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July 17, 2025 – Earlier this week, the Centers for Medicare & Medicaid Services (CMS) issued the calendar year (CY) 2026 Medicare Physician Fee Schedule (PFS) proposed reg. Stakeholders have highly anticipated the release of this reg, as it represents the Trump administration’s first opportunity to enact Medicare payment policies that directly impact hundreds of thousands of physicians and other clinicians. And CMS decided to go big, issuing many significant proposals that will give people a lot to chew on – and that will take a while to fully digest.
While McDermott+ is busy putting to together a comprehensive summary, here are some key takeaways from the rule (as with big meals, it’s good to consume large regs one bite at a time).
The conversion factor (CY) is the standardized dollar amount used to convert relative value units (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.
For the first time in six years, CMS proposes an increase to physician payments. The proposed CY 2026 PFS CF is $33.5875 for physicians who meet certain participation thresholds in advanced alternative payment models (APMs) and $33.4209 for other clinicians. These amounts represent increases of 3.8% and 3.3%, respectively, from the final CY 2025 CF of $32.3465. The positive updates are driven by three factors:
Overall, for the first time in six years, we can say that CMS is proposing an increase to the PFS conversion factor(s).
A new efficiency adjustment will partially negate the higher payment update for some clinicians. CMS states in the rule that the agency has historically relied on survey data provided by the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC) to estimate practitioner time, work intensity, and practice expense (PE) for the purpose of establishing RVUs for the codes used for payment under the PFS. CMS regularly revalues codes as part of its potentially misvalued codes initiative, using RUC survey data that shows clinicians’ estimates of how long a particular service takes to complete. However, CMS is concerned about the accuracy of the survey data given “low response rates, low total number of responses, and a large range in responses, all of which may undermine the accuracy of recommendations relying on survey data.” There also is often a lag between when the RUC revalues a code and when CMS decides to effectuate the new value.
For several years, CMS has also 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 proposes an efficiency adjustment to the work RVUs and corresponding updates to the intraservice portion of physician time inputs for certain services (i.e., the time allocated for actually performing the 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 proposes to add the last five years of the Medicare Economic Index (MEI) productivity adjustment – which adds up a 2.5% reduction.
Thus, CMS would reduce the intraservice time for applicable codes by 2.5% in CY 2026. As an example, CPT code 11200, Rmvl skin tags up to&inc 15, has a current intraservice time of seven minutes (which yields a work RVU of 0.82). Under the proposal, the intraservice time would be reduced by 2.5% to 6.83 minutes, yielding a new work RVU of 0.8.
CMS proposes to apply this efficiency adjustment to all codes except time-based codes. The agency also explicitly excludes evaluation and management visits, care management services, behavioral health services, services on the CMS telehealth list, and maternity codes with a global period of MMM from the adjustment. The adjustment also would apply to all codes assigned a procedure status of A (active), B (bundled), C (contractor/carrier priced code), I (not valid for Medicare purposes), N (noncovered service by Medicare), R (restricted coverage), and T (injections) that are not otherwise excluded. Included code families represent the procedures, diagnostic tests, and radiology services that CMS expects to accrue efficiencies over time as changes in medical practice occur, including changes in clinician expertise, workflows, and technology. A table that lists all applicable codes is located here.
If finalized for CY 2026, CMS also proposes to apply the efficiency adjustment to the intraservice portion of physician time and work RVUs every three years. This timing would imply that the next efficiency adjustment after CY 2026 would be calculated and applied in CY 2029 PFS rulemaking, reflecting efficiency gains measured from 2027 through 2029.
Since this adjustment would reduce thousands of code values in CY 2026, it would result in the 0.55 positive budget neutrality adjustment mentioned above.
CMS proposes a significant change to the PE methodology that also might affect physician’s 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., hospital), payment still includes both work and PE RVUs. However, the PE RVU is typically lower because direct costs—like staff, supplies and equipment—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.
However, CMS believes these assumptions may no longer hold true, given substantial changes in healthcare delivery and practice patterns over the past several decades, with fewer physicians now in private practice. Thus, 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 proposes revising the methodology for allocating indirect PE costs for facility-based services. Beginning in CY 2026, CMS proposes to reduce the portion of PE RVUs allocated based on work RVUs in the facility setting to half the amount used in the non-facility setting. This policy would reduce the PE component of RVUs for clinicians working in facilities and would effectively lower their overall reimbursement. Conversely, the proposed change would result in significant increases in overall PFS spending for most office-based specialties and those furnishing highly technical services in non-facility settings.
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 proposes to eliminate steps four and five, which would eliminate the need for a provisional list. All codes currently on the provisional list would be added to the permanent list. CMS would maintain its ability to review and subsequently remove codes from the permanent list. The agency believes this proposal would reduce administrative burden and allow patients and providers to determine the most effective modality of care, including in-person or virtual care.
Effectively, this proposal means that more than 100 codes that have been on the provisional list since the start of the COVID-19 pandemic would be on the list permanently – until further notice. For the updated telehealth list as proposed, click here.
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 reg, CMS tries to promote stability in the program. CMS proposes to 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 proposes updates to the MIPS Value Pathways (MVPs). The MVPs are a participation option to motivate clinicians to move away from reporting on self-selected activities and measures (traditional MIPS) and towards 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 proposes 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 the following areas: 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 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). This year, CMS does not propose a timeline but proposes policies aimed at facilitating the transition to MVP reporting.
Based on policies in the proposed rule, CMS projects that around 84% of clinicians would receive a positive adjustment for performance year 2026/payment year 2028 and that the median payment adjustment would be 1.30%. CMS recently released data for the CY 2023 performance period/2025 MIPS payment year, which may provide context:
The Medicare Shared Savings Program (MSSP) is the national accountable care organization (ACO) program under Medicare. CMS proposes 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, MSSP had 477 ACOs, with more than 650,000 healthcare providers and organizations providing care to more than 11.2 million beneficiaries.
Major proposed changes to the MSSP include:
The CMS Innovation Center plans 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 would adopt the MVP framework used in MIPS to streamline reporting. ASM would 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 would 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, adjustments would range from -9% to +9%. All participants would be subject to this risk. The payment approach would ensure that the total positive adjustments for high performers did not exceed the total negative adjustments for low performers. Similar to other CMS Innovation Center models, CMS would apply a discount to provider payments to ensure savings to the Medicare program.
The CY 2026 rule includes several other requests for information (RFIs):
There are many other policies in this major reg, so stay tuned for further updates as we continue to swallow this huge reg!
Also, another major reg, the CY 2026 Outpatient Prospective Payment System proposed reg, was also released. McDermott+ is also reviewing that reg and will be hosting a webinar on July 31 to discuss key proposed policies. Register here!
Until next week, this is Jeffrey saying, enjoy reading regs with your eggs.
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