CY 2026 PFS Final Rule Review

Contents

• CY 2026 Conversion Factor
• Efficiency Adjustment
• Practice Expense
• Telehealth Services under the PFS
• Improving Global Surgery Payment Accuracy
• Digital Mental Health Treatment (DMHT) for ADHD
• Skin Substitutes
• Medicare Prescription Drug Inflation Rebate Program
• Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs)
• Note

CMS has released the CY 2026 Medicare Physician Fee Schedule (PFS) Final Rule. There are a number of significant changes to physician payment in the Final Rule. The most important of these is the permanent statutory mandate of two separate conversion factors (one at a higher payment rate) for Qualifying Alternative Payment Model (QPM) Participants (QPs). The final rule also finalizes a controversial 2.5% “efficiency adjustment” reduction to the work RVUs of most non-time based services to account for what CMS believes to be historical overvaluation. Other significant changes include making permanent a number of the CY 2021 COVID flexibilities related to telehealth; new behavioral health add-on services; and major changes to payment for skin substitute products to address rapidly increasing spending.

CY 2026 Conversion Factor

CMS finalizes a statutory mandate to establish two conversion factors, which is expected to create a significant payment incentive to participate in Advanced APMs.

• Qualifying APM Participant (QP) Conversion Factor: $33.57 (+3.77% over CY 2025)
• Non-Qualifying APM Conversion Factor: $33.40 (+3.26% over CY 2025)

The above figures reflect a statutory base update (supplemental update to 2025 base CY 2026 conversion factor) and an adjustment for changes in work RVUs. However, the net financial impact for most services will be determined by the concurrent application of the new “efficiency adjustment” to work RVUs. All physicians will receive a positive update that exceeds the growth in inflation in practice costs. However, for many physicians, the benefits of the positive update will be at least partially offset by the finalized practice expense and efficiency adjustment cuts, explained below.

Efficiency Adjustment

CMS is finalizing a new, overarching -2.5% "efficiency adjustment" to the work RVUs and corresponding physician intraservice time for services that are not time-based for most services in the PFS on the assumption that physician have gained efficiency in providing those services. CMS arrives at a 2.5 percent efficiency adjustment by tallying the last five years’ productivity adjustments in the MEI. Despite organized medicine’s advocacy, physicians do not receive MEI-based updates, and other Medicare providers receive a productivity adjustment applied to their annual baseline updates (e.g., hospital market basket minus productivity).This policy aims to account for gains in medical practice efficiency and to address concerns about the reliability of survey data used in valuation.

The adjustment exempts key service, including:

• Evaluation and Management (E/M) services
• Care management services
• Behavioral health services
• Services on the Medicare Telehealth List
• Certain maternity codes

Effect on DOs

Physicians who primarily provide services excluded from the efficiency adjustment, including family medicine physicians and psychiatrists, will avoid the cut. The 2.5 percent cut to work RVUs and physician intraservice time impacts most specialties by reducing overall payment by one percent.

Practice Expense

CMS is making significant methodological changes to better reflect modern healthcare delivery, while deferring a full data update due to quality concerns.

Specifically, CMS is:

• NOT implementing the new 2024 AMA survey data due to limitations like small sample sizes and low response rates.
• IS finalizing two key structural changes:
• Rebalancing Indirect Costs: Acknowledging that more doctors now work for hospitals, CMS will assign a lower share of indirect practice costs (like office rent) to services performed in facility settings (e.g., hospitals) compared to non-facility settings (e.g., private offices).
• Using Hospital Data for Technical Services: For certain services like radiation therapy and remote monitoring, CMS will now use auditable cost data from the hospital outpatient payment system (OPPS) to set more accurate and transparent rates under the PFS.

In short, CMS is modernizing the PE methodology by adjusting its cost allocation formulas and using what they consider a more reliable data sources, rather than relying on a perceived flawed RUC survey data.

Effect on DOs

While the impact will vary even within specialties, specialists who primarily see patients in an office, including family medicine physicians, allergists, and rheumatologists, will see a pay increase. The impact is determined solely by the place of service (facility vs. non-facility) and the specialty of the service provided. Many physicians who see patients in hospitals, ambulatory surgery centers, and nursing homes, such as infectious disease physicians, hospitalists, cardiothoracic surgeons, ophthalmologists, and gastroenterologists, will face cuts due to the redistribution of PE RVUs from physician services performed in facilities to physician services performed in non-facilities.

