CMS finalizes CY 2026 Medicare Physician Fee Schedule

CMS finalizes efficiency adjustments for payment accuracy

CMS has historically used physician survey data from the American Medical Association (AMA) to determine work RVUs and, subsequently, payment rates for services covered by the Medicare Physician Fee Schedule. However, the 2026 final rule will move away from the AMA's survey data by finalizing a proposal to use the Medicare Economic Index (MEI) to calculate productivity adjustments.

The federal agency has criticized the AMA's survey data, saying it is subjective and based on low response rates. Additionally, the agency took fault with the relatively small portion of total codes that undergo annual reevaluation, resulting in overinflation of some work RVUs.

The MEI measures the costs of running a physician practice, including physician compensation and practice expenses, to estimate the annual inflation of physician services costs. It is calculated annually by the CMS Office of the Actuary.

CMS explained in the final rule that it will look back five years to determine the productivity adjustments for Physician Fee Schedule rates. In 2026, this means a -2.5% final efficiency adjustment for most services except a list of codes that will be exempt.

Moving forward, CMS intends to steer clear of survey data to determine more accurate valuations of services over time. It plans to tap data from the Hospital Outpatient Prospective Payment System (OPPS) in addition to AMA survey data.

Physician Fee Schedule to support wellness, prevention

Aligning with HHS Secretary Kennedy's goals of Making America Healthy Again, the 2026 Medicare Physician Fee Schedule final rule seeks to shift the healthcare system toward one that emphasizes wellness and prevention.

To achieve this, CMS plans to utilize a previously developed risk assessment code to focus on essential patient behaviors that reduce the chronic disease burden and improve overall health for Medicare beneficiaries. These behaviors specifically focus on physical activity and nutrition.

Additionally, CMS said in the final rule that it aims to ensure advanced primary care management services can integrate behavioral health and that quality measures used in value-based care programs emphasize prevention-focused activities, including activities that aim to prevent chronic disease.

The Medicare Diabetes Prevention Program, specifically, will see changes next year, including greater access to coaching, peer support and practice training in dietary change, physical activity and behavior change strategies, CMS said.

Meanwhile, a new, mandatory payment model called the Ambulatory Specialty Model will focus on improving the upstream management of high-cost chronic conditions, including heart failure and low back pain. CMS redesigned the model to reward specialists who catch signs of worsening chronic conditions early, improve patients' function, reduce avoidable hospitalizations and use technology to share data with patients and primary care providers. The five-year model will launch in January 2027.

Skin substitute changes to cut wasteful spending

CMS is also moving forward with proposals to reduce wasteful spending on skin substitutes.

The federal agency finalized in the latest rule a new payment method for skin substitute products. In 2026, the products will be paid as incident-to supplies when they are used as part of a covered application procedure under the Physician Fee Schedule in the non-facility setting or under the OPPS in the hospital outpatient department setting.

CMS also finalized changes to skin substitute categorization to align with their FDA regulatory status. The agency will pay for the products based on their status -- 361 human cells, tissues, and cellular and tissue-based products and the device types, including pre-market approvals and 510(k)s. Although it will use a single payment rate in 2026 reflecting the highest average for the three categories to prevent underestimation of the resources used to furnish the services.

Overall, the new payment policies for skin substitutes are expected to curb the unprecedented spending growth on the products, from $256 million in 2019 to over $10 billion in 2024, according to Medicare Part B claims data.

Still not good enough for physicians

While the 2026 Medicare Physician Fee Schedule will not slash rates again and includes promising policies related to telehealth services, physician groups still aren't satisfied with the reimbursement rates for Part B services next year.

"That physicians are not facing a reduction in reimbursements -- as we have in the past -- is a significant positive for 2026 and a win for patients' access to care. Yet, this one-time correction does not keep up with increasing costs, and private practices across the country are expressing concern this rule would further put them at a disadvantage merely for treating patients at a hospital or ambulatory surgery center," AMA President Bobby Mukkamala, MD, said following the rule's announcement.

After years of rate cuts, the modest increase in conversion factors in 2026 are only slightly above 2024 payment levels, added Anders Gilberg, senior vice president of government affairs for the Medical Group Management Association (MGMA).

"This does not remedy previous cuts that medical groups have absorbed due to flawed policy, nor does it address potential future cuts resulting from budget neutrality," Gilberg said in a statement. "Further undermining the 2026 conversion factor increases are arbitrary cuts to work and practice expense relative value units (RVUs) that do not accurately reflect the cost of providing care and disproportionately impact certain specialties."

The efficiency adjustments finalized for next year will reduce payments for more than 7,000 physician services, representing 95% of all services provided by physicians, AMA reported.

Both groups are committed to working with lawmakers to remedy the situation and ensure financial viability for physicians.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.