2026 Medicare Reimbursement & Policy Changes

For physicians across every specialty, 2026 is proving to be one of the most disruptive and consequential Medicare payment years in recent memory. On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) Final Rule (CMS-1832-F), a sweeping overhaul that touches virtually every dimension of how doctors get paid — from the dollar value attached to each service, to how facility-based care is reimbursed, to the future of telehealth.

On the surface, the headline looks positive: Congress passed a one-time 2.5 percent increase to the conversion factor, and the final rule builds on that with additional budget-neutrality adjustments, yielding a net increase of 3.26 percent for most physicians and 3.77 percent for those in qualifying Alternative Payment Models (APMs). After years of flat or declining Medicare pay, this is welcome relief.

But beneath that headline number lies a far more complicated picture. CMS simultaneously finalized a sweeping -2.5 percent efficiency adjustment applied to most non-time-based services, dramatically restructured how practice expenses are calculated for facility vs. office-based settings, and let Part B premiums climb nearly 10 percent. The result is a redistribution of dollars that will benefit some specialties and settings while significantly cutting others — often within the same practice, depending on where care is delivered.

This guide is designed specifically for physicians who need to understand not just what changed, but what it means for their practice finances, patient volume, and long-term career strategy. We break down every major component of the 2026 rule, with specific data, specialty-level impacts, and actionable guidance. All figures are sourced directly from CMS final rule publications, the Federal Register, and major physician advocacy organizations like the AMA.

Primary source: CMS CY 2026 Physician Fee Schedule Final Rule (CMS-1832-F), effective January 1, 2026. Federal Register, November 5, 2025.

What Is the Conversion Factor?

Every Medicare physician payment begins with the same formula: a service's Relative Value Units (RVUs) — broken into work RVUs, practice expense RVUs, and malpractice RVUs — are adjusted for geographic cost differences, then multiplied by a dollar-per-RVU Conversion Factor (CF) to produce a payment amount. The CF is the single most watched number in Medicare payment, because it affects every service billed under the Physician Fee Schedule (PFS).

For CY 2026, for the first time ever, there are two separate conversion factors rather than one. This split was required by statute and reflects a longstanding policy goal of rewarding physicians who participate in value-based Alternative Payment Models (APMs).

The Two 2026 Conversion Factors

The difference between the two conversion factors — $0.1666 per RVU — might seem modest, but for high-volume practices it can translate to thousands of dollars in annual revenue variance. More importantly, the split is the formalization of a tiered payment philosophy that rewards participation in ACOs, bundled payments, and other advanced models.

What's Inside the Conversion Factor Increase?

The CY 2026 conversion factor increase is not a simple across-the-board raise. It's the sum of several statutory and regulatory components:

• A 2.5% one-time positive update mandated by Congress through H.R. 1, the One Big Beautiful Bill Act. This was a hard-won legislative victory for physician advocacy groups.
• A positive budget neutrality adjustment of approximately +0.49%, reflecting projected changes in utilization and coding patterns.
• Additional statutory adjustments tied to MACRA and the QPP framework.

Critically, the American Medical Association (AMA) points out that even with this increase, Medicare physician pay has declined 33 percent in real terms from 2001 to 2025 when adjusted for practice cost inflation. The Medicare Economic Index (MEI) is projected at 2.7 percent for 2026, meaning the 2.5 percent Congress provided falls just short of covering inflation.

Source: AMA Analysis, December 2025.

What CMS Finalized

Perhaps no single component of the 2026 PFS generated more controversy than CMS's finalization of a -2.5 percent efficiency adjustment applied to the work RVUs for the vast majority of non-time-based services. This adjustment was finalized despite significant opposition from the AMA and surgical specialty societies.

The rationale is that technology and improved technique allow physicians to perform procedures faster than when the original RVU values were established. To calculate the adjustment, CMS used a look-back period over five years. Importantly, CMS intends to apply this efficiency adjustment every three years going forward.