• A DO cardiologist employed by a hospital system is indirectly affected by the facility payment cuts.
• A DO family physician running their own practice is not directly affected but gains any additional payment.

Telehealth Services under the PFS

CMS as finalized significant updates to Medicare telehealth policies for 2026, focusing on simplifying rules, expanding access, and increasing flexibility for providers and patients.

Major Simplification of the Telehealth Services List Process by:

• New 3-Step Process: The previous 5-step review process is replaced with a streamlined 3-step process. Steps 4 and 5 are eliminated.
• Elimination of "Provisional" Status: All services on the list will now have a permanent status. Existing "provisional" services will remain on the list permanently.
• New Services Added:
• 90849: Multiple-Family Group Psychotherapy
• G0473: Group Behavioral Counseling for Obesity
• G0545: Infectious Disease Add-On Service
• 2622 & 92623: Auditory Osseointegrated Sound Processor Analysis and Programming
• CMS is permanently removing frequency limits on subsequent inpatient visits, subsequent nursing facility visits, and critical care consultations furnished via telehealth. This means there will no longer be a limit on how often these services can be provided via telehealth (e.g., the previous limit of one subsequent nursing facility visit every 14 days is eliminated).
• The policy allowing "direct supervision" to be provided in real-time using audio/video technology (instead of requiring physical presence) is made permanent for most services.
• The policy allowing teaching physicians to supervise residents via audio/video technology is made permanent for services furnished as a 3-way telehealth visit (where the patient, resident, and teaching physician are all in different locations).

CMS clarifies that practitioners providing telehealth services from their home can continue to bill using their enrolled practice location address instead of their home address for privacy and safety reasons. This is managed through sub-regulatory guidance and does not require annual rulemaking extensions.

Effect of DOs

Physicians who treat hospital inpatients and nursing facility patients through telehealth, those who provide services requiring direct supervision, and teaching physicians who virtually supervise residents in the delivery of telehealth services will all benefit. The lapse in telehealth coverage during the government shutdown has prevented payment for many telehealth claims and led some physicians to stop offering these services.

Improving Global Surgery Payment Accuracy

CMS's ongoing efforts to improve the accuracy of payments for global surgical packages. A "global package" includes the surgery itself and a period of related pre- and post-operative care.

• Current System: CMS pays for about 5,500 global surgical procedures, most of which include assumed post-operative care visits in their valuation and payment.
• Identified Issue: Data collected since 2015, as required by the MACRA law, consistently shows that the number of post-operative visits actually provided is far lower than what was originally assumed when setting payment rates. For 90-day global procedures in 2023, only 28% of the "expected" visits were actually furnished.
• Impact: This means the current payment for a global package may overpay for the post-operative care, as those visits are often not provided. CMS is seeking a more accurate, data-driven method to value these services.

CMS is in an "iterative process" to fix this. Recent steps include:

• Broadened Use of Modifier -54: Starting in 2025, surgeons must use modifier -54 ("Surgical care only") anytime they do not intend to provide post-operative care, not just in formally documented transfer-of-care cases. This helps CMS track when the surgical and post-operative components are split.
• New Add-on Code (G0559): Created a new payment code for practitioners who provide post-operative care but were not involved in the original surgery, better reflecting their work.

Focus for the Future: "Procedure Shares

The central issue for CY 2026 and beyond is determining the correct "procedure share"—the percentage of the global package's total value that should be paid to the surgeon when only the surgery is performed (using modifier -54).

• Current shares are outdated and clustered (e.g., ~80% for 90-day procedures) without a clear, modern basis.
• CMS is considering three data-driven approaches to calculate new, code-specific procedure shares. The core idea is to base the surgeon's payment on the actual work of the surgery, and the post-operative payment on real-world data of visits actually provided.

The Three Proposed Approaches:

• Physician Time File Approach: Subtracts the value of assumed post-op visits from the total package value. (CMS notes this likely results in shares that are too low, as the assumptions are inflated).
• Claims-Based Data Approach: Uses actual counts of post-op visits reported via code 99024 to determine the value of typical post-operative care and subtract it. (CMS favors this method as it reflects real-world practice and allows for transparent updates).
• Physician Time Ratio Approach: Calculates the share based on the ratio of time spent on the surgery vs. total care time from the Physician Time File. (CMS notes this has the same flaw as the first approach due to inflated visit assumptions).

