Written by Joe Ganley, Vice President of Government and Regulatory Affairs, athenahealth

This spring, a cardiologist told a House subcommittee something that should have stopped the room. If a hospital acquired his independent practice, two routine cardiovascular tests he performs every week would cost Medicare more than $25 million a year in additional spending — the same tests, for the same patients, simply billed through a hospital instead of an office. The care would be identical; the bill would not.

That is the quiet math of American healthcare in 2026. CMS — the agency that runs Medicare — keeps saying it wants more care delivered in community-based settings, and its recent rules have started to back that up. But the long-standing payment structure underneath those rules still pushes independent practices toward the exits.

The 2027 Payment Cliff Is Part of a Larger Problem

The 2027 physician payment cliff is the latest example. Under current law , doctor’s offices face a 2.5% “efficiency” cut in reimbursement starting in January 2027. MedPAC, an influential advisory board, has recommended a 2027 update that would still leave physician payment between 1.2% and 1.7% below this year’s rates. That’s a massive cut to Medicare that nobody is really talking about.

What’s behind all of this? The answer is quite simple. Federal law requires that Medicare hospital reimbursement is tied to inflation, but there’s no such requirement for reimbursement for outpatient doctors’ offices. Moreover, Medicare spending has to be budget neutral, meaning if you increase hospital reimbursement (presumably because of inflation) you have to cut somewhere else — leaving your local family practice, OB/GYN or cardiologist to pick up the tab.

These two structural problems have turned physician payment into an annual emergency, fixed (sometimes) at the last minute by a Congress that treats a structural flaw as a seasonal one. Since 2001, Medicare physician payment has fallen 33% when adjusted for inflation . A practice cannot plan a hiring decision, renew a lease or finance a technology investment against a number that resets every December. Large health systems can absorb that uncertainty. A four-physician practice on Main Street cannot.

Independent Practices Are Running Out of Room

Independent practices are a vital component of American medicine, and often the most accessible front door to it. According to a 2026 analysis by the Physicians Advocacy Institute and Avalere, 82% of physicians were employed by hospitals or corporate entities as of January 2026, leaving fewer than one in five still practicing in an independent setting; in just two years, hospital and corporate employment grew by 48,100 physicians. The physicians who remain feel it: in athenahealth’s 2026 Physician Sentiment Survey , 89% said staying independent has become harder — including 88% of those in practices with five or fewer physicians. When one of those offices is absorbed into a higher-cost setting, a community does not simply lose a sign on a door. An older patient can lose the nearest doctor within reach, and Medicare can lose a lower-cost site for the same routine care, which is exactly what the cardiologist was trying to tell Congress.

The physicians I talk to see it more plainly than any data set. One who joined us in Washington D.C. this spring described trying to treat patients in “a regulatory environment that often feels designed for large health systems, not the solo or small-group practice trying to do right by their patients and their community.”

A System That Rewards Consolidation

And reimbursement is only half the cut. The other half is the administrative work that stands between a finished visit and collected payment. Physicians now average 39 prior authorizations a week and spend roughly 13 hours on them, and nearly three in ten report that a prior authorization led to a serious adverse event for a patient. Medicare Advantage plans alone generated close to 53 million prior authorization determinations in 2024 . From athenahealth’s vantage point across more than 170,000 clinicians and over 315 million claims a year, we see the financial residue of that friction up close. Across the athenaOne® network, the median monthly denial rate runs about 5.3% . Even at the better end of the industry range, that means roughly one claim in nineteen comes back to be reworked and paid late, if it is paid at all. For a practice running on a single-digit margin, that delay is working capital it does not have. AI-assisted tools are starting to take some of that load off staff, but the underlying volume is a structural problem no software solves on its own.

Congress Can Still Change the Trajectory

None of this is beyond Congress’s reach. The most direct fix is to stop legislating physician payment one year at a time. The Strengthening Medicare for Patients and Providers Act would tie annual updates to the Medicare Economic Index, the government’s own measure of practice-cost inflation. Predictability, not a permanent windfall, is the point.

Payment is not the only force driving consolidation. Workforce shortages and economics weigh on independent practices as well. But payment is the lever Congress controls most directly, and there is more than one to pull. CMS should keep narrowing the site-of-service gap that rewards hospitals for buying physician offices. Hospitals carry fixed costs where a freestanding office does not, so site-neutral reform should move in step with protections for rural and safety-net providers. Even so, site-neutral reform shows that Medicare already has room to spend more intelligently — paying for the care delivered, not the ownership structure behind the building. The Congressional Budget Office estimates that aligning payment for common office-based services would save Medicare roughly $157 billion over a decade. Prior authorization reform needs teeth, too: the electronic, interoperable systems CMS now requires by 2027 should stay on schedule, and policymakers should finish the job by extending similar standards to drug authorizations, which the current rule largely excludes. And the telehealth flexibilities set to expire at the end of 2027 should be made permanent as they widen access.

Technology Helps, But Policy Matters More

Technology cannot fix Medicare payment policy. But it can blunt the administrative burden that makes payment instability harder to survive. When documentation and billing run cleaner, a thin-margin practice keeps more of what it earns and spends less of its day chasing it. That does not erase the reimbursement problem, but it buys time, and it keeps a doctor in the exam room instead of buried in paperwork.

Washington already knows how to build payment that rewards this kind of care. The CMS ACCESS Model , launching this year, points in a useful direction: payment designed around chronic-care outcomes, and open to the AI-enabled tools that increasingly support them, rather than the volume of transactions. That same willingness to modernize should extend to the everyday payment system independent practices rely on. The cardiologist who testified this spring was not asking for protection from competition. He was asking whether anyone in Washington still believes high-quality lower-cost, community-based care is worth keeping. In the next few months, we’ll know the answer.