The Medicare Workforce Crisis

Every policy initiative in this series assumes a workforce that exists at sufficient scale to execute it. ACO expansion assumes primary care physicians available to manage attributed beneficiaries. AHEAD assumes hospitals can staff population health programs and care coordination teams. FIDE SNP integration assumes behavioral health providers and home health aides ready to serve complex dual eligibles. Encounter-based risk adjustment assumes clinical documentation specialists embedded in practice workflows. WISeR assumes prior authorization staff or gold-carding infrastructure.

The assumption may not hold. Physician reimbursement has eroded in real terms for two decades. Home health aide wages remain at or near minimum wage in most markets. Nursing shortages constrain every care setting from hospitals to skilled nursing facilities. Geographic maldistribution concentrates workforce in urban areas while rural communities face persistent vacancies. The gap between policy ambition and workforce capacity is widening, and no regulatory innovation can close it without addressing the compensation and supply structures that determine who enters and remains in the healthcare workforce.

The Physician Fee Schedule Structural Problem

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The Medicare physician fee schedule operates under a statutory budget neutrality requirement. When CMS increases payment for one service, it must decrease payment for others to maintain the same total spending. This zero-sum constraint means that every revaluation creates winners and losers within the physician community, making fee schedule reform politically difficult and structurally incapable of increasing aggregate physician compensation.

The CY2026 PFS final rule illustrates both the constraint and the incremental efforts to work within it. The conversion factor for qualifying APM participants is $33.57, representing a 3.77 percent increase from 2025. For non-qualifying APM participants, the conversion factor is $33.40, a 3.26 percent increase. These increases reflect a temporary 2.5 percent statutory boost from the One Big Beautiful Bill Act, modest permanent updates under MACRA, and a positive 0.49 percent budget neutrality adjustment. Without the statutory intervention, physicians would have faced a cut.

The efficiency adjustment finalized in the 2026 rule reduces work relative value units by 2.5 percent for most non-time-based services. CMS justified this adjustment on the theory that productivity gains from workflow improvements and technology adoption should be reflected in lower valuations. The adjustment affects 91 percent of services provided by physicians. Combined with practice expense methodology changes that reduce indirect PE RVUs for facility-based services by 50 percent, the rule produces a 7 percent reduction in payment for services performed in hospitals and ambulatory surgery centers.

The Medicare-commercial rate gap compounds the problem. Medicare physician reimbursement is roughly 75 to 80 percent of commercial rates for most services, and the gap has widened over time as commercial rates have increased while Medicare rates have stagnated in real terms. Physicians rationally allocate their time toward higher-paying patients, reducing Medicare access in markets where commercial volume is available. Practices in competitive urban markets can be selective about Medicare participation; practices in rural or underserved areas where Medicare represents a larger share of the patient population have less flexibility.

The primary care compensation crisis is structural. The PFS methodology values procedural services more highly than cognitive services, reflecting historical assumptions about the resources required for different types of care. A cardiologist performing a catheterization generates substantially more revenue per hour than a family physician managing chronic disease. Physicians rationally choose higher-paying specialties during training, creating primary care shortages that have persisted for decades despite policy attention.

For ACOs, this is an existential challenge. Population health management depends on primary care capacity. Attributed beneficiaries need accessible primary care to avoid emergency department visits, manage chronic conditions, and coordinate specialty referrals. ACOs cannot generate shared savings without primary care infrastructure, but the PFS systematically undervalues the services that primary care physicians provide.

The CY2026 rule attempts modest correction through Advanced Primary Care Management codes with behavioral health integration add-ons, allowing primary care practices to bill for the care coordination work that has historically been uncompensated. Whether these codes generate sufficient revenue to stabilize primary care practice economics remains to be seen.

Home Health Aide Compensation

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The home health aide workforce is the foundation of home and community-based services, FIDE SNP care models, AHEAD avoidable hospitalization strategies, and ACO care coordination programs. This workforce is in crisis.

Wages remain low despite recent increases. The national average hourly rate for home care aides increased 4.93 percent in 2025, following a 4.86 percent increase in 2024. These increases have helped reduce turnover from 36.31 percent in 2024 to 34.17 percent in 2025. Sign-on bonuses averaging $2,304 supplement base wages. Yet the median hourly wage for home care workers nationally remains around $16 to $17 per hour, barely above retail and fast food wages for work that is physically demanding, emotionally taxing, and clinically essential.

The Bureau of Labor Statistics projects nearly 740,000 new home health and personal care aide jobs between 2025 and 2034, a 17 percent growth rate compared to 3 percent for all occupations. PHI projects over 6.1 million total job openings in home care through 2034 when accounting for workers leaving the occupation. The industry must recruit and retain workers at unprecedented scale while competing with employers offering comparable wages for less demanding work.