CMS explicitly solicited public comment on these strategies, particularly on using the claims-based data (Approach 2) to set new procedure shares. While no changes were finalized for CY 2026, CMS expressed a strong preference for methods grounded in actual data rather than outdated assumptions. The feedback received will be considered for potential future rulemaking as the agency continues its efforts to align global surgery payments with contemporary clinical practice.

Digital Mental Health Treatment (DMHT) for ADHD

CMS introduced several important updates focused on expanding access to behavioral health, refining payment for supportive services, and strengthening the focus on chronic disease prevention.

Digital Mental Health Treatment (DMHT) Expansion & Refinements

• Expansion to ADHD: Payment for DMHT services (HCPCS codes G0552, G0553, G0554) is expanded to include devices classified under FDA regulation 21 CFR 882.5803 for treating Attention Deficit/Hyperactivity Disorder (ADHD). This recognizes a broader range of behavioral health conditions
• Clarification on Diagnosis: The patient must have a mental health diagnosis, but the billing practitioner does not need to be the one who made the original diagnosis.
• No Further Expansion for Now: CMS decided not to expand DMHT payment to devices for gastrointestinal conditions, fibromyalgia, or sleep disturbance at this time, nor to create payment for non-FDA-cleared digital wellness tools. These will be considered for future rulemaking.
• Pricing Issue Acknowledged: CMS acknowledged stakeholder concerns about inconsistent pricing by Medicare Administrative Contractors (MACs) for code G0552. However, CMS will not set a national price for 2026, citing a need for more information due to the rapidly evolving technology.

New Focus on Chronic Disease Prevention & Management

In alignment with the "Make America Healthy Again Commission," CMS is intensifying its focus on preventing and managing chronic disease through several Requests for Information (RFIs).

• Soliciting Public Input: CMS is actively seeking comments on creating new payments for services that address root causes of disease, including:
• Motivational Interviewing and its overlap with health coaching.
• Services addressing social isolation, physical activity, and nutrition (e.g., medically-tailored meals).
• Enhancing the Annual Wellness Visit (AWV) to improve uptake and usefulness.
• Partnerships with community-based organizations to deliver evidence-based programs.

Updates to Supportive Services: CHI, PIN, and Risk Assessment

CMS finalized important clarifications and terminology updates for services that address patients' social and environmental needs.

• Clarified Eligible Practitioners: The agency clarified that Marriage and Family Therapists (MFTs) and Mental Health Counselors (MHCs) are included in the definition of "certified or trained auxiliary personnel" who can furnish Community Health Integration (CHI) and Principal Illness Navigation (PIN) services.
• Expanded Initiating Visits for CHI: To facilitate access, CMS will now allow a Psychiatric Diagnostic Evaluation (CPT 90791) and Health Behavior Assessment and Intervention (HBAI) codes to serve as the initiating visit for CHI services when provided by clinical social workers, MFTs, or MHCs.
• Retained and Refocused HCPCS Code G0136: Instead of deleting this code, CMS revised its descriptor to refocus it on "Administration of a standardized, evidence-based assessment of physical activity and nutrition." This change aligns with the Administration's chronic disease prevention goals. The code remains payable as an add-on to E/M or behavioral health visits.
• New Terminology: "Upstream Drivers": CMS is replacing the term "social determinants of health (SDOH)" with "upstream driver(s)" in the descriptors for CHI and related services. The agency believes this term is more comprehensive, encompassing a wider range of root causes, including behavioral, medical, and environmental factors that affect health.

Exploration of Payment for Software as a Service (SaaS) & AI

CMS recognizes that its current payment methodology is not well-suited for innovative software and AI technologies.

• Comment Solicitation: The agency is soliciting public comments on how to create a stable and consistent payment policy for SaaS and AI devices under the PFS.
• Key Questions: CMS is asking for input on factors for pricing, how these technologies are used in chronic disease treatment, alternative pricing strategies, and how to evaluate their quality and efficacy.

The CY 2026 PFS Final Rule reflects a strategic shift towards integrated, whole-person care. It expands behavioral health tools, refines support services to address the root causes of chronic illness, and begins to grapple with the challenge of paying for modern digital health technologies.

Effect on DOs

This provides DOs in both primary care and behavioral health with an additional, reimbursable tool to manage patients with ADHD, supporting a comprehensive treatment approach.

