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On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) issued the final rule for the CY 2026 Physician Fee Schedule (PFS). While the rule raises the conversion factor, it adopts other payment policies that reduce payments for certain providers and services. For the first time, it also introduces two separate conversion factors – one that applies to those participating in Alternative Payment Models (APMs) and another for non-participants. CMS also approved expansions in telehealth and behavioral health coverage, clarified the Average Sales Price (ASP) calculation methods for negotiated drugs, introduced new requirements for reporting bona fide service fees (BFSFs) and finalized guidelines for drugs paid under Medicare Part B.   Physician Payments: Conversion Factor and Work RVUs  The two new conversion factors adopted for CY 2026 are:  

• $33.5675 for items and services provided by Qualifying Alternative Payment Model (APM) providers, reflecting a 3.77% increase compared to CY 2025;  

• $33.4009 for all other items and services, reflecting a 3.26% increase compared to CY 2025. 

While the conversion factor is increasing, CMS is implementing some policies that will decrease payments: 

• The Efficiency Adjustment - CMS has implemented a 2.5% efficiency adjustment to reduce work Relative Value Units (RVUs) for services that have become more efficient over time due to “technological advances, improved workflows, and increased physician experience.” This adjustment only affects non-time-based procedures, such as surgeries, imaging and diagnostics. CMS exempts from the payment reduction time-based codes (e.g., E/M, care management, behavioral health), maternity codes, telehealth services, and the new CY 2026 codes. After comments received, CMS decided to exempt more codes from this policy – it will apply to approximately 7,700 codes, down from nearly 9,000 codes as originally proposed. CMS noted that had it used more recent U.S. Bureau of Labor Statistics (BLS) data, the adjustment would have been 3.6% instead of 2.5% but the agency finalized the lower figure to take an incremental approach. What this means is that next year, CMS will likely reduce payments further.  

• Site of Service Payment Differential - CMS will reduce the indirect Practice Expense (PE) RVUs to half the amount used for non-facility services. This change will result in increased payments for office-based specialties while reducing payments for hospital-based specialties. CMS argues this change is needed because most hospital-based clinicians no longer have independent practices so their PE payment shouldn’t be the same as office-based specialties.  

  Telehealth and Distance Education  The rule adopted several policies to increase telehealth coverage. The rule: 

• Increases the originating site facility fee to $31.85 (up from $31.01 in 2025).  

• Removes frequency limits for subsequent inpatient visits, subsequent nursing facility visits and critical care consultations.  

• Extends a pandemic-era policy allowing remote site practitioners to use their enrolled practice location, rather than their home address, for telehealth services from home, through the end of 2025. 

• Permanently allows direct supervision through real-time audio and video for most services without 10- or 90-day global periods that require the supervisor to be immediately accessible. 010 and 090 surgical indicators are not included in the exception. 

• Prohibits teaching physicians from using audio/video real-time tech during Medicare telehealth services in teaching settings. Only three-way visits with the physician, resident and patient in different locations will count as virtual teaching presence.  

• Added new telehealth services that will be reimbursed permanently: CPT 90849 (Multiple-Family Group Psychotherapy), HCPCS G0473 (Group Behavioral Counseling for Obesity), HCPCS G0545 (Infectious Disease Add-On), CPT 92622 and 92623 (Auditory Osseointegrated Sound Processor Diagnostic Analysis and Programming). 

For a detailed fact sheet on telehealth changes in the PFS, click here.  Skin Substitutes  CMS will pay separately for skin substitutes not licensed as biologicals, treating them as incident-to supplies when furnished during a covered application procedure in non-facility settings. Products licensed as biologicals will continue to be reimbursed using the ASP methodology. For CY 2026, CMS will apply a single blended rate of $125.38 per cm².   New Mandatory Payment Model  CMS will be launching a new mandatory, five-year Ambulatory Specialty Model (ASM), on Jan. 1, 2027. The model is designed to enhance quality and reduce costs by holding individual specialists accountable for their performance. The initial focus will be on heart failure and low back pain. Payment adjustments will range from -9 percent to +9 percent, scaling up to ±12 percent by 2033. This signals a shift to mandatory payment models as opposed to voluntary, accelerating the move to value-based care.    

AHPA extends our gratitude to our emerging colleague, Christina Luke, guest author of this article.  Christina is a graduate student in the Master of Public Policy program at Duke University.