On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) released the Medicare Physician Fee Schedule (PFS) Final Rule. The final rule includes significant updates to conversion factors and payment methodologies, effective January 1, 2026. For physician practices, independent clinics, and hospital medical groups, a clear understanding of the Final Rule’s key provisions will be vital to persevering operational and financial stability and patient access to care moving forward.
Conversion Factors
For qualifying alternative payment model (APM) participants, the conversion factor for 2026 will be $33.57, reflecting a 3.77% increase from 2025.
For non-qualifying APM participants, the conversion factor will be $33.40, representing a 3.26% increase from 2025.
While this is the first increase to the Medicare conversion factor in years, other payment changes may negatively affect some practices.
Efficiency Adjustment
A 2.5% one-year payment increase from the One Big Beautiful Bill Act gets offset by a negative efficiency adjustment of -2.5% that will be applied to the work relative value units (RVUs) for non-time-based services. This adjustment aims to account for increased service efficiency over time but decreases payments for a significant number of services such as surgical and procedural related services.
Practice Expense Methodology
The final rule includes updates to the practice expense methodology, recognizing greater indirect costs for practitioners in office-based settings compared to facility settings. This change will reduce the allocation of indirect practice expenses for services performed in hospitals by 50% starting in 2026.
The payment policies stand to benefit primary care providers working in outpatient offices, who will gain the full benefit of the increased payment rate.
Telehealth Services
The rule extends the ability of federally qualified health centers and rural health clinics to bill for telehealth services through 2026. Additionally, it permanently adopts the definition of direct supervision to include virtual presence via audio/video technology.
Skin Payment Services
For CY 2026, CMS finalized a new skin substitute payment policy that will result in payment for skin substitutes furnished in outpatient settings of $127.28 per square centimeter starting in 2026.
Merit-Based Incentive Payment System (MIPS)
For CY2026, maintains the performance threshold of 75 points through the 2028 performance period/2030 MIPS payment year. It also adds six new MIPS Value Pathways (MVPs) related to diagnostic radiology, interventional radiology, neuropsychology, pathology, podiatry, and vascular surgery.
340B Drug Rebate
The proposed rule includes proposals for identifying 340B drugs for IRA rebates, which will affect how these drugs are included in the calculation of IRA Part D rebates amounts.
The rule includes provisions that would impact 340B hospitals under the OPPS (outpatient prospective payment system), such as increasing the reduction in OPPS payment rates to offset lump sum payments previously paid to 340B hospitals.
Independent practices, especially those in rural or underserved areas, those servicing behavioral health facilities and Federally Qualified Health Centers (FQHCs), could see sharp patient volume declines and may struggle to absorb these changes without the financial buffer larger systems enjoy.
Preparing For the Change
As the healthcare landscape continues to evolve under the Medicare Physician Fee Schedule Final Rule, proactive planning is more important than ever. Understanding how these changes can affect your organization can make a significant difference in maintaining financial stability and operational efficiency.
MMG can help your practice strategically prepare your 2026 budget, ensuring you’re equipped to navigate reimbursement shifts and optimize revenue cycles. Through expert analysis and tailored guidance, MMG helps healthcare organizations strengthen fiscal performance and maintain stability amid a shifting regulatory environment.
If you have questions about the Medicare Physician Fee Schedule Final Rule or how to prepare for its impact, we’re here to help. Please reach out to Ronnen Isakov to schedule a conversation.
Ronnen Isakov is Managing Director Advisory Service of Management Group, LLC. His background includes extensive work in areas including business advisory, valuation, network optimization, transaction support, and project management.