On October 31, 2025, the Centers for Medicare & Medicaid Services (“CMS”) issued its calendar year (“CY”) 2026 Medicare Physician Fee Schedule (“MPFS”) final rule (“Final Rule”), announcing finalized policy changes for Medicare payments under the MPFS and other Medicare Part B (“Part B”) issues, effective on or after January 1, 2026. The Final Rule is largely consistent with what was previously shared in CY 2026 proposed rules, with a few modifications as a result of public comment. Several major provisions are summarized below, and the fact sheet accompanying this Final Rule can be found here.
Rate Setting and Conversion Factor Update
The conversion factor is a dollar amount set annually by CMS and used to convert relative value units (“RVUs”) into payment rates. The Final Rule established separate MPFS conversion factors for qualifying and non-qualifying participants in Advanced Alternative Payment Models (“Advanced APMs”). The conversion factors finalized in the Final Rule result in increased payments to physicians.
The CY 2026 MPFS Conversion Factor for qualifying Advanced APM participants is $33.57, representing a 3.26% increase from the CY 2025 Conversion Factor. The CY 2026 MPFS Conversion Factor for nonqualifying participants is $33.40, representing a 3.26% increase from CY 2025. The increased figures are driven by the following methodology:
- For qualifying Advanced APM participants, the update reflects a positive 0.75% statutory update, a positive but temporary 2.5% one-year statutory adjustment provided in the One Big Beautiful Bill, and a 0.49% increase due to changes in work RVUs.
- For nonqualifying Advanced APM participants, the update reflects a positive 0.25% statutory update, a positive but also temporary 2.5% one-year statutory adjustment provided in the One Big Beautiful Bill, and a 0.49% increase due to changes in work RVUs.
CMS also finalized technical updates to the geographic practice cost indices (“GPCIs”) and malpractice RVUs as required by statute.
Efficiency Adjustment
Although CMS finalized higher conversion factors for CY 2026, overall physician payment will likely decline for many specialties due to a new negative efficiency adjustment to non-time-based services. Stating that it expects these kinds of services to accrue efficiencies over time, CMS finalized a 2.5% reduction to both work RVUs and the physician intra-service time for non-time-based services. This efficiency adjustment will decrease the work RVU for many services across most specialty types to reflect the efficiency gains that have taken place over time. CMS arrived at this finalized adjustment figure by using the sum of the productivity adjustments used in the Medicare Economic Index for the prior five years (2021 through 2025).
This adjustment will not apply to time-based codes (including but not limited to E/M services, care management services, behavioral health services), services on the CMS telehealth list, maternity codes with a global period of MMM (i.e., services furnished in uncomplicated maternity cases, including antepartum care, delivery and postpartum care) or new services.
CMS reiterated that it would consider empiric time data in future rulemaking, which could support even harsher efficiency adjustments in future calculations.
Practice Expense Methodology
Practice expense (“PE”) is the portion of the resources used in furnishing a service that reflects the
general categories of physician and practitioner expenses, such as office rent and personnel wages, but excluding malpractice expenses. Historically, the PE methodology relies primarily on the American Medical Association’s (“AMA’s”) Physician Practice Information (“PPI”) survey data from 2008. The AMA conducted updated surveying for CMS to consider for the CY 2026 MPFS; however, CMS declined to adopt this data due to concerns about sample size and representativeness. While CMS declined to incorporate the PPI and Clinician Practice Information data, it finalized significant updates to its PE methodology to better reflect what it believes to be current practice.
CMS modified the indirect PE allocation methodology for services furnished in the facility setting beginning in CY 2026 by reducing the portion of indirect PE allocated per work RVU to 50% of the amount allocated for non-facility services. CMS detailed greater indirect costs for practitioners in office-based settings compared to facility settings and recognized a decline in the number of physicians working in private practice, with a corresponding rise in physician employment by hospitals and health systems. For these reasons, CMS felt it appropriate to make this adjustment to the PE methodology.
Telehealth Services and Virtual Supervision
CMS finalized a streamlined process for adding services to the Medicare Telehealth Services list and simplified the review process by removing distinctions between provisional and permanent services and limiting its review to focus on whether services are furnishable via interactive, two-way audio-video telecommunications.
The Final Rule settled the permanent removal of frequency limitations for subsequent inpatient visits, subsequent nursing-facility visits and critical care consultations.
