Medicare Physician Fee Schedule Rule for 2026 Finalizes Controversial Policies

On Friday, October 31, the Centers for Medicare & Medicaid Services (CMS) released the CY 2026 Medicare Physician Fee Schedule (MPFS) final rule and fact sheet. Policies outlined in the rule became effective January 1, 2026.

2026 marks the first year that there are two separate conversion factors: one for practitioners working in a qualifying advanced alternative payment model (APM) and the other for those not in a qualifying APM. The conversion factor for the former will increase to $33.57, an increase of 3.77%, and the latter to $33.40, an increase of 3.62%. These increases reflect the 2.5% increase to the conversion factor included in the reconciliation package adopted by Congress in July, and a 0.49% positive update to account for the redistributive effects of the finalized changes to work relative value units (RVUs). 

However, the updated conversion factor is dampened by CMS finalizing controversial policy that reduces work relative value units (RVUs) by -2.5%. The efficiency adjustment policy was crafted by CMS to address perceived overvalued services in the MPFS. As such, work RVUs and corresponding intraservice times will be reduced by -2.5% for nearly every service on the fee schedule except time-based codes, including evaluation and management services, care management services, behavioral health services, services on the Medicare telehealth list, and maternity codes with a global period of MMM. The list of services affected by this policy can be found here: codes subject to efficiency adjustment. 

The agency states that the efficiency adjustment is meant to account for efficiency gains over time as practitioners become more skilled at performing procedures and hence are performing those procedures faster than the intraservice times listed in the AMA Relative Value Scale Update Committee (RUC) time files. 

The implementation of this policy takes direct aim at the AMA RUC survey process. The agency continues to believe that the RUC survey process is flawed due to low response rates and perceived conflicts of interest among those who take RUC surveys. CMS continues to request empirical data from stakeholders to support the value of physician services, which is yet another indication that CMS does not want to rely solely on RUC survey data to set payment rates. CMS states “we believe that robust empiric data is important to avoid some of the shortcomings of survey data in accounting for efficiencies over time.”

The agency also finalized policy that reduces physician payment for services performed in a facility setting. Facility settings include inpatient hospitals, on-campus and off-campus outpatient departments, hospital emergency rooms, and ambulatory surgical centers. The new policy reduces indirect practice expenses (PE) by 50% within the physician payment formula. According to the agency, this new policy reflects the current state of clinical practice with fewer physicians working in private practice settings, and therefore, “the allocation of indirect costs for PE relative value units in the facility setting at the same rate as the non-facility setting may no longer reflect contemporary clinical practice.” 

CMS finalized policy that to permanently changes the definition of direct supervision for certain services that allows the physician or supervising practitioner to provide supervision through real-time audio and visual interactive telecommunications. Finally, in a reversal of proposed policy due to submitted comments, CMS will continue to allow teaching physicians to have a virtual presence for telehealth services provided by residents in teaching settings.