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On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the CY 2026 Physician Fee Schedule (PFS) final rule, effective January 1, 2026. The final rule introduces a -2.5% efficiency adjustment for many non-time-based services and updates how practice expense (PE) relative value units are calculated changes that will shift Medicare Part B reimbursement for many specialties.
These updates build on the earlier Medicare May 2025 Payment Updates, which first outlined CMS’s direction toward recalibrating payment accuracy and practice expense distribution.
What changed in the 2026 PFS
- Efficiency Adjustment (-2.5%) CMS finalized a look-back using the Medicare Economic Index (MEI) and applied an efficiency adjustment to work RVUs for non-time-based services (exemptions apply for time-based codes such as many E/M and behavioral health services). This produces a net value decrease for those codes.
- Two Conversion Factors By statute, 2026 uses two separate conversion factors (one for qualifying Advanced APM participants and one for others); CMS published the new conversion factor amounts in the final rule.
- Practice Expense Recalculation CMS updated practice expense methodology based on recent data, changing how overhead, staff, equipment and supply costs are allocated across services. High-resource specialties are especially exposed.
- Skin substitutes & supply payment policy CMS finalized new payment policies for skin substitutes (affecting wound care, dermatology, podiatry). This will change how those products are billed and paid.
- Drug pricing & inflation rebates The Medicare prescription drug inflation rebate provisions from the Inflation Reduction Act continue to roll out; while primarily manufacturer-facing, they change the regulatory environment around Part B/Part D drugs.
Who is most affected?
CMS’s changes will not affect all providers equally. Early analyses from specialty groups show imaging, high-technology procedures, and other high-indirect-cost specialties will see larger percentage reductions in payment rates than many office-based, primary care, or behavioral health services. Specialty societies have raised concerns about access and technical cost under-valuation. (Estimates of percent impact are practice- and code-specific — run a customized analysis for your top CPTs)
Important: Any table of “estimated % changes by specialty” should be presented as an estimate based on national code mixes and CMS revaluation methodology; your practice’s expected revenue change depends on your payer mix, service mix, and geography.
Practical effects for your practice
- Margins & cash flow: Lower reimbursements for high-resource services will mean tighter margins; plan for slower cash flow while you and payers adapt.
- Charge capture & documentation: Expect coding-level and documentation reviews as payers and audit teams adapt to the new PE and RVU methodology.
- Denials/appeals: Some denials may arise from reclassified supplies or shifting charge capture rules; proactive denial management is essential.
- Contract negotiations: Expect payers (including Medicare Advantage plans) to use the new PFS as a reference point in future negotiations.
What to monitor now?
- Identify your top 25 CPT codes by Medicare revenue — run a “before/after” payment model.
- Monitor CMS guidance and specialty-specific coding updates and exemptions.
- Review supplier and skin substitute procurement costs and inventory tracking.
- Update denial and appeals workflows to target likely problem areas.
- Prepare payer negotiation talking points showing true cost and access risk.
Industry reaction
Specialty societies (radiology, cardiology, surgery, emergency medicine and others) have publicly criticized aspects of the rule, warning about undervaluation of technical and facility costs and risks to access in hard-hit specialties. Use those society statements to support outreach and advocacy efforts.
How Cloud RCM Solutions helps
Cloud RCM Solutions offers specialty-specific revenue modeling, denial prevention, and predictive cash-flow forecasting to quantify your practice’s exposure and build mitigation strategies — from reworked charge capture to payer negotiation support. Book a free impact analysis so we can model the projected 2026 revenue change for your clinic’s top CPT codes.
Free 30-minute Medicare Impact Analysis — Schedule here
FAQ’s
Why is Medicare cutting physician reimbursement in 2026?
CMS introduced a –2.5% efficiency adjustment and updated practice expense formulas in the 2026 Physician Fee Schedule to control spending and reflect new resource costs. These changes result in reduced reimbursement for many specialists.
What are the main Medicare reimbursement changes for 2026?
The 2026 update includes a lower conversion factor, restructured practice expense calculations, and expanded evaluation and management (E/M) guidelines, all impacting how physicians are paid under Medicare Part B.
Why are Medicare reimbursement rates considered low?
Medicare payments often lag behind inflation and private payer rates. Annual adjustments rarely match rising operational costs, leading to financial pressure, especially for hospital-based and rural practices.
Are rural hospitals affected by the 2026 Medicare cuts?
Yes. Rural and critical-access hospitals may face greater financial strain since they rely more heavily on Medicare payments and have limited patient volumes to offset reduced reimbursement.
How are Medicare Advantage provider reimbursements impacted?
While Medicare Advantage plans set their own rates with CMS oversight, changes in the traditional Medicare Fee Schedule can indirectly influence how these private plans negotiate provider payments.