Medicaid funds the majority of home care services, and Medicaid reimbursement rates constrain what agencies can pay workers. Among states reporting time-based payment rates for personal care providers, more than half pay less than $20 per hour. All responding states in the 2025 KFF survey reported workforce shortages, with shortages most common among direct support professionals, nursing staff, and personal care attendants. Most states reported permanent closures of home care providers within the last year.

The Biden administration’s May 2024 access rule requires states to report payment rates for home care services starting July 2026 and to demonstrate by 2030 that at least 80 percent of payments go to worker compensation. The 2025 reconciliation law, which reduces federal Medicaid spending by an estimated $911 billion over the next decade, creates fiscal pressure that may force states to cut rather than raise home care payment rates. The policy direction and the fiscal reality are in tension.

What would fix the workforce shortage is straightforward: substantially higher wages funded through Medicaid rate increases and Medicare home health payment reform. Why this has not happened at scale reflects the political economy of long-term care financing: the populations most dependent on home care are low-income, elderly, and disabled, with limited political voice relative to other healthcare constituencies.

Nursing Workforce

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The registered nurse shortage affects every Medicare-dependent care setting. Hospitals, skilled nursing facilities, home health agencies, and hospices compete for the same limited supply of nurses, with compensation and working conditions determining which settings attract and retain staff.

CMS finalized minimum staffing requirements for nursing homes effective 2024, requiring facilities to have a registered nurse on site 24 hours per day, seven days per week, and to meet minimum staffing hours per resident day. Implementation timelines vary by facility type, with rural facilities receiving extended compliance deadlines. Whether these requirements are achievable given current supply is uncertain. Facilities in markets with severe nursing shortages may be unable to comply regardless of their willingness to pay.

The RN-to-LPN pipeline has not produced sufficient supply growth to meet demand. Nursing school enrollment is constrained by faculty shortages, clinical placement availability, and state funding for nursing education. The pipeline from LPN certification through RN completion adds years to workforce entry. International nurse recruitment provides some relief but faces visa constraints and creates dependency on immigration policy.

Turnover data from home health agencies illustrates the retention challenge. RN turnover stood at 25.46 percent in 2025. Agencies offer sign-on bonuses averaging $7,499 for RNs, reflecting the competitive pressure to attract nurses from other settings. The combination of demanding work, documentation burden, and alternative employment options creates persistent instability.

Geographic Maldistribution

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Workforce shortages are not uniform. Urban academic medical centers compete successfully for physicians and nurses. Rural communities face vacancies that persist for years.

J-1 visa waiver programs provide a significant share of rural physician supply. Under these programs, international medical graduates can avoid returning to their home countries by practicing in underserved areas for a specified period. The supply of J-1 physicians depends on immigration policy decisions that are unrelated to healthcare workforce needs.

Graduate medical education slot allocation determines where physicians train and, frequently, where they practice after training. GME slots are concentrated in urban academic medical centers. Physicians who complete residency in urban settings disproportionately remain in urban practice. Expanding rural GME capacity requires capital investment and program development that rural hospitals often cannot fund independently.

Rural health clinic and FQHC payment models provide enhanced reimbursement intended to support practice viability in underserved areas. These payment differentials help but do not fully offset the lower patient volume, limited service lines, and professional isolation that characterize rural practice. Critical Access Hospitals face particular challenges: 25-bed facilities cannot offer the call coverage, subspecialty backup, or career advancement opportunities that attract and retain physicians.

The interaction between geographic maldistribution and care model implementation is direct. An ACO cannot attribute beneficiaries to primary care physicians who do not exist in the service area. An AHEAD hospital cannot invest in community-based care if home health agencies have closed due to workforce shortages. A FIDE SNP cannot execute its care model if behavioral health providers are unavailable in the counties where its members live.

Workforce as a Binding Constraint on Policy

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At some point, workforce shortage becomes the binding constraint on policy execution. CMMI can design models with compelling logic. CMS can finalize rules with ambitious timelines. Congress can authorize demonstration authority and appropriations. None of this matters if the delivery workforce does not exist at sufficient scale to execute the care models that policy assumes.

The interaction with CMS implementation capacity compounds the challenge. CMS may have the regulatory authority to launch models, monitor performance, and distribute payments, but the agency cannot create physicians, nurses, or home health aides. The field capacity to execute models depends on workforce decisions made by hundreds of thousands of individuals responding to compensation, working conditions, and alternative opportunities.

The workforce crisis is not a problem that value-based payment can solve directly. ACOs and AHEAD hospitals can invest in care coordination, but they cannot unilaterally raise wages for a workforce whose compensation is determined by Medicaid rates they do not control. Payviders can build internal capacity, but they compete for the same limited supply of clinicians as every other employer in their market.

Policy makers designing the next generation of Medicare innovation models should ask whether the workforce exists to execute them. The answer, increasingly, is uncertain.

Related Reading

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MCR-06_05 Aging in Place: The Home Care Industry’s Medicare Policy Moment MCR-03_01 The One Big Beautiful Bill: What It Does to Medicare and Medicaid