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November 4, 2025 – Trick or treat! On Halloween evening, the Centers for Medicare & Medicaid Services (CMS) spooked all of us in the health policy community by issuing the calendar year (CY) 2026 Medicare Physician Fee Schedule (PFS) final rule around 5:15 pm EDT. As discussed in last week’s Regs & Eggs blog post, it was unclear whether the PFS and other Medicare payment rules would come out “on time” around November 1, but CMS did wind up meeting the deadline for the PFS final rule.
The PFS final rule is the major Medicare annual payment rule that impacts payments for physicians and other clinicians. Regs & Eggs has previously explored the major proposals in the CY 2026 PFS proposed rule (not once, but twice) and highlighted stakeholder feedback. Overall, CMS finalized most of what it proposed, with some modifications based on public comments. While CMS finalized an increase to the PFS conversion factors (CFs), the agency instituted other payment policies that will cause large discrepancies in payments depending on the type of services clinicians provide and whether they provide them in a facility or a non-facility setting. This is a rule where the budget neutrality requirements in the PFS really come to the forefront, as there are major redistributions in payment that result from the relative value unit (RVU)-related policy changes that CMS is finalizing.
Here are some highlights of the final rule. To help me with these highlights, I called on all of McDermott+’s regulatory cooks, including Kristen O’Brien, Rachel Hollander, Rachel Stauffer, Deborah Godes, Simeon Niles, Marie Knoll, Lauren Knizner, and others. Since this rule is massive (more than 2,300 pages), McDermott+ will provide more in-depth analyses in the coming days. Consider this blog post to be the first time through the PFS “buffet,” with more rounds to follow!
The CF is the standardized dollar amount used to convert RVUs into payment rates. The CF plays a central role in determining how physicians are reimbursed under Medicare, and it’s come under increased pressure in recent years. Despite rising practice costs and broader inflationary trends, the CF has been cut for the last five years because of various policy and budgetary factors.
In this final rule, for the first time in six years, CMS finalized an increase to physician payments. The CY 2026 PFS CF is $33.5675 for clinicians who meet certain participation thresholds in Advanced Alternative Payment Models (APMs) and $33.4009 for other clinicians. These amounts represent increases of 3.77% and 3.26%, respectively, from the CY 2025 CF of $32.3465.
The positive updates are driven by three factors:
The 0.49% positive budget neutrality adjustment is slightly lower than the proposed 0.55% adjustment, and therefore the final CFs are 0.06% lower than the proposed CFs of $33.5875 and $33.4209. Most of this difference in budget neutrality is due to modifications CMS made to the efficiency adjustment policy.
CMS finalized, with some modification, an efficiency adjustment that will partially negate the higher CFs for some clinicians. For several years, CMS has been concerned about not accounting for the efficiencies gained in work RVUs for non-time-based services. CMS believes that non-time-based codes, such as codes describing procedures, radiology services, and diagnostic tests, should become more efficient as they become more common, professionals gain more experience, technology improves, and other operational improvements are implemented.
To better reflect the resources involved in furnishing services paid under the PFS, CMS will apply a 2.5% reduction to both work RVUs and the physician intra-service time for non-time-based services. Intra-service time is the time allocated for performing a service. CMS highlights its authority under the Social Security Act to adjust the number of RVUs to take into account changes in medical practice. To calculate the efficiency adjustment, CMS finalized its proposal to add the last five years of the Medicare Economic Index productivity adjustment, which equals a 2.5% reduction.
In the final rule, CMS adjusted the list of codes to which the efficiency adjustment will apply. As in the proposed rule, CMS excluded time-based codes (including evaluation and management, care management, and behavioral health services), services on the CMS telehealth list, and maternity care codes with an MMM global period. However, in a noteworthy change, CMS finalized additional exemptions, most notably for new CY 2026 services, but also for other time-based services not captured in the proposed rule, such as time-based drug administration, physical medicine and rehabilitation and therapy services, and remote therapeutic monitoring services. With these changes, the efficiency adjustment will apply to around 7,700 codes, compared to nearly 9,000 codes as proposed.
CMS noted that had it used more recent Bureau of Labor Statistics data, the CY 2026 efficiency adjustment would have been 3.6% rather than 2.5%. The agency finalized the lower 2.5% to take a more conservative, incremental approach. This signals that, under CMS’s own approach, the 2.5% reduction is on the low end of what the methodology could have supported, and that future recalculations could produce a higher adjustment. Under the three-year update policy, the next recalculation is scheduled for CY 2029.