What Services Are Affected

The efficiency adjustment applies to approximately 7,700 HCPCS codes. Categories exempt from this cut include:

• Evaluation and Management (E/M) services (office visits, hospital visits)
• Care management and behavioral health services
• Services on the Medicare Telehealth Services List
• Maternity care codes with an MMM global period

The practical effect: surgical specialists, radiologists, and cardiologists will bear the brunt of this cut, while primary care physicians are largely shielded due to their reliance on E/M codes.

Source: CMS 2026 PFS Fact Sheet; AMA Advocacy Analysis.

Real-World Impact: Why the Math Still Hurts

The +3.26% conversion factor increase and the -2.5% efficiency adjustment do not simply cancel out. The interaction between them produces a net result that varies dramatically by specialty and service mix. For a cardiologist who primarily performs diagnostic imaging in a hospital outpatient setting, the compounding effect of the efficiency adjustment plus the practice expense changes described in Part III can translate to a net Medicare payment reduction well beyond what the headline conversion factor increase suggests.

If you're a procedural specialist and a significant portion of your work RVU-generating services fall in the ~7,700 affected codes, run your own code-level analysis using CMS Table B in the 2026 PFS Final Rule to understand your net impact before assuming the +3.26% headline applies to you. The MedMoneyGuide physician salary and contract review guides can help you benchmark your situation.

Background: Setting the Stage

Every service valued under the PFS is assigned three categories of RVUs: Work, Practice Expense (PE), and Malpractice. PE covers overhead like rent, staff wages, supplies, and equipment. Historically, the PFS distinguished between the "non-facility" (office) and "facility" (hospital/ASC) settings, paying more in the office to cover the physician's higher overhead.

The 50% Reduction Rule

Effective January 1, 2026, CMS finalized a policy where for facility-based services, the portion of facility PE RVUs allocated based on work RVUs is reduced by 50 percent of the amount allocated to non-facility PE RVUs. This is a direct hit to hospital-based specialists.

Winners and Losers

For a detailed breakdown of how setting affects your net revenue, see our Physician Salary & Specialty Impact Guide.

Source: MGMA Advocacy Analysis, December 2025.

The AMA's Response

The AMA vigorously opposed this change, not because they believe the non-facility/facility disparity doesn't exist — they acknowledge it does — but because of how this specific fix was implemented. The core concern is that for independent practices whose physicians routinely practice in both their own offices and in hospital settings (a common arrangement for surgeons, proceduralists, and hospitalists), this rule effectively cuts their hospital-based Medicare revenue without any corresponding reduction in actual overhead costs.

A surgeon, for example, who maintains a full office practice — with its staff, lease, and equipment — but performs a significant share of surgical procedures at a hospital outpatient department, still incurs those office overhead costs whether or not the procedure is done at the hospital. The CMS methodology assumes the physician is receiving duplicative overhead payment when practicing in a facility, but for the independent private practitioner, that may not be accurate.

The AMA also raised concern about consolidation: if hospital-based Medicare rates for independent physician groups fall by 7 percent while hospital-employed physicians are insulated, this policy could accelerate the trend toward hospital employment and consolidation — the exact outcome CMS repeatedly states it wants to avoid.

Source: AMA, "Physicians Will See Medicare Payments Rise in 2026," July 2025; Medical Economics, "2026 Medicare Reimbursement: Inadequate Physician Payment Has Real-World Consequences," March 2026.

Understanding Site Neutrality

Site neutrality is the principle that Medicare should pay the same rate for the same service regardless of where it is performed. Currently, hospital outpatient departments (HOPDs) are often paid 60 percent more than physician offices for similar services.

Source: McDermott Will & Emery Analysis; Health Affairs, "Medicare Site-Neutral Payment Policies: Effects on Hospitals and Beneficiary Groups."