CMS also permanently adopted a relaxed definition of “direct supervision,” allowing the supervising practitioner to provide such supervision through real-time audio and visual interactive telecommunications (excluding audio-only) for applicable incident-to services, diagnostic tests, pulmonary rehabilitation services and cardiac rehabilitation, and intensive cardiac rehabilitation services. Services with a global surgery indicator of 010 or 090 were excluded and not eligible for this virtual direct supervision.
Lastly, CMS permanently finalized that teaching physicians may have a virtual presence in all teaching settings, but only when the service itself is furnished virtually.
Policies to Improve Care for Chronic Illness and Behavioral Health Needs
Signaling a focus on prioritizing the prevention and management of chronic diseases, including behavioral health conditions, CMS finalized the creation of optional add-on codes for Advanced Primary Care Management (“APCM”) services that would facilitate providing complementary behavioral health integration (“BHI”) or psychiatric Collaborative Care Model (“CoCM”) services. The Final Rule also expanded CMS’s payment policies for digital mental health treatment services to make payment for devices used in the treatment of Attention Deficit Hyperactivity Disorder.
Skin Substitutes
To combat significant growth in spending under Medicare Part B for skin substitutes in the non-facility setting, CMS finalized policies to pay for skin substitute products as incident-to supplies when they are used as part of a covered application procedure paid under the PFS in the non-facility setting or under the Outpatient Prospective Payment System in the hospital outpatient department setting. CMS will categorize products by FDA regulatory status and apply a single national payment rate of $127.28.
Drugs and Biological Products Paid Under Medicare Part B
CMS finalized several updates affecting drug manufacturers under Part B. For CY 2026, no changes were made to the applicable percentages for refunds on discarded amounts from single-dose or single-use drugs.
CMS finalized new average sales price (“ASP”) policies, clarifying treatment bundled arrangements, requiring documentation of reasonable assumptions and fair market value methodologies for bona fide service fees (“BFSFs”), and verification that BFSFs are not passed through to clients or customers. CMS confirmed that units sold at the maximum fair price must be included in ASP calculations beginning January 1, 2026.
The Final Rule also extended the CAR-T therapy bundled payment policy to autologous cell-based immunotherapy and gene therapy so that preparatory procedures are included in the product payment. However, CMS did not finalize including manufacturer-paid preparatory services in ASP beginning January 1; instead, such payment may be excluded from ASP when qualifying as BFSFs.
Rural Health Clinics and Federally Qualified Health Centers
Beginning January 1, 2026, Rural Health Clinics (“RHCs”) and Federally Qualified Health Centers (“FQHCs”) must report individual component codes for CoCM and Communications Technology-Based Services instead of bundled codes G0512 and G0071. CMS also finalized the adoption of new optional add-on codes for BHI and CoCM services within APCMs. Services established and paid under the physician fee schedule and designated as care management services will be paid as care coordination services for purposes of separate payment for RHCs and FQHCs.
Additionally, the Final Rule made permanent the allowance for direct supervision via real-time audiovisual technology and extended flexibility for billing telehealth services for non-behavioral health visits (including audio-only visits) through December 31, 2026.
Medicare Prescription Drug Inflation Debate Program
Lastly, the Final Rule finalized a claims-based method to exclude 340B units from Part D rebate calculations starting January 1, 2026. CMS also established a Medicare Part D Claims Data 340B Repository for voluntary submissions by covered entities for Part D claims with dates of service on or after January 1, 2026.
Practical Takeaways
- The Final Rule also includes changes to the Medicare Shared Savings Program and the Quality Payment Program. Stay tuned for additional Hall Render alerts on these topics via our website.
For more information on the Proposed Rule, please contact:
- Regan Tankersley at (317) 977-1445 or rtankersley@hallrender.com;
- Lori Wink at (414) 721-0456 or lwink@hallrender.com;
- Laetitia Cheltenham at (919) 447-4968 or lcheltenham@hallrender.com;
- Julie Mitchell at (317) 429-3643 or jmitchell@hallrender.com;
- Kaitlin Nucci at (248) 457-7838 or knucci@hallrender.com;
- Camilla Moreno Jimenez at (317) 429-3679 or cjimenez@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to summer associate Wyatt Poer for his assistance with this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
