2026 Medicare Physician Fee Schedule: Key Policy Shifts Shaping the Future of Outpatient Care

Explore how the 2026 Medicare Physician Fee Schedule Final Rule is reshaping reimbursement and accountability — from a strengthened focus on primary care and behavioral health integration to long-term changes in telehealth, practice expenses, drug pricing, and value-based care pathways. Learn what physicians need to know now to stay financially resilient and compliant in the year ahead.

 

Key Takeaways

• The 2026 Medicare Physician Fee Schedule (PFS) Final Rule marks a major step toward value-driven care, with renewed focus on primary care, behavioral health integration, and chronic disease prevention.
• Dual conversion factors continue into 2026, offering greater reimbursement updates for qualifying Alternative Payment Model (APM) participants and reinforcing long-term transitions away from fee-for-service.
• The efficiency adjustment introduces a structural rebalancing to correct overvaluation in certain procedural services and shift payment accuracy toward time-intensive specialties like primary care.
• Telehealth gains permanent stability, with streamlined service additions, removal of key frequency limits, and ongoing support for virtual direct supervision and teaching physician flexibilities.
• New digital mental health and behavioral health integration codes will expand access to care, supporting clinicians providing tech-enabled behavioral interventions.
• CMS advances payment transparency and sustainability, especially for high-cost skin substitutes and Part B drug pricing policies, to protect the Medicare Trust Fund while promoting innovation.
• Site-of-care alignment and updated practice expense methodologies strengthen equity and relevance, reflecting the shift toward employed physician models and modern care delivery.
• CMS continues to involve stakeholders in shaping future policy, especially around global surgical packages and emerging digital therapeutic models.

On October 31, 2025, CMS released the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) Final Rule, outlining sweeping regulatory and reimbursement shifts that will take effect beginning January 1, 2026.

More than a routine annual update, this rule signals continued movement toward:

• Integrated care for chronic and behavioral health needs
• Stronger accountability for quality and cost
• Increased recognition of virtual and digitally enabled care
• Improved appropriateness of resource valuation
• Pricing and compliance oversight in rapidly scaling markets (biologics, skin substitutes)

In other words: the direction of Medicare policy is clear — greater efficiency, equity, transparency, and technology-enabled care delivery.

Why the PFS Still Matters

Since its launch in 1992, the Physician Fee Schedule has remained the foundational reimbursement system for Part B services delivered in:

• Physician offices and outpatient clinics
• Hospitals and ASCs
• SNFs and post-acute care settings
• Patient homes and remote interaction environments
• Diagnostic testing settings and independent clinical labs

Services billed under the PFS are valued based on:

• Work RVUs — time, intensity, and complexity
• Practice Expense RVUs — clinical labor + overhead + equipment
• Malpractice RVUs
• Conversion Factor (CF) — converts RVUs into actual payment amounts
• Geographic Practice Cost Indices (GPCIs) — cost-of-living variation

As new care models emerge and clinical efficiencies accelerate, these valuation assumptions must evolve — and that evolution is well underway.

Dual Conversion Factors: Incentivizing APM Participation

For the first time, CY 2026 includes two different conversion factors:

Physician Type	Payment Update for 2026
Qualifying APM Participants (QPs)	+0.75%
Non-QPs	+0.25%

This is paired with a temporary +2.5% statutory increase and +0.49% RVU adjustment.

Why this matters:

CMS is strengthening payment advantages for practices adopting value-based models — particularly programs that integrate accountability and quality outcomes. Practices holding back on APM participation will feel the growing payment gap.

The Efficiency Adjustment: Correcting Overvaluation

Historical RVU valuations have relied heavily on AMA survey data — data that:

• Is subject to low response rates
• May overestimate time and intensity
• Can create self-reinforcing payment inflation in certain specialties

Starting in 2026, CMS will apply a -2.5% efficiency adjustment to non-time-based services expected to become more efficient over time. Exclusions include:

• E/M services
• Care management and behavioral health
• Telehealth-eligible services
• Maternity global period codes

CMS also announced long-term plans to prioritize empirical utilization data over survey-based assumptions.

Strategic takeaway: Primary care and cognitive specialties benefit, while high-utilization procedures see tightened margins.