Since CMS finalized a reduction to RVUs for thousands of codes, CMS made an overall positive adjustment to the CFs to preserve budget neutrality (although the adjustment is smaller than proposed, since the final policy impacts fewer codes).
CMS finalized as proposed a significant change to the practice expense (PE) methodology that also might affect physician reimbursement. Under the PFS, many services are paid differently depending on where they are furnished. In a non-facility setting (e.g., a physician’s office), payment includes both the work RVU (reflecting the physician’s time and effort) and a PE RVU that captures the full cost of operating the practice. This includes direct costs (such as clinical labor, supplies, and equipment) and indirect costs (such as administrative overhead). In a facility setting (e.g., a hospital), payment still includes both work and PE RVUs, but the PE RVU is typically lower because direct costs are paid separately to the facility under a different payment system (e.g., the Outpatient Prospective Payment System). As a result, indirect PE in the facility setting is allocated based solely on the work RVU, since the physician does not incur those direct expenses.
Some indirect PE is still included in the facility setting payment to reflect assumptions built into the original PE methodology, which was developed at a time when most physicians maintained office-based practices even if they also furnished care in hospitals. Under that model, the PE methodology allocated the same amount of indirect cost per work RVU regardless of site of service.
CMS believes these assumptions may no longer hold true, given substantial changes in healthcare delivery and practice patterns in recent decades, with fewer physicians now in private practice. CMS thinks that the indirect PEs currently allocated to clinicians who work in facilities is overstated, especially if these clinicians no longer maintain a separate office-based practice. To address this potential inaccuracy, CMS modified the indirect PE allocation methodology for services furnished in the facility setting beginning in CY 2026 by reducing the portion of indirect PE allocated per work RVU to 50% of the amount allocated for non-facility services.
As you know from a previous Regs & Eggs blog post, CMS received many comments on this proposal. Although many commenters urged CMS to phase in the change (as it has done previously with major PE adjustments), CMS declined to do so, explaining that a transition would slow progress toward correcting long-standing site-of-service payment disparities and perpetuate distortions between facility and non-facility payment rates. CMS also declined to adopt suggestions to apply a smaller reduction (e.g., 75% instead of 50%), citing a lack of supporting data. CMS did, however, exclude maternity services with an MMM global period to avoid unintended impacts on maternity care, and indicated that the agency will continue to examine the indirect PE methodology and consider further refinements in future rulemaking.
PEs have their own budget neutrality requirement, meaning that cuts to the PE component of certain services are redistributed to the PE components of other services. In this case, since the policy will reduce the PE component of RVUs for clinicians working in facilities, those decreases will result in significant increases in overall PFS spending for most office-based specialties and clinicians furnishing highly technical services in non-facility settings.
Thus, this rule will result in a pronounced redistribution of payment across sites of care. As displayed in the impact analysis at the end of the rule (Table D-B7 on pages 1738 – 1741 of the rule), there are sharp differences in payment based on where certain providers provide services, even among providers in the same specialty. For example, RVUs for allergy/immunology providers are expected to increase by 7% overall in the non-facility setting but decrease by -11% in the facility setting.
All eyes are on Congress to see whether it will extend any of the Medicare telehealth flexibilities that expired on September 30, 2025, the end of the fiscal year. In the meantime, CMS finalized a bunch of telehealth policies in areas where it has the authority to regulate.
Currently, CMS uses a five-step process to review changes to the Medicare Telehealth Services List, which includes “permanent” and “provisional” codes. If a code passes all five steps, it is placed on the permanent list. If only steps one to three are met, the code is placed on the provisional (or temporary) list.
CMS finalized its proposal to remove steps four and five, which eliminates the need for a provisional list. All codes currently on the provisional list will be added to the permanent list, and CMS will maintain its ability to review and subsequently remove codes from the permanent list. The agency believes, and stakeholders largely agreed, that this proposal will reduce administrative burden and allow patients and providers to determine the most effective modality of care, including in-person and virtual care.
Effectively, this policy means that more than 100 codes that have been on the provisional list since the start of the COVID-19 pandemic will be on the list permanently, until further notice. As of CY 2026, there will be 280 codes on the telehealth list.
