Practice Expense, Site of Service, and the Survival of the Independent Interventional Pain Practices: With Medicare Policies Leading the Way.

BACKGROUND: Practice expense (PE) accounts for approximately 45% of relative value units (RVUs) under the Medicare Physician Fee Schedule (PFS), yet it receives substantially less analytic attention than physician work. For interventional pain management (IPM), a specialty in which physicians frequently own the procedural suite, imaging equipment, and clinical infrastructure and employ the clinical and administrative staff, or perform surgical interventions in an Ambulatory Surgery Center (ASC) or hospital setting, PE is not merely an accounting abstraction but a major determinant of practice viability.

OBJECTIVE: To examine how Medicare values practice expense, how the calendar year (CY) 2026 PFS final rule and CY 2027 proposed rule alter that valuation, and why the resulting site-of-service payment architecture produces outcomes for independent interventional pain physicians that are inconsistent with the stated policy rationale.

STUDY DESIGN: Narrative health policy review with descriptive quantitative synthesis.

SETTING: United States Medicare program; traditional fee-for-service Part B.

METHODS: We reviewed the CY 2026 PFS final rule, the CY 2027 PFS proposed rule, published specialty-society analyses, peer-reviewed utilization studies of interventional techniques in the Medicare population, national practice-cost and physician-employment data, and relevant local coverage determinations. Payment, cost, and utilization trends were assembled and compared descriptively. No patient-level data were used, and no statistical inference was performed.

RESULTS: Between 2001 and 2025, practice costs measured by the Medicare Economic Index (MEI) increased 59%, while inflation-adjusted Medicare physician payment declined approximately 33% across all specialties and approximately 41% in interventional pain management. Sequestration, applied to Medicare's share of each claim rather than to the fee schedule, further reduced realized revenue by approximately 1.6% for 13 of those 25 years. The CY 2026 final rule reduced indirect PE allocated per work relative value unit for facility services to 50% of the non-facility amount, producing an estimated 7% to 10% increase for office-based services and an estimated 8% to 11% decrease for services furnished in hospital outpatient departments (HOPDs) and ASCs, along with a 2.5% efficiency adjustment applied to non-time-based codes. Because ASCs and hospital outpatient facilities do not provide practice management support to independent physicians, this reallocation penalizes a substantial proportion of the independent physicians the policy rationale was intended to protect. Utilization of interventional techniques per 100,000 beneficiaries declined 16.8% between 2019 and 2024. Nationally, the proportion of physicians practicing in physician-owned practices declined to 18% by January 2026. However, the proportion of independent physicians remains above 40%, with approximately 70% of interventional pain physicians practicing independently.

LIMITATIONS: This is a narrative rather than a systematic review. Specialty-level payment impact estimates are aggregate projections and do not reflect an individual practice's case mix, payer mix, geographic adjustment, or site-of-service distribution. CY 2027 provisions are proposed and may change in the final rule.

CONCLUSIONS: The facility/non-facility binary serves as a proxy for a question it does not actually address: who bears the indirect cost of providing care. Aligning PE allocation with independent physician vs. hospital employed physician status through an independent-practice modifier would more faithfully advance the stated rationale of the CY 2026 rule than the current site-of-service distinction. An annual inflation update and modernization of the budget-neutrality threshold remain necessary preconditions for durable physician payment reform.