Imagine running your medical practice in 2025: staff and supply expenses continue to rise, but reimbursement for your services continues to shrink.
That’s the reality of healthcare finance in 2025, and it keeps a lot of physicians anxious about profiting with their practice. Value-based care (VBC) – a system that pays for good outcomes instead of paying for the volume of services – sounds like a buzzword, but it’s taking hold.
Medicare reimbursement stands to fall by 2.83% across the board in 2025 even as practice operating expenses rise. In that case, knowledge of how VBC can affect the profits of your practice is highly valuable.
In this article, we discuss the financial reality of 2025 and how implementing value-based care can keep your practice not just alive but thriving.
The Financial Status of 2025
The financial condition for physician offices is challenging in 2025, driven by a few primary factors:
• Medicare Payment Cuts:
The Centers for Medicare & Medicaid Services (CMS) cut the physician payment rates by 2.83% in the 2025 Physician Fee Schedule, from approximately $33.29 in 2024 to $32.35 in 2025.
This is the fifth consecutive year of overall payment reductions to Medicare physicians. Even a fairly modest cut can be a giant issue: a 2.83% cut to a practice that brings in $500,000 annually from Medicare is a loss of approximately $14,150 of revenue.
These kinds of cuts put a practice that relies on Medicare in a bind right away.
• Margin Compression:
Increasing costs and decreasing payments are hurting practice profits. You’re paying more for everything, from employee salaries to medical supplies, because of inflation and not having enough staff, while insurance payers (like Medicare) are paying you less.
To rub salt in the wound, there are more denials for insurance claims, meaning more of your bills aren’t paid the first time.
All these reasons – increased labor costs, inflation, increased denials, and decreased payments – are coming together to reduce profits. Simply put, your practice’s costs are increasing more quickly than your income, making it more difficult to remain profitable.
Everything about operating a practice (hiring employees, retaining employees, purchasing supplies, paying for utilities) now costs more, reducing your profits and making it more difficult to maintain the practice’s success.
• Workforce Issues:
A growing population translates to more patients, but there aren’t enough physicians to address them. Approximately 11,000 Baby Boomers turn 65 daily, increasing the need for healthcare services.
Simultaneously, many physicians are also nearing retirement age, and fewer young physicians are stepping forward to fill their places – hence creating a lessen physician supply.
Actually, experts predict a shortage of physicians by 54,100 to 139,000 by 2033 if current trends continue.
Those physicians still working in practice often feel burned out. Administrative tasks – particularly tasks such as lengthy documentation and navigating clunky electronic health records (EHRs) – take precious time and energy.
This paperwork burden creates high burnout rates among, making practices less efficient and possibly restricting the number of patients a practice can treat. Fewer physicians (and less time per physician) translate to reduced revenue potential for practices even as patient demand increases.
These pressures make it harder to sustain the current fee-for-service model. Value-based care is more than a policy fad; it may keep practices in the black. By emphasizing effective, high-quality care, VBC models provide new paths for generating revenue and lowering costs that may help address some of these financial challenges.
Opportunities in Value-Based Care
Despite difficulties, value-based care also presents opportunities for individuals willing to adapt.
• Greater Reimbursement Potential
Joining VBC programs can help you earn additional money in the form of bonus payments or shared savings. For instance, being part of an Accountable Care Organization (ACO) in Medicare’s Shared Savings Program (MSSP) allows you to be rewarded for keeping patients healthy and reducing the cost of healthcare.
• Data-Driven Cost Savings:
Value-based models enable practices to get better data on their patients, particularly with the assistance of CMS’s innovation programs.
The CMS Center for Medicare & Medicaid Innovation (CMMI) has developed data-sharing mechanisms so that providers can succeed in value-based care.
With better data, you can identify high-risk patients (such as those with chronic diseases who are heavy hospital users) and treat them sooner.
By applying analytics to manage these patients – scheduling frequent check-ups, coordinating their care with specialists, and ensuring they adhere to their medicine – practices can prevent expensive issues and hospitalization.
Keeping a patient out of the hospital unnecessarily is not only healthier for them but also saves a lot of money. Under VBC contracts, the money saved on these avoided costs is bonuses for practice.
This means that data enables you to see where the money is being spent and where you can do better.
CMS’s recent initiative to facilitate easier access to provider data for providers is aiding doctors in better managing patient groups, identifying areas to save money, and responding quickly. The outcome is healthier patients and potential savings for your practice.
Greater Effect on Utilization:
Value-based care is already demonstrating good performance in avoiding wasteful use of healthcare on a large scale. In the past 10 years, an estimated 2.3 million more patients have been treated under VBC than under the old fee-for-service model.