CMS also finalized more flexible supervision requirements around telehealth beginning in CY 2026. CMS finalized as proposed a permanent definition of direct supervision that allows a supervising practitioner to be immediately available via real-time two-way audio/video communication (excluding audio-only) for certain services, including cardiac, pulmonary, and intensive cardiac rehabilitation services. CMS also finalized a policy to permanently allow teaching physicians to bill when they are virtually present via real-time audio/video during the key or critical portion of a three-way Medicare telehealth service (where physician, resident, and patient all are remote), regardless of whether the training site is in a metropolitan statistical area. CMS originally proposed to revert to its pre-COVID-19 public health emergency approach (allowing virtual presence only in rural training sites) because of concerns about statutory oversight requirements, patient safety, and ensuring the teaching physician’s personal involvement, but commenters strongly urged CMS to keep the telehealth flexibility to preserve access, staffing flexibility, and resident training in virtual care. In response, CMS adopted this narrower, telehealth-only permanent flexibility while returning to in-person presence for resident services furnished face-to-face in metropolitan statistical areas (the longstanding rural exception remains). Documentation must continue to show whether the teaching physician was physically or virtually present and for which portion of the service.
One area that CMS did not address in the proposed rule (but acknowledged in the final rule) was a flexibility that let distant-site practitioners use an enrolled practice location instead of their home address when furnishing telehealth from home. The policy expires on December 31, 2025. Providers supported this policy to help protect their privacy and security and expressed disappointment that CMS did not discuss this issue in the proposed rule. In the final rule, CMS explained that it does not believe further extension through rulemaking is necessary, citing existing guidance that allows providers to suppress street address details while continuing to use their enrolled practice location for telehealth claims. CMS pointed to its published FAQs on this topic and clarified that any future updates will be issued through subregulatory guidance. The agency reiterated that it defers to state law on licensure requirements for distant-site practitioners and reminded providers that a separate Medicare enrollment is required in each state where services are furnished and billed.
CMS also finalized the following proposals:
Under the Quality Payment Program established by MACRA, most Medicare-participating clinicians can be subject to payment adjustments under a quality and cost performance program called the Merit-based Incentive Payment System (MIPS), or they can participate in the advanced APM track. Most clinicians are subject to MIPS. Eligible clinicians in MIPS have payments increased, maintained, or decreased based on relative performance in four performance categories: quality, cost, promoting interoperability, and improvement activities. Based on how that score compares to a pre-established performance threshold, a clinician receives an upward, downward, or neutral payment adjustment two years after the performance period. For example, performance in 2026 will impact Medicare payments in 2028.
In the final rule, CMS tried to promote stability in the program. CMS will maintain the MIPS performance threshold of 75 points through performance year 2028/payment year 2030. The agency has maintained a 75-point threshold since performance year 2022, allowing MIPS participants to avoid additional quality reporting challenges.
CMS also finalized updates to the MIPS Value Pathways (MVPs). MVPs are a participation option to motivate clinicians to move away from reporting on self-selected activities and measures (traditional MIPS) and toward an aligned set of measure options designed to be meaningful to patient care, better connect measures across MIPS categories, and be more relevant to a clinician’s scope of practice.
CMS finalized six new MVPs for the CY 2026 performance period/2028 MIPS payment year, for a total of 27 MVPs. The proposed new MVPs focus on diagnostic radiology, interventional radiology, neuropsychology, pathology, podiatry, and vascular surgery. The MVP program remains voluntary to provide time for MIPS-eligible clinicians to familiarize themselves with MVPs and begin preparing their practices for participation. CMS has suggested that it will eventually sunset MIPS and move clinicians to MVPs but has not specified a timeline. In the CY 2025 proposed rule proposed rule (last year’s rule), CMS sought comment on, but did not propose, the 2029 performance period as the potential timeline for completing the transition to MVPs (and sunsetting traditional MIPS). In the CY 2026 rule, CMS did not establish a timeline, but instituted policies aimed at facilitating the transition to MVP reporting.
Based on policies in the final rule, CMS projects that around 84% of clinicians will receive a positive adjustment for performance year 2026/payment year 2028, and that the median payment adjustment will be around 1.30%. A relatively low median payment adjustment for performance year 2026/payment year 2028, if it comes to fruition, would be consistent with the magnitude of previous payment adjustments. Since MIPS is a budget-neutral program (a common theme in the PFS), CMS uses the negative payment adjustments it assesses on clinicians who either don’t report (and aren’t eligible for an exception) or don’t meet the performance threshold to pay out bonuses to those clinicians who exceed the performance threshold. As seen in the chart below, with the notable exception of performance year 2022/payment year 2024, MIPS performance adjustments have been relatively small, since most clinicians have either claimed an exception or surpassed the performance threshold. In fact, final payment adjustments for performance year 2024/payment year 2026 were just made available to clinicians, and the maximum positive adjustment (for a score of 100%) was only 1.05%, the lowest of any year to date.
