CY 2026 Physician Fee Schedule (PFS) -2.5% Efficiency Adjustment
As part of the CY 2026 Physician Fee Schedule (PFS) final rule, which went into effect January 1, 2026, CMS finalized a -2.5% “efficiency adjustment” to most non-time based CPT/HCPCS codes, stating that “some services are likely to become more efficient over time, as compared to time-based services like office visits or behavioral health therapy. The efficiency adjustment targets services that have likely become able to be furnished more efficiently over time but still retain valuations based on outdated assumptions. Examples include surgical procedures, diagnostic imaging interpretation, outpatient interventions, interventional pain management, and orthopedic services. These tend to benefit from technological advancements or standardized workflows that reduce time and resource use, without corresponding payment adjustments.”
WHAT HAS CHANGED:
A -2.5% adjustment has been applied to the work relative value units (RVUs) and the intra-service portion of the Physician Work Time - Time Table provided by CMS for most non-time-based CPT/HCPCS codes.
WHAT THIS MEANS:
While there was a 3.26%/3.77% increase (depending on participation in the advanced alternative payment model) in the conversion factor for Medicare reimbursement for CY 2026, this 2.5% reduction in RVUs means you will not see the full 3.26%/3.77% increase in reimbursement. Per the AMA, this would reduce payment for more than 7,000 physician services.
FINANCIAL IMPACT:
Reduced per-case profitability, especially for Medicare-heavy patient populations.
Increased dependence on commercial payer cross-subsidization
ASC vs. hospital margin shifts—strategic site selection becomes more important.
Cumulative erosion: The 2.5% adjustment adds to prior years’ cuts, amplifying long-term impact.
WHY THIS HITS SURGEONS HARDER:
Procedural RVUs under pressure: Surgical codes rely heavily on work RVUs, which are not consistently keeping pace with overall payment adjustments.
Shift toward cognitive care: Ongoing Medicare policy adjustments continue to favor E/M services over procedures, indirectly reducing surgical reimbursement.
High fixed costs: OR staffing, implants, anesthesia coordination, and surgical equipment costs continue to rise without corresponding Medicare updates.
Global surgical packages: Bundled payments (pre-, intra-, post-op) limit flexibility to offset declines elsewhere.
Site-of-service dynamics: Hospital-based surgeries may see different financial effects compared to ASC settings, especially as CMS encourages migration to lower-cost sites.
For surgical specialties, the 2.5% Medicare efficiency adjustment is not just a marginal cut—it compounds existing structural headwinds. Practices that proactively optimize operations, control costs, and strategically manage surgical settings will be best positioned to maintain financial stability.
RECOMMENDED ACTION STEPS:
This change will affect Medicare reimbursement and may affect non-Medicare reimbursement as well, because it was applied to the MPFS RVU rather than the conversion factor. You should check to see if your non-Medicare payers are utilizing the 2026 MPFS RVUs for reimbursement.
KEY REFERENCES:
CY 2026 PFS Final Rule (https://www.federalregister.gov/documents/2025/11/05/2025-19787/medicare-and-medicaid-programs-cy-2026-payment-policies-under-the-physician-fee-schedule-and-other)
CMS Modernizes Payment Accuracy and Significantly Cuts Spending Waste https://www.cms.gov/newsroom/press-releases/cms-modernizes-payment-accuracy-significantly-cuts-spending-waste
AMA Comments on 2026 Medicare Fee Schedule (https://www.ama-assn.org/press-center/ama-press-releases/ama-comments-2026-medicare-fee-schedule)