Patients treated under VBC had fewer avoidable events (such as unwanted ER visits and hospital readmissions) and less acute care than comparable patients outside VBC.
For a practice, this translates to: if you are in a value-based network, you will see fewer hospitalizations among your patients. Less acute care utilization can benefit your bottom line under pay-for-performance and cost-savings contracts.
For instance, if your value-based contract provides that you and the payer share any savings realized, not admitting a few patients unnecessarily can save tens of thousands of dollars – dollars that come back to you in part as shared savings.
In a mid-size practice, these efficiencies can save your practice $10,000 – $50,000 annually in earned bonuses or cost savings, contributing directly to profitability.
In short, by keeping your patients healthier and out of the hospital, you enhance outcomes and earn financial reward for your practice.
These opportunities address VBC’s potential to reduce the cost burden of the traditional fee-for-service model. Practices that invest in preventive care and care coordination can profit financially substantially while delivering enhanced patient care. It’s a chance to do good by doing well – growing your margins through healthier patients.
Challenges and Risks
Transitioning to value-based care is not natural or simple. While it contains benefits, VBC also contains risks and disadvantages that practices should tackle with care:
• Revenue Risks in Transition:
Shifting from fee-for-service to value-based payment arrangements requires a significant change in how your practice operates.
If a practice enters into a value-based contract but fails to achieve quality targets or cost savings, it may make less money than anticipated. For instance, if you’re in an ACO that aims to cut hospital readmissions by some percentage and you fail, you might miss shared savings or even owe money on downside risk contracts.
In 2025, most value-based contracts still have an upside only design (you don’t lose money if you don’t perform), but more payers are adding two-sided risk.
That is, if you spend more than you anticipated or fail to achieve necessary outcomes, your practice could be subject to financial penalties or reduced payments.
Fear of this is one of the reasons some physicians are hesitant about VBC. Success in such arrangements often demands different skills and infrastructure than fee-for-service, and it can be difficult to attain.
In short, value-based care, if not done well, can damage practice revenue rather than improve it. Practices need to be willing to practice differently – that is, on population health management – to prevent potential loss of revenue.
• Administrative and Investment Costs:
Value-based care is costly to adopt initially. You may need new technology, such as data analytics platforms or population health management software, to monitor patients and performance metrics.
You’ll probably spend money on training staff so your staff (nurses and care coordinators included) can deliver coordinated care and manage new workflows.
It’s also important to manage risk and code properly – by properly documenting patients’ diagnoses and complexity – so you get credit (and reimbursement) for the actual severity of the cases you treat.
Many practices report that they need to hire or consult value-based care specialists to code or spend additional time documenting, which is additional workload.
All of this can be time- and cost-consuming. Estimates vary, but a small practice may spend tens of thousands of dollars to implement the tools and training required for value-based care. (For example, initial costs may range from roughly $50,000 to $200,000 or more, depending on the size of the practice and the degree of changes.)
Those costs hit your bottom line before you achieve any value from value-based care, causing financial strain.
Smaller independent practices worry about whether these changes will pay off – it may take time for bonuses or savings to materialize. Managing cash flow through this transition process can be extremely difficult.
• Medicare Advantage Patient Costs:
More and more seniors are enrolled in Medicare Advantage (MA) plans, privately operated versions of Medicare that frequently employ value-based concepts.
While MA may provide some additional benefits to patients, recent trends indicate that patients in MA plans are facing increased out-of-pocket expenses.
As a Modern Healthcare report indicates, some MA plans have significantly upped patient cost-sharing – for example, pharmacy deductibles increased 167%, and annual out-of-pocket maximums increased 20.7% in some plan.
For practices, this creates some issues. First, patients who are subjected to surprise high expenses may get upset and fault their healthcare providers. That can damage patient satisfaction and retention, which are valuable in value-based models (and to your bottom line).
Second, if patients delay care because of expense, they may become sicker, which undermines the preventive goals of VBC and could result in poorer outcomes that lower your performance metrics.
There’s also a business threat: if some portion of your patient panel chooses to switch providers or leave treatments due to cost concerns, your practice may lose those visit revenues.
Some analysts caution that a practice may experience a 5–10% revenue effect if a sizeable portion of patients reduced visits or change providers due to cost frustrations.
In short, the changing landscape of Medicare Advantage benefits means providers must be prepared to help patients through cost anxiety or lose them – and their related revenue.
• Physician Skepticism and Burnout:
It is not surprising that many doctors have been uncertain about value-based care. Change is hard, and there is concern that VBC will mean more work with no tangible payoffs.