Skin Substitutes

In response to a nearly 40-fold increase in Medicare spending on skin substitutes since 2019, CMS finalized it’s policy to establish a single payment methodology for skin substitute products furnished in both non-facility and hospital outpatient settings, effective January 1, 2026. Under this policy, skin substitutes will be paid as incident-to supplies and grouped into three categories based on their FDA regulatory pathway: Premarket Approval, 510(k) clearance, and Section 361 HCT/P (Human Cells, Tissues, and Cellular and Tissue-Based Products).

• New Payment Policy: Skin substitutes will be paid as incident-to supplies used in a procedure, rather than as separately paid biologicals with unique codes.
• Bundled Payment: Products are categorized by FDA status, and for CY 2026, a single bundled payment rate of approximately $127.28 is finalized for all categories.

Effect on DOs

Physicians in accountable care organizations or measured on Total Per Capita Cost in the Merit-based Incentive Payment System (MIPS) will no longer be unfairly penalized for the drastic increases in payment and utilization of skin substitutes.

There concerns that incorporating these high-cost products into the RBRVS will likely trigger budget neutrality and shift practice expense values and could reduce payment rates for other physician services, creating long-term instability in the overall Medicare Physician Fee Schedule.

Medicare Prescription Drug Inflation Rebate Program

CMS is finalizing two changes to the operation of the Medicare Prescription Drug Inflation Rebate Program for CY 2026, as established by the Inflation Reduction Act (IRA). The two changes apply to the manufacturer inflation rebate program and are as follows:

• CMS will not count 340B drugs when calculating Part D Inflation Rebates beginning on January 1, 2026. CMS will establish a new, claims-based methodology for identifying units of drugs purchased under the 340B program and for excluding them from the Part D Inflation Rebate Program. In effect, this means that manufacturers will not be liable for inflation rebates on units of a drug sold to 340B-covered entities at a significant discount.
• CMS is establishing a new Medicare Part D Claims Data 340B Repository. Covered 340B entities (primarily safety-net hospitals and clinics that buy drugs under the 340B program) will have the opportunity to submit Part D claims data to CMS for 2026 (the next CY for which claims are submitted to CMS). This is a “usability testing” phase, and it is voluntary for now. CMS expects to offer the option to submit data in future years as well.

The two policies are a refinement of the Inflation Rebate Program that will have important, practical effects:

• The Policy Makes the System “Fairer.” The main reason for CMS to change the operating rules in this way is to avoid a potential “double penalty” on manufacturers and to make the Inflation Rebate Program consistent with the existing 340B program. As designed, it is possible that a manufacturer would be liable to pay an inflation rebate on a unit of a drug that has already been sold to a covered entity at the mandatory, significant discount that applies under 340B rules. This policy therefore helps inject some common sense and fairness into the new drug pricing regime.
• The Rule Shifts a Burden to Covered Entities. Identifying 340B units using a claims-based methodology will be extremely complicated in Part D, which is why CMS is also creating a 340B repository to facilitate the operation of the new rule. However, the burden of submitting the data is on the covered entities. The key risk is that the covered entities do not or cannot participate. It is voluntary for 2026, but CMS is signaling that it will likely be mandatory in future years.
• The Phase-in is Prudent. By creating a voluntary reporting period for 2026, CMS is wisely taking a phased approach to implementation. This should give the agency and the covered entities time to learn, refine systems, and build capacity as needed without the stress of full, mandatory reporting in the first year. It is safer for all involved and will reduce the risk of system-level errors that might disrupt calculations of rebates or of provider payments under the 340B program.

Stakeholder Impact:

• Drug manufacturers: This is an unambiguous positive for covered entities and manufacturers. It means they are protected from being liable for an inflation rebate on a product that has been deeply discounted to support patient care and that their calculations of potential liability are more straightforward.
• 340B-covered entities: The effect on covered entities is more mixed. It is a negative in that there is a new administrative burden to take on. Although it is voluntary for 2026, covered entities have an incentive to participate for reasons of system testing, and it is likely to be mandatory going forward. Covered entities will need to invest in data collection/reporting capacity and processes to be able to do this.
• CMS: The agency is taking on a complex, new data infrastructure here and a new data collection/reporting obligation for 340B covered entities. However, the voluntary phase is a smart risk management strategy that should keep the operational risk low.
• The Medicare Program: The rule change should improve the quality of the Inflation Rebate Program by ensuring that it works as intended and penalizes only unjustified price increases in the commercial market.