The 2026 Site-Neutral Moves

The 2026 final rule represents the most aggressive regulatory step toward site neutrality in years, though it stops short of full legislative site neutrality, which would require Congress to act. CMS used its existing regulatory authority to push the envelope in three key directions:

1. The Practice Expense Restructuring

As described in Part III, reducing indirect PE RVUs for facility-based services by 50 percent is directly motivated by site neutrality goals. By reducing what the PFS pays physicians practicing in hospitals, CMS is attempting to narrow the gap between hospital-based and office-based care at the physician payment level.

2. Drug Administration Services

Consistent with executive orders directing HHS to reduce Medicare incentives for hospital-based care, CMS finalized expanded site-neutral policies targeting drug administration services at off-campus Provider-Based Departments (PBDs). The agency noted that 68 percent of drug administration services already occur safely in physician offices, making the clinical justification for paying a premium in hospital settings questionable.

3. The Ambulatory Specialty Model (ASM)

CMS is moving forward with the mandatory Ambulatory Specialty Model (ASM), which launches January 1, 2027, and will hold individual specialists — rather than entire organizations — accountable for quality, cost, and care coordination. Payment adjustments will begin in 2029, ranging from -9 to +9 percent, scaling to ±12 percent by 2033.

The Legislative Landscape

The 2026 regulatory moves exist within a broader political momentum toward full site neutrality legislation. In July 2025, Senators Hassan and Roger Marshall (R-KS) introduced the bipartisan Fair Billing Act (S. 2497), requiring hospitals to use unique billing identification numbers at each off-campus location — a first step toward full legislative site neutrality.

What physicians should understand is that the 2026 regulatory changes are likely the beginning, not the end, of this shift. Full legislative site neutrality would be far more sweeping and could substantially alter the financial calculus for any physician or group whose patients receive care in hospital outpatient departments.

Source: Bipartisan Policy Center, "Site Neutrality in Medicare Payment," December 2025; Health Affairs, 2024.

The Standard Premium

The 2026 standard monthly Medicare Part B premium is $202.90, an increase of $17.90 — approximately 9.7 percent — from 2025. This represents an additional $214.80 per year for the average beneficiary.

According to CMS, without regulatory action to address skin substitute spending, the Part B premium would have been approximately $11 higher per month — changes finalized in the 2026 rule are expected to reduce spending on skin substitutes by approximately 90 percent.

IRMAA: Higher-Income Physicians Pay More

Approximately 8 percent of Medicare Part B enrollees pay a higher premium based on their Modified Adjusted Gross Income (MAGI) from two years prior.

In 2026, the IRMAA surcharge now begins at $109,000 MAGI for individual filers and $218,000 for married couples filing jointly. For the highest income bracket, the total monthly Part B premium reaches $689.90.

The Downstream Effect

The near-10 percent premium increase has direct implications for physician practices and their patient populations. Higher Part B premiums can:

• Increase no-show rates and appointment cancellations among cost-sensitive Medicare beneficiaries as overall healthcare spending rises.
• Accelerate Medicare Advantage enrollment, as some beneficiaries may seek lower-premium MA plans — shifting your payer mix and potentially changing reimbursement rates.
• Create pressure on practices to improve billing efficiency, as patients with higher out-of-pocket costs scrutinize charges more carefully.

Source: Medicare Rights Center, "2026 Medicare Premiums Announced," November 20, 2025; NCOA, "What You'll Pay in Out-of-Pocket Medicare Costs in 2026."

What Provisions Are Permanent?

CMS has made several pandemic-era flexibilities permanent, including virtual direct supervision for incident-to services and the elimination of frequency limits for subsequent inpatient and nursing facility visits.

Virtual Direct Supervision — Now Permanent

CMS permanently allows physicians to meet the "direct supervision" requirement through real-time audio-video — meaning a supervising physician does not need to be physically present in the same office, only immediately available via audiovisual connection.

