals that would bring long-term stability to Medicare’s payment system. Although Congress took a meaningful step to improve physician payments by enacting a 2.5% increase to the Medicare Physician Fee Schedule (MPFS) for 2026, this is a temporary patch on more deeply rooted flaws with the MPFS. Additionally, CMS recently proposed changes that will counteract this effort, underscoring the need for more permanent, systemic fixes through the legislative process.

One key proposal that AAOS has consistently supported is tying the MPFS conversion factor to inflation as measured by the Medicare Economic Index. This important change would ensure that reimbursement rates keep pace with the rising costs of delivering medical care, benefiting both patients and clinicians.

Another critical proposal is reforming the budget-neutrality requirements within the fee schedule. Current law requires that any changes to Medicare’s fee schedule must be implemented in a budget-neutral manner. This essentially creates a limited “pot” of money that physicians are paid from, and it pits medical specialties against each other for their piece of the fixed pot.

For example, if CMS projects that reimbursement changes under the fee schedule will change total Medicare spending by more than $20 million, the agency must balance that change, usually by raising or lowering the conversion factor.

Some proposals that AAOS has supported to reform this flawed system include raising the $20 million threshold to keep up with inflation and setting limits on how much the conversion factor can be revised up or down. These measures would offer more predictability and financial security to clinicians, mitigating the disruptive effects of sudden reimbursement cuts. The American Medical Association has been a vocal supporter of these initiatives, highlighting their importance for the sustainability of the healthcare system.

By supporting these legislative efforts, orthopaedic surgery residents can help shape the future of Medicare payment, ensuring that their patients receive high-quality care while their own practices remain financially viable. Understanding these policy developments equips residents with the knowledge to navigate the evolving healthcare landscape as they transition into practice.

Bradley A. Lezak, MD, MPH, is an orthopaedic surgery resident at NYU Langone Orthopedics and a member of the AAOS Now Editorial Board.

Joseph A. Bosco III, MD, FAAOS, is a professor of orthopaedic surgery, vice chair of clinical affairs, and director of quality and patient safety at NYU Langone Orthopedics in New York. Dr. Bosco is also a former AAOS president (2020-2021).

References

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