Effect on DOs

These are primarily technical changes affecting manufacturers and pharmacies. The broader program aims to lower drug costs for patients and the Medicare program over the long term.

Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs)

The CY 2026 PFS Final Rule, published by CMS on November 15, 2023, includes important provisions for RHCs and FQHCs. Key updates are:

• Expanding payment for care coordination
• Extending certain telehealth flexibilities
• Billing flexibility to ease administrative burdens

Below are highlights of these provisions.

• Payment for Care Coordination and Behavioral Health Integration
• Advanced Primary Care Management (APCM) and Behavioral Health
• Optional APCM Add-On Codes: CMS is finalizing the proposal to establish optional add-on codes (G0568, G0569, and G0570) for APCM services to support billing when integrated Behavioral Health Integration (BHI) and Psychiatric Collaborative Care Model (CoCM) services are furnished as part of a set of services that are advanced primary care.

Objective: This is to help simplify billing and documentation requirements for eligible practitioners and groups, promote the integration of behavioral health into primary care, and increase patients’ access to these vital services.

• Unbundling of Certain Bundled Payment Codes
• Facilities must bill using specific, individual codes for the services instead of bundled codes for two categories of services on and after January 1, 2026.
• Psychiatric Collaborative Care Model (CoCM): Unbundling of the bundled code G0512

Each clinical staff, eligible clinic, RHC, or FQHC must bill the component codes that make up the previously bundled service, based on time associated with each of the following codes.

• 9492: Initial 70 minutes
• 99493: Subsequent 60 minutes
• 99494: Each additional 30 minutes
• G2214: Initial or subsequent 30 minutes

Communication Technology-Based Services (CTBS): Unbundling of the bundled code G0071

Each clinical staff, eligible clinic, RHC, or FQHC must bill the component codes that make up the previously bundled service, based on time associated with each of the following codes.

• G2010: Remote evaluation of recorded video or images
• G2250: Remote assessment by certain non-physician practitioners
• 98016: Brief communication technology-based service, e.g., virtual check-in)

Payment: Services billed using these codes will be paid based on the PFS national non-facility rate.

Streamlined Approach for Care Coordination Services

Automatic Alignment with PFS:

• CMS is finalizing the proposal to automatically adopt the service, to the extent that it is separately established and paid under the PFS as a “designated care management service,” as a separately payable “care coordination service” for RHCs and FQHCs.

Advantage: This policy results in a more streamlined, transparent, and predictable approach. CMS will no longer need to separately propose new services and instead will add to the list of designated care coordination services in annual sub-regulatory guidance updates.

• Permanent Flexibility for Direct Supervision
• Virtual Supervision Permitted: CMS is finalizing the proposal to permit, on an ongoing basis, the required “direct supervision” of clinical staff by a physician or practitioner to be furnished using real-time, interactive audio-video technology, except audio-only technology.

Significance: This final rule establishes a permanent flexibility that, as discussed in CMS’ fact sheet, may help address workforce shortages, while supporting more team-based care models. This flexibility is particularly important for rural and underserved communities, where providers have been disproportionately affected by workforce shortages and may have a harder time recruiting practitioners to serve as on-site medical directors.

Payment for Services Furnished Using Telecommunications Technology

• Extension of Payment for Medical Telehealth Visits: Payment for medical visits (non-behavioral health), furnished via telehealth, including communication technology-based services furnished using audio-only technology, is extended through December 31, 2026, and billed under code G2025.
• Payment: The applicable payment rate for G2025 will continue to be calculated based on the average PFS rate for all Medicare telehealth services, weighted by volume.
• In-Person Mental Health Telehealth Services: In the final rule, CMS is including a requirement that is incorporated in statute (P.L. 117-328) that delays the current statutory requirement that, beginning on January 1, 2024, an in-person visit must have been furnished within 6 months before the telehealth service and at least every 12 months thereafter, to the extent it is not otherwise required by a federal or state requirement, or other CMS program requirement. The statute specifies that this requirement will not apply to services furnished before October 1, 2025, so CMS will issue additional future guidance on the impact of this requirement on services furnished on and after October 1, 2025.

Note:

This draft was compiled using information from the following sources:

• CMS CY 2026 Medicare Physician Fee Scheule Final Rule Fact Sheet
• CMS CY 2026 Medicare Physician Fee Schedule Final Rule Federal Register
• AMA 2026 MPFS and QPP Final Rule Summary and Analysis

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