Practice Expense Refinement: Recognizing Today’s Provider Landscape

With nearly 75% of physicians now employed by health systems, cost structures have shifted dramatically. CMS will:

• Update indirect cost assumptions to better differentiate facility vs. non-facility sites of care
• Use OPPS data for more accurate technical component valuation
• Improve rate consistency across settings for services like radiation therapy and remote monitoring

Bottom line: Better alignment with real-world practice models and pricing transparency across care settings.

Permanent Expansion of Telehealth and Virtual Supervision

CMS continues its long-term strategy to embed telehealth into mainstream Medicare:

• Simplified process to add new telehealth-eligible services
• Permanent removal of frequency limits in inpatient, SNF, and critical care virtual visits
• Permanent policy for virtual direct supervision (audio-video)
• Teaching physicians may supervise virtually when the service itself is virtual

Virtual care flexibility is now structural — not temporary pandemic relief.

Chronic Disease + Behavioral Health Integration Takes Center Stage

With chronic conditions driving the majority of Medicare spending — and often co-occurring with mental health needs — CMS is expanding support:

• Advanced Primary Care Management (APCM) add-on G-codes for behavioral health integration
• Expanded coverage for digital mental health treatment (DMHT) devices, including ADHD management
• Evaluation of new coverage pathways for digital therapeutics supporting mental health plans of care

This reflects a core CMS principle: When behavioral health improves, physical health outcomes follow.

Skin Substitutes: Reining in Explosive Cost Growth

Part B spending for skin substitute products ballooned from $252M in 2019 to $10B+ in 2024. In response, CMS will now:

• Treat skin substitutes as incident-to supplies linked to a covered application procedure
• Align payment with FDA regulatory categories
• Introduce a single payment rate for CY 2026 (~$127.28), with future differentiation planned

This change safeguards both clinical appropriateness and Medicare solvency.

Drug Pricing Reform Continues

Key reimbursement and compliance updates include:

• Manufacturer documentation requirements for ASP reporting
• Updated treatment of bundled concessions and fair market value service fees
• Clear inclusion of units sold at Maximum Fair Price (MFP) in ASP calculation
• Updates reinforcing the Medicare Prescription Drug Inflation Rebate Program

The message is unmistakable: Drug pricing transparency is no longer optional.

Strengthening Access in Rural and Underserved Areas

RHCs and FQHCs gain:

• Coverage for APCM-linked behavioral health integration
• Expanded telehealth billing flexibilities, including audio-only through 2026
• Virtual direct supervision adoption
• More consistent recognition of care coordination services

These updates push toward equity and access in high-need communities.

What Healthcare Organizations Should Do Now

The 2026 PFS Final Rule signals that operational transformation is no longer optional. Competitive organizations will:

1. Strengthen their digital care strategy

Telehealth, virtual supervision, and digital mental health are here to stay.

2. Assess efficiency risk across service lines

Procedural specialties may face steeper RVU impacts.

3. Evaluate timelines for value-based care alignment

The conversion factor divide will continue to widen.

4. Modernize documentation and revenue integrity programs

More data-dependent valuation means audit exposure is rising.

Final Thoughts: Medicare Is Pointing to the Future — Is Your Practice Prepared?

This rule doesn’t just adjust payment rates — it advances a vision. One where:

• Technology supplements workforce shortages
• Behavioral health is inseparable from chronic disease care
• Payment rewards outcomes, not volume
• RVU structure keeps pace with real-world efficiency

Providers that adapt early will protect margins, improve performance scores, and stay ahead of regulatory scrutiny.

Support for Staying Ahead of Medicare Policy Shifts

Healthcare reimbursement doesn’t stand still — and neither should your revenue cycle.

Bristol Healthcare Services helps practices:

• Remain fully compliant with evolving CMS rules
• Improve billing accuracy and documentation quality
• Strengthen revenue integrity across complex service lines
• Optimize financial performance through proactive analytics
• Reduce administrative burden with expert support

Let’s navigate the 2026 Medicare PFS changes together — and build a stronger future for your organization. Schedule a free consultation today to learn more about our compliance training programs and revenue cycle management solutions.