| Perf. year | Pmt. year | Max adj. | Med. score | Med. adj. |
|---|---|---|---|---|
| 2017 | 2019 | 1.88% | 74.01 | 1.65% |
| 2018 | 2020 | 1.68% | 86.93 | 1.10% |
| 2019 | 2021 | 1.79% | 85.59 | 1.20% |
| 2020 | 2022 | 1.87% | 84.88 | 1.13% |
| 2021 | 2023 | 2.34% | 89.22 | 1.32% |
| 2022 | 2024 | 8.26% | 85.29 | 0.92% |
| 2023 | 2025 | 2.15% | 85.49 | 0.90% |
| 2024 | 2026 | 1.05% | TBD | TBD |
| 2025 | 2027 | TBD | 86.4* | 1.31%* |
| 2026 | 2028 | TBD | 84.0* | 1.30%* |
| *Predicted | ||||
CMS finalized policies aimed at addressing what it described as “unprecedented growth” in skin substitute spending under the PFS, which currently pays for these products based on average sales price (ASP) plus 6%. Beginning in CY 2026, CMS will treat skin substitute products (excluding those licensed under Section 351 of the Public Health Service Act) as “incident-to supplies” when used as part of a covered application procedure in the physician office or hospital outpatient department. CMS will categorize products into three groupings, and, for CY 2026, will apply a single national payment rate of $127.28 per cm² for all three of them, a 1.5% increase over the proposed rate.
Although this policy is expected to save around $19 billion in CY 2026, it did not impact CMS’s budget neutrality calculations in the final rule. In order to calculate the budget neutrality adjustment, CMS compares RVUs for physicians’ services from one year to the next (i.e., 2025 to 2026 for this year’s rule). Since skin substitute supply costs weren’t previously captured in RVUs under the PFS (but by ASP plus 6%), CMS could not include these services when estimating PFS spending caused by changes in RVUs from 2025 to 2026. However, CMS noted that this policy could impact budget neutrality going forward. There is usually a two-year data lag, so CMS could use 2026 utilization data for these services to inform its budget neutrality calculations in the CY 2028 PFS. The size of the budget neutrality impact will depend on the utilization of these services. CMS stated in the CY 2026 rule that it anticipates that utilization of these services will decrease as a result of this policy, which would temper any future, possibly negative, budget neutrality impacts.
The CY 2026 Outpatient Prospective Payment System final rule (once it’s released) will likely finalize a similar skin substitutes policy, so we will follow up with a deeper analysis of the skin substitutes policies in both final rules.
The Medicare Shared Savings Program (MSSP) is the national accountable care organization (ACO) program under Medicare. CMS finalized changes to advance the program’s long-term sustainability and encourage participation from a broader range of providers, including those serving underserved and rural populations. As of January 1, 2025, the MSSP had 477 ACOs, with more than 650,000 healthcare providers and organizations providing care to more than 11.2 million beneficiaries.
Major changes to the MSSP in the CY 2026 PFS final rule include:
The CMS Innovation Center moved forward with its proposal to launch the new mandatory five-year Ambulatory Specialty Model (ASM) on January 1, 2027. ASM aims to improve quality and reduce costs by holding individual specialists (not at the organizational level) accountable for performance on targeted quality, cost, care coordination, and electronic health record use metrics when managing heart failure and low back pain, which together account for about 6.2% of Medicare Part A and B spending. CMS will adopt the MVP framework used in MIPS to streamline reporting. ASM will adjust Part B payments (positively, neutrally, or negatively) based on clinician performance compared to peers in the same specialty and condition. Like MIPS, these payment adjustments will take place two years after the performance year in which the physician reported quality measures (e.g., 2027 performance year/2029 payment year). In the first payment year, these adjustments will range from -9% to +9% (scaling to ±12% in payment year 2033). All participants will be subject to this risk. The payment approach will ensure that the total positive adjustments for high performers do not exceed the total negative adjustments for low performers. CMS will distribute 85% of funds as payment adjustments and retain the remaining 15% as savings to the Medicare program.
We know that was a big first trip through the buffet line. Stay tuned for more targeted McDermott+ briefs. You can also explore the CY 2026 payment rates, RVUs, and trends using our interactive dashboards.
Finally, here are some links associated with the final rule:
Until next week, this is Jeffrey (and the rest of the McDermott+ regulatory team) saying, enjoy reading regs with your eggs.
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