A few years ago, a survey indicated that 61% of doctors believed value-based care would negatively impact their practice’s bottom line.
This was 2018, when many hadn’t yet seen successful VBC efforts – and some of that skepticism persists in 2025.
Doctors are concerned that small practices will be disproportionately affected, or that quality measures won’t recognize their work with complex patients.
There is also fear that emphasis on measures and paperwork (to succeed in VBC) contributes to burnout. Unless carefully managed, VBC initiatives can feel like piling more administrative work onto already burned-out physicians.
This skepticism itself can be an issue: if you and your staff aren’t mentally ready for VBC, it is difficult to make the adjustments needed to thrive.
Getting past this mindset is part of the change. The good news is that new studies and actual success (some of which are outlined above) are beginning to alter perceptions, demonstrating that VBC can enhance care and maintain or increase earnings when implemented correctly.
These are challenges that underscore the necessity for planning and strategy in the transition to value-based care. It is not something that can be done hastily. Practices need to weigh the risks, move slowly, and ensure they have the proper support and resources in place. The transition can be managed, but it must be planned and committed to by leaders and staff.
Strategies for Success
How do you most effectively manage value-based care and maintain (even increase) your practice’s profitability? Following are some effective evidence-based approaches:
• Begin with Low-Risk Models:
You don’t have to dive in at the deep end. Try to start with upside-only risk arrangements first to work up to VBC.
One example is Medicare’s MSSP’s Basic Track (Level A) where you can share in savings if you perform, but won’t be in the red if you fall short.
This type of model allows you to learn about value-based care without up-front financial risk.
It’s training wheels for VBC. You can try out population health management, workflow redesign, and metric improvement for a couple of years. If it pays off, you share in the savings; if not, you get standard fee-for-service payments without penalty.
Starting small shields your practice while you develop the infrastructure and culture needed for more complex value-based model. Most practices find that once they’re comfortable with an upside-only model, they’re better situated to eventually take two-sided risk (where performance can affect payments negatively or positively).
Basically, crawl before you walk in the value-based world.
• Leverage Data Analytics:
Data is useful in value-based care. Use tools or payer reports to monitor your key measures, such as hospitalization rates, control of chronic diseases, or follow-up rates in patients.
- Review this data to identify areas to improve. Are certain patients responsible for most hospitalization or cost?
- Are there opportunities for care processes to improve?
By looking at the numbers, you can identify ways to improve and avoid unnecessary costs. For instance, data can show that heart failure patients in your practice go to the ER because they ignore early warning signs.
Knowing this, you could have your nurse call these patients weekly, and this could avoid expensive emergency visits.
Data analysis can also enable you to demonstrate your value to payers by demonstrating improvements. Third-party reviews or dashboards can provide you with a clear view of your practice’s performance and patient risks, so you can target where to make changes most critical.
Remember, in value-based care, you excel by managing population outcomes, and you can’t manage what you can’t measure. Use data to make decisions for patients (who needs more attention) and your practice (which processes need to improve).
• Employ Team-Based Care:
Value-based care is not something a single individual can accomplish alone.
Get all of your staff working as one. This involves utilizing nurse practitioners, physician assistants, nurses, medical assistants, care coordinators, and others in expanded roles to assist with patient care.
For instance, while the physician is concentrating on diagnosing and making complex choices, a nurse or care manager can check patients in between visits to ensure they are taking their medication or answer questions.
Medical assistants can manage preventive care checklists. A behavioral health specialist (if you possess one) can assist with mental health or social issues that influence health outcomes.
Team-based care has two primary advantages: it can result in improved patient outcomes (because patients are receiving more attention and education), and it can reduce doctor burnout (because physicians are not doing it all on their own).
When staff are engaged and workflows allow everyone to contribute, patients receive more integrated care. This form of working also appears to lead to happier patients.
Fiscally, team-based care can enhance performance on quality measures and provide doctors with more time to treat more patients or treat tougher cases – both of which can generate more revenue.
Consider training and protocols to enable your team to service efficiently together (such as huddles, open channels for communication, shared care plans). A supported team is the secret to value-based care success.
Invest in Value-Based Coding and Documentation:
In value-based care, it is absolutely critical to document and code correctly.
This is how you know the acuity of your patient population is correctly known. Value-based payment systems tend to risk adjust, employing such techniques as Hierarchical Condition Category (HCC) coding in Medicare.
If you don’t document a patient’s conditions completely, it will look like you have lower-risk patients than you really do. This could make it harder to meet cost targets and quality measures.
Take time to train your staff on documentation practices that support value-based care.
