This week, our first In Focus reviews the Centers for Medicare & Medicaid Services (CMS) proposed rule for the calendar year (CY) 2026 Medicare Physician Fee Schedule (PFS), released on July 14, 2025. The proposal echoes many of the administration’s priorities and would substantially change how physicians are paid for their services, focusing on value-based payment strategies, efficiency adjustments, conversion factors, technology coding, and MSSP eligibility.
This In Focus is the second in our series covering recent Medicare-related announcements. [Last week, we discussed CMS Innovation Center updates.]
Emphasis on Value-Based, Hospital-Based Care
The CY 2026 Medicare PFS proposed rule reflects the administration’s prioritization of value-based care, chronic care management, new payment strategies for evolving models of care delivery, and support for technology-based services. Provisions in the proposed rule also are intended to reduce costs through reimbursement rate changes, better access to behavioral health services, and facilitated advanced primary care management (APCM).
The proposal recognizes the additional complexity of providing primary care in the home and other residential environments by proposing to allow billing of an add-on code to trigger additional payment for home-based visits. CMS also proposes to delete separate coding and payment for social determinants of health (SDOH) risk assessments (established in 2024) and will begin referring to SDOH as “upstream driver(s).”
Emphasis on Efficiency and Lower Practice Expenses
Proposed changes include an “efficiency adjustment,” which would reduce the physician work relative value unit (RVU) based on the assumption that as clinicians gain experience and technology advances, procedures become more efficient. CMS also proposes to rebalance clinician reimbursement for expenses to recognize that hospital-based physicians incur fewer costs than physicians in private or group practices and that the number of physicians practicing in hospitals has increased significantly, leaving far fewer physicians in freestanding offices. As a result, CMS estimates specialists who furnish care in hospital settings will experience double-digit cuts in reimbursement on average, whereas those practicing in freestanding (non-facility) settings will generally receive increases, though the impact on any individual clinician or practice will depend on the mix of services provided.
CMS continues to evaluate potential payment reform for global surgical packages and is studying the real-world division of work between surgeons and providers of postoperative care, as CMS findings suggest only a fraction of post-discharge visits included in valuation are furnished.
Positive PFS Conversion Factor Update
All providers/suppliers paid for services under the PFS will benefit from positive statutory updates to the conversion factor, with slightly higher increases going to clinicians who meet certain eligibility requirements for participating in an Advanced Alternative Payment Model (APM) under the Quality Payment Program (QPP). Specifically, two conversion factors would be available in CY 2026. Under the proposed rule, services furnished by providers who participate in qualifying Advanced APMs would be paid based on a conversion factor of $33.5875, representing a 3.84 percent increase (or $1.2410) from the 2025 amount of $32.3465. Services furnished by providers who do not participate in a qualifying AAPM are proposed to be paid based on a conversion factor of $33.4209, representing an increase of 3.32 percent (or $1.0744) from CY 2025.
Both conversion factors reflect the 2.50 percent overall update required by statute, a 0.55 percent budget neutrality adjustment to account for RVU changes, and an updated factor of 0.75 percent for qualified APMs or 0.25 percent for non-qualifying APMs. CY 2026 is the final year in which eligible clinicians can receive an additional APM incentive. Qualifying clinicians will get a one-time payment of 1.88 percent of their paid claims for covered professional services based on performance from two years earlier.
Evolving Coding and Payment for Technology-Based Services
CMS continues to expand coding and payment for technology-based services, including a proposal for the use of digital mental health treatment (DMHT) devices used in conjunction with an ongoing treatment plan of care for attention deficit hyperactivity disorder (ADHD). The agency recognizes that behavioral health conditions are common chronic diseases and that the field of digital therapeutics is evolving.
CMS requests comments on the use of devices for treating symptoms of gastrointestinal conditions, sleep disturbance for psychiatric conditions, and symptoms of fibromyalgia, as well as to aid in the diagnosis of autism spectrum disorder. The agency also seeks input on a broader set of digital tools that could be used to encourage a healthy lifestyle. Through comment requests, CMS suggests that it might consider payment for digital tools that do not require Food and Drug Administration clearance in future years.
While CMS allows PFS payment of Software as a Service (SaaS) and artificial intelligence (AI) applications in certain circumstances, it also solicits comments on how to establish stable and consistent reimbursement for these technologies and asks how they can be used in the management of chronic diseases and primary care services.
Telehealth-Related Flexibilities
CMS proposes to streamline the process for adding codes to the telehealth list and making other adjustments to supervision and frequency of billing requirements for codes on the list.
Medicare Diabetes Prevention Program
CMS proposes several changes to the Medicare Diabetes Prevention Program (MDPP), which was expanded in 2018 under the CMS Innovation Center authority to increase beneficiary participation and to align with the Centers for Disease Control and Prevention program standards. These proposed changes include the addition and codification of more virtual flexibilities including asynchronous delivery of services, technical changes to the collection of data, and payment changes to reflect these new requirements.
Medicare Shared Savings Program
The proposed rule comprises several provisions to modify eligibility requirements for certain tracks of the program, revisions to the quality performance standards and reporting requirements, and other changes to improve the operations of the program. The Medicare Shared Savings Program (MSSP) now has more than 477 ACO participants, furnishing care to 11.2 million Medicare beneficiaries.
Drugs and Biological Products Incident-to Physician Services
The proposed rule addresses reimbursement for drugs paid incident-to a physician’s service, including policies related to the Inflation Reduction Act provisions, continued implementation of discarded units refund requirements, changes and clarifications to Average Sales Price (ASP) reporting, and payment for procurement of tissue required to manufacture cell-based gene therapies.
Citing a nearly 40-fold increase in spending for skin substitute products from 2019 to 2024, CMS proposes major changes for reimbursement of skin substitutes that would pay for most of these products as supplies incident-to physician services, rather than as Part B drugs. CMS estimates that these modifications would result in significant savings. If finalized, these proposals will take effect at the same time as CMS launches a new model in six geographic areas to test clinical review for certain services, including skin substitutes, in fee-for-service Medicare to achieve the WISeR (Waste and Inappropriate Service Reduction) Model.
Requests for Information
CMS included multiple requests for information in the CY 2026 proposed rule. The agency seeks stakeholder feedback on how the fee schedule can be used to better account for indirect practice expenses (PEs) costs in facility settings, integration of preventive services into APCM bundles, and use of motivational interviewing and health coaching to improve chronic disease prevention and management.
On the QPP, CMS seeks input on advancing digital quality measurement, refining MIPS (Merit-Based Incentive Payment System) Value Pathways (MVPs) through core elements, procedural code alignment, and well-being and nutrition measures. The agency also requests comments on improving public health and prescription drug monitoring reporting and strengthening data quality and performance thresholds across Medicare’s quality programs.
Contact an HMA Medicare Expert Today
Health Management Associates, Inc. (HMA), policy and rate setting experts are analyzing the details and impacts in the proposed rule and will provide additional updates to key Medicare policies as they become available. Our team can help support stakeholder development of policy and data-oriented comments on this rule, due September 12, 2025, and on any other Medicare policy topic of interest. Contact our experts below to discuss your priorities and approach.
