Calendar Year (CY) 2026 Medicare Physician Fee Schedule Final Rule (CMS-1832-F)
On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that announces final policy changes for Medicare payments under the Physician Fee Schedule (PFS), and other Medicare Part B issues, effective on or after January 1, 2026.
The calendar year (CY) 2026 PFS final rule is one of several final rules that reflect a broader Administration-wide strategy to create a health care system that results in better quality, efficiency, empowerment, and innovation for all Medicare beneficiaries.
Background on the Physician Fee Schedule
Since 1992, Medicare payment has been made under the PFS for the services of physicians and other billing professionals. Physicians’ services paid under the PFS are furnished in a variety of settings, including physician offices, hospitals, ambulatory surgical centers (ASCs), skilled nursing facilities and other post-acute care settings, hospices, outpatient dialysis facilities, clinical laboratories, and beneficiaries’ homes. Payment is also made to several types of suppliers for technical services, most often in settings for which no institutional payment is made.
For most services furnished in a physician’s office, Medicare makes payment to physicians and other professionals at a single rate based on the full range of resources involved in furnishing the service. In contrast, PFS rates paid to physicians and other billing practitioners in facility settings, such as a hospital outpatient department (HOPD) or an ASC, reflect only the portion of the resources typically incurred by the practitioner while furnishing the service.
For many diagnostic tests and a limited number of other services under the PFS, separate payment may be made for the professional and technical components of services. The technical component is frequently billed by suppliers, like independent diagnostic testing facilities and radiation treatment centers, while the professional component is billed by the physician or practitioner.
Payments are based on the relative resources typically used to furnish the service. Relative value units (RVUs) are applied to each service for work, practice expense, and malpractice expense. These RVUs become payment rates through the application of a conversion factor. Geographic adjusters (geographic practice cost indices) are also applied to the total RVUs to account for variation in costs by geographic area. Payment rates are calculated to include an overall payment update specified by statute.
CY 2026 PFS Rate Setting and Conversion Factor
As required by statute, beginning in CY 2026, there will be two separate conversion factors: one for qualifying alternative payment model (APM) participants (QPs) and one for physicians and practitioners who are not QPs. By statute, QPs are those that meet certain thresholds for participation in an Advanced APM, which means generally that the payment model has features to ensure accountability for quality and cost of care. The update to the qualifying APM conversion factor for CY 2026 is +0.75 percent while the update to the nonqualifying APM conversion factor for CY 2026 is +0.25 percent. The changes to the PFS conversion factors for CY 2026 include these updates as required by statute, a one-year increase of +2.50 percent for CY 2026 stipulated by statute, and an estimated +0.49 percent adjustment necessary to account for finalized changes in work RVUs for some services. The final CY 2026 qualifying APM conversion factor of $33.57 represents a projected increase of $1.22 (+3.77%) from the current conversion factor of $32.35. Similarly, the final CY 2026 nonqualifying APM conversion factor of $33.40 represents a projected increase of $1.05 (+3.26%) from the current conversion factor of $32.35. Per statutory requirements, we are also finalizing updates to the geographic practice cost indices (GPCIs) and malpractice RVUs.
Efficiency Adjustment
CMS historically has relied on survey data primarily provided by the AMA Relative Value Scale Update Committee (AMA RUC) to estimate practitioner time, work intensity, and aspects of practice expense, which are often reflected in the valuation of codes paid under the PFS. Only a small portion of the total codes are considered for revaluation annually, and this process relies primarily on subjective information from surveys that have low response rates, with respondents who may have inherent conflicts of interest (since their responses are used in setting their payment rates). Research has demonstrated that the time assumptions built into the valuation of many PFS services are, as a result, very likely overinflated.[1] In order to mitigate these effects and take into account changes in medical practice, we are finalizing application of an efficiency adjustment to the work RVUs and corresponding intraservice portion of physician time for non-time-based services that we expect to accrue gains in efficiency over time. This would periodically apply to all codes except time-based codes, such as evaluation and management (E/M) services, care management services, behavioral health services, services on the Medicare telehealth list, and maternity codes with a global period of MMM.
To determine this efficiency adjustment, we are finalizing our proposal to use the Medicare Economic Index (MEI) productivity adjustment percentage. The MEI productivity adjustment is calculated by the CMS Office of the Actuary (OACT) each year, and we are finalizing a look-back period of five years, which would result in a final efficiency adjustment of -2.5% for CY 2026. In response to public comments, we are finalizing an updated list of HCPCS codes that will be exempt from the efficiency adjustment. We are also finalizing that, going forward, CMS may give preference to empiric studies of time to incorporate into service valuation, compared to survey data, and solicit comment on the types of empiric data that CMS should consider. CMS expects that moving away from survey data would lead to more accurate valuation of services over time and help address some of the distortions that have occurred in the PFS historically.
These changes address concerns about distorted payment values that have existed for years. The Medicare Payment Advisory Commission, the Government Accountability Office, and researchers across the political spectrum have called out long-standing overvaluation of certain procedures and undervaluation of time-intensive services like primary care. Left unaddressed, these gaps compound over time, especially as digital tools and automation accelerate efficiency gains in some specialties.
Practice Expense
The practice expense (PE) methodology currently relies primarily on the AMA’s Physician Practice Information (PPI) Survey data from 2008 that measures specialty-specific practice costs. In 2024, the AMA conducted updated survey efforts and submitted data to CMS in early 2025 for consideration in CY 2026 PFS rate setting. Due to several limitations with the data, as described in the CY 2026 PFS proposed rule, we did not propose, and are not finalizing, to implement the PE/HR data or cost shares from the AMA’s PPI and Clinician Practice Information (CPI) Survey data for 2026 rate setting. Specifically, our concerns focused on small sample sizes and sampling variation, low response rates and representativeness, potential measurement error, and incomplete data submission. We modeled estimated payment impacts of the data’s implementation, which we included in the proposed rule for public comment and potential consideration in future rulemaking.
While we did not propose to incorporate the PPI and CPI Survey data into PFS rate setting for CY 2026, we are finalizing significant updates to our PE methodology to better reflect current clinical practice. Specifically, we are finalizing to recognize greater indirect costs for practitioners in office-based settings compared to facility settings. The original allocation methodologies assumed physicians maintained separate practice locations even if they furnished some care in hospitals. Since the methodologies were established decades ago, there has been a steady decline in the number of physicians working in private practice, with a corresponding rise in physician employment by hospitals and health systems. Therefore, we believe that the allocation of indirect costs for PE RVUs in the facility setting at the same rate as the non-facility setting may no longer reflect contemporary clinical practice.
We are also finalizing to utilize data from auditable, routinely updated hospital data (i.e., from the Medicare Hospital Outpatient Prospective Payment System (OPPS)) to set relative rates and inform our costs assumptions for some technical services paid under PFS. For CY 2026, we are finalizing to use this data in setting rates for radiation treatment services, and for some remote monitoring services. This approach promotes price transparency across settings, offers more predictable rate setting outcomes, and limits the influence of limited survey data.
Telehealth Services under the PFS
For CY 2026, we are finalizing to streamline the process for adding services to the Medicare Telehealth Services List. We are simplifying our review process by removing the distinction between provisional and permanent services and limiting our review on whether the service can be furnished using an interactive, two-way audio-video telecommunications system.
We are finalizing to permanently remove frequency limitations for subsequent inpatient visits, subsequent nursing facility visits, and critical care consultations.