For example, always documenting all applicable diagnoses on claims and keeping problem lists in the EHR. It might even be worth it to bring in specialized coders or consultants to audit your charts on a regular basis.
This can help you avoid under-coding high-acuity patients. This investment can pay dividends by preventing lost revenue and preventing penalties.
Also, good documentation helps with quality reporting, making sure all your hard work is represented in the data. Think of coding as telling the story of how sick your patients really are and the care you’re delivering.
You want that story to be complete. By focusing on value-based coding, you protect your reimbursements and set your practice up for fair payment in any value-based contracts. In short, code for reality, and you’ll be better off when performance is measured.
• Form Strategic Partnerships:
You don’t have to go it alone with value-based care. Consider teaming with larger health systems, ACOs, or independent practice groups with VBC expertise.
Joining an existing network can provide you with access to resources and expertise that would be difficult to develop on your own.
Diversify Revenue Streams:
As Medicare payments decrease, it’s wise not to put all your eggs in one basket. Pursue other avenues to increase your practice’s revenue.
Some practices are launching or growing services like telehealth (virtual care), chronic care management programs, or remote patient monitoring. These services can create new payment channels and improve patient care (also aiding value-based care goals).
Others are testing models like direct primary care or concierge care for some of their patients. These models can provide steady cash flow that isn’t insurance-billing dependent.
You can also consider contracting with self-insured employers in your area to deliver services for their employees on a value or subscription basis.
These arrangements can bring in more revenue and diversify financial risk. In the meantime, pay close attention to how you manage your revenue cycle on the services you do bill fee-for-service.
Good billing practices can make a big difference in your financial staying power. Make sure you’re maximizing collections, following up on denials, and collecting payment in a timely manner.
Experts suggest a goal of at least 95% collection efficiency on claims (i.e., minimal denials). This means handling denied claims carefully and making sure your documentation is consistent with what payers expect.
By diversifying income and improving management of existing payments, you create a cushion that can ride out Medicare reductions and give you room to make investments in value-based care initiatives.
Partnership of Peace of Mind:
Transitions to value-based care are not a task most practices can accomplish alone – and that’s where professional assistance enters.
At Human Medical Billing, we help practices optimize their revenue cycle, increase claim acceptance rates, and develop the financial know-how necessary to succeed in fee-for-service and value-based models.
With more than 20 years of medical billing experience and transparent integration with any EHRs, our team allows physicians to concentrate on what they do best: caring for patients.
Financial Impact Summary
The following table summarizes significant ways value-based care and ongoing trends will impact physician practice bottom lines in 2025:
| Aspect | Impact | Potential Financial Effect |
|---|---|---|
| Medicare Payment Cuts | 2.83% decrease in 2025 Medicare conversion factor fee schedule (from $33.29 to $32.35) | Loss of ~$14,150 per $500,000 in Medicare revenue (lower reimbursement for same services) |
| Margin Compression | Increasing operating expenses (staff, materials, etc.) and decreasing reimbursements. | Lower profitability and lower margins; necessitate cost reductions or productivity improvements to achieve break-even |
| VBC Shared Savings | Incentives for savings in the cost of achieving quality targets (e.g., ACO shared savings) | Significant positive aspect - i.e., effective VBC models |
| Investment Costs | Initial investment in technology, training, and new employee positions to utilize VBC | Tens of thousands ($50k–$200k) in initial and ongoing costs, depending on practice size - a short-term hit to finances before benefits are realized |
| Medicare Advantage Costs | Higher patient out-of-pocket expenses in some MA plans (167% increase in drug deductible, 20.7% increase in out-of-pocket max) | Patient dissatisfaction or loss risk if they forego care or switch providers; can translate to ~5–10% loss in revenues if a significant number of patients decrease visits |
| Data-Driven Savings | Fewer trips to urgent care and fewer avoidable issues with proper value-based care. | Yearly savings of $10,000 to $50,000 per medium-sized practice (via shared savings bonuses or cost reductions due to prevention) |
Note: (Numbers in table are estimates. Results will vary by practice. Positive financial effects of VBC are contingent on being able to improve care, whereas adverse effects of reductions or expenses are tendencies towards which practices will have to work not to experience.)
Conclusion:
Physician offices in 2025 need to determine whether they will maintain status quo amid increasing pressures or adopt value-based care as an opportunity to improve. While there are obstacles such as Medicare reduction and insufficient staffing, value-based care holds possibilities for efficiency and quality through shared savings and enhanced patient outcomes. To survive, they will need to be nimble, build smart partnerships, and transition towards sustainable models of care.
