Each year, thousands of healthcare providers face reduced Medicare reimbursements because of MIPS penalties—sometimes losing up to 9% of their Part B payments. For a solo provider billing $200,000 annually, that’s an $18,000 loss.

These penalties aren’t just financial—they impact your reputation, compliance status, and operational efficiency. Understanding why MIPS penalties happen and how to avoid them is critical for providers, clinic owners, and billing teams alike.

What Are MIPS Penalties?

The Merit-Based Incentive Payment System (MIPS) is part of CMS’s Quality Payment Program, which ties Medicare Part B payments to performance across multiple categories. If providers fail to meet annual benchmarks, they receive negative payment adjustments, reducing Medicare reimbursements up to 9%.

These penalties are determined by your Composite Performance Score (CPS) and are applied two years after the performance year. For example, data submitted for 2023 will impact Medicare payments in 2025.

If you’re an eligible provider—including physicians, nurse practitioners, or PAs—and you don’t meet CMS’s performance threshold, you’re at risk of a penalty unless you qualify for an exemption.

Why CMS Issues MIPS Penalties

MIPS is designed to promote value-based care over volume-based services. By penalizing underperformance, CMS aims to reward high-quality, cost-efficient care. The system is budget-neutral: money withheld from low performers funds bonuses for top performers.

This means that even small mistakes—like incomplete submissions or missing deadlines—can result in significant financial losses.

How MIPS Penalties Work

CMS evaluates performance in four categories:

• Quality– 30%
• Promoting Interoperability– 25%
• Improvement Activities– 15%
• Cost– 30%

Each category contributes to your Composite Performance Score (CPS). To avoid penalties for the 2025 payment year, your CPS for the 2023 performance year must be 75 points or higher.

Providers scoring 0–18.75 points receive the full -9% penalty, while those scoring closer to 75 face smaller cuts on a sliding scale.

These penalties are applied across all Medicare Part B payments throughout the year, and they can be calculated either for individuals (TIN/NPI) or entire groups, depending on how data was reported.

Common Triggers for MIPS Penalties

Falling below the performance threshold can happen for several reasons:

•  No Submission: Failing to report any data results in an automatic -9% penalty.
•  Partial Reporting: Incomplete data in one or more categories can lower your score, even if you perform well in others.
•  Low Performance: Submitting data but scoring poorly in key areas like Quality or Cost can bring your CPS below 75.
•  Missed by a Fraction: Even a score of 74.99 results in a penalty—there’s no rounding up.
•  Technical Errors: Incorrect file formats, outdated EHRs, or submission mistakes can lead to rejections.
•  Outdated Knowledge: MIPS requirements change yearly. Providers who don’t stay current risk non-compliance despite best intentions.

These issues can hit even engaged providers. And once a penalty is triggered, it affects every dollar billed to Medicare Part B during the adjustment year.

What Happens If You Don’t Report at All?

If you’re required to participate in MIPS and submit no data, you receive the maximum penalty: -9%.

Example:
A provider billing $250,000 annually to Medicare Part B would lose $22,500 over the course of a year.

The penalty is spread across all claims, not applied in one lump sum. This creates long-term financial strain—especially for smaller practices operating on tight margins.

Does Practice Size Influence MIPS Penalties?

Yes. Smaller practices are hit harder.

In 2022:

• 27% of small practicesreceived MIPS penalties
• Nearly 30% of solo clinicianswere penalized

Larger organizations typically have dedicated teams or vendors handling compliance. But small and solo providers often juggle reporting with patient care, increasing the risk of errors or missed deadlines.

MIPS Penalty Trends Over Time

CMS has steadily increased the performance threshold and penalty impact over the years:

CMS has confirmed that the -9% penalty and 75-point threshold will remain in place at least through 2026.

The Real Cost of MIPS Penalties

Aside from revenue loss, MIPS penalties can:

• Affect visibility on Care Compare, CMS’s public rating site
• Prevent access to performance feedback reports
• Lead to reputational damagefrom low scores

A JAMA study estimates that compliance costs about $12,800 per provider annually, requiring more than 200 hours of staff time.

The burden is especially heavy for small and rural practices that lack infrastructure or external support.

Future Outlook: Calls for Reform

The MIPS model has faced increasing criticism for its complexity and disproportionate impact on smaller practices. Groups like the AMA have called for its replacement with more streamlined alternatives like the Data-Driven Performance Payment System (DPPPS).

While no major changes are expected through 2026, momentum for reform is growing—especially to reduce reporting complexity and realign performance with meaningful clinical outcomes.

How to Avoid MIPS Penalties

Avoiding penalties requires early planning and consistent tracking. Here’s how to stay ahead:

• Confirm your eligibility at the beginning of the year
• Understand the threshold – 75 points is the current benchmark
• Start reporting early and gather data throughout the year
• Report across all four categories to maximize your score
• Choose specialty-relevant quality measures
• Use certified EHR technology to boost your interoperability score
• Participate in high-weight improvement activities (e.g., care coordination, telehealth)
• Monitor your progress monthly using dashboards or reporting tools
• Engage your care team – MIPS success is a group effort
• Run internal audits before final submission
• Document everything – CMS may request proof
• Consult experts if unsure how to boost your score

Final Thoughts

MIPS penalties can cost providers thousands in lost revenue—but they’re avoidable with the right approach. Staying informed, proactive, and organized is the best defense. As CMS continues to hold providers accountable for performance, now is the time to strengthen your reporting strategies and avoid unnecessary financial risk.