Frequency Limits Eliminated

Effective January 1, 2026, CMS permanently eliminated all frequency restrictions on telehealth services for subsequent inpatient and nursing facility visits. Previously, Medicare capped how many times per month a provider could bill for these services; those caps are now gone.

Congress Acts: Two-Year Extension of Broader Flexibilities

Congress passed the Consolidated Appropriations Act, 2026, extending broader telehealth flexibilities through December 31, 2027. This includes allowing patients in any geographic area to receive telehealth from their homes.

A New Compliance Burden: Home Address Enrollment

Starting January 1, 2026, physicians who provide telehealth from their home must separately enroll that location in the Medicare enrollment database. CMS noted that home addresses will be suppressed in the public database if marked for administrative/telehealth use only.

MIPS Performance Threshold Held at 75 Points

In a win for smaller practices, CMS maintained the MIPS performance threshold at 75 points for the 2026 performance year. However, the maximum penalty remains a heavy -9 percent.

The stakes of MIPS remain high: in the most recent reporting period, solo practices faced a 49 percent penalty rate compared to much lower rates for larger groups.

APM Track: Worth the Jump in 2026

With the conversion factor differential now codified — $33.57 for APM QPs versus $33.40 for non-QPs — the financial case for joining a qualifying APM has never been more concrete.

The combined effect of the conversion factor update, efficiency adjustment, and practice expense restructuring produces dramatically different net outcomes by specialty. The following table summarizes CMS's projected specialty-level payment changes for CY 2026, aggregated from Table 92 of the final rule and specialist society analyses.

These are projected averages. The actual impact for any individual physician or group depends on their specific CPT code mix, the proportion of work delivered in facility versus non-facility settings, and whether they participate in a qualifying APM. Practices should model their own impact using CMS's published RVU files and specialty impact tables.

Source: CMS CY 2026 PFS Final Rule Table 92; MGMA Advocacy Analysis; ASNC; American Urological Association 2026 MPFS Summary; AMA specialty impact analysis.

Independent Practice vs. Hospital Employment

With Medicare revenue per procedure under increased pressure, protecting your future income is more critical than ever. We recommend reviewing your Own-Occupation Disability Insurance to ensure your specialty-specific income is protected against the volatility of reimbursement changes.

For those in hospital-employed positions, use our Physician Contract Negotiation Guide to ensure your wRVU-based compensation accounts for these regulatory shifts.

Cash Flow and Major Purchases

If you are planning to purchase a home in 2026, be sure to use a Physician Mortgage Loan which allows for 0% down and ignores student loan debt in DTI calculations — providing much-needed cash flow flexibility.

The CY 2026 rule introduces several targeted expansions of covered services designed to address whole-person care and improve access in high-impact areas.

1. Dental and Oral Health

CMS continues to expand coverage for dental services inextricably linked to medical procedures. This includes exams and treatment prior to organ transplants, cardiac valve replacements, and valvuloplasty procedures.

2. Social Drivers of Health (SDOH)

SDOH risk assessments are now separately reimbursable when performed in conjunction with an E/M visit, reflecting a growing focus on health equity.

3. Behavioral Health Integration

The 2026 rule introduces new HCPCS codes for integrated behavioral health services delivered in primary care settings, coordinating care within the traditional medical encounter.

The Medicare 2026 rule is a definitive pivot toward site neutrality and value-based care. While the increase in the conversion factor is a nominal win, the structural cuts for hospital-based practice and efficiency adjustments mean your practice strategy must adapt.

For physicians, the 2026 changes demand an active, informed response:

• Model your specific code-level and site-of-service impact — do not assume the headline +3.26% applies to your specialty.
• Update telehealth enrollment for home-based services to avoid compliance issues.
• Evaluate APM participation as a concrete financial lever now that the CF differential is codified.
• Protect your income with own-occupation disability coverage as reimbursement volatility increases.

MedMoneyGuide will continue to track CMS rulemaking, Congressional action, and payment data throughout 2026 and publish updated guides as new information becomes available.