CMS Proposes Major Medicare Payment Changes for 2026
The Centers for Medicare & Medicaid Services (CMS) released their proposed rule on July 14, 2025 that will impact Medicare physician payments beginning January 1, 2026.
Medicare will have two separate conversion factors in 2026.
Increase from $32.35 to $33.59 (+3.83%) for providers participating in qualifying Alternative Payment Models (APMs).
Increase from $32.35 to $34.42 (+3.62%) for non-qualifying providers.
However, these gains may be offset by a controversial new "efficiency adjustment."
What are Medicare's Alternative Payment Models (APMs), and who qualifies?
APMs are part of the Quality Payment Program (QPP), which incentivizes payment structures for healthcare providers to deliver cost-effective, high-quality care. The goal is to move away from the traditional fee-for-service model and into Value-Based Care.
To qualify, "clinicians must receive at least 75% of Medicare Part B payments or see at least 50% of Medicare patients through an Advanced APM Entity during the performance period (January 1 – August 31)." You can find more information here.
Efficiency Cuts Target Non-Time-Based Services
CMS proposes a 2.5% reduction to work relative value units (RVUs) and the corresponding intraservice portion of physician time for non-time-based services. It cites concerns that current payment rates are "overinflated" due to unreliable survey data from the AMA. The adjustment will hit procedural services hardest, while evaluation and management services, care management, and telehealth services are exempt.
Practice Expense Methodology Faces Major Overhaul
In a stunning rejection of updated industry data, CMS is declining to use the American Medical Association's 2025 practice expense survey, calling it unreliable due to small sample sizes and low response rates. Instead, the agency proposes using hospital cost data for some services and restructuring indirect cost allocations to reflect the shift from private practice to hospital employment.
Telehealth Expansion Continues with Caveats
CMS is streamlining the process of adding services to the Medicare Telehealth List and making several pandemic-era flexibilities permanent. Virtual direct supervision will be allowed for most services using audio-video technology, but notably, teaching physician virtual presence policies will expire on December 31, 2025, requiring physical presence for resident supervision in metropolitan areas.
In addition, CMS is proposing HCPCS code G2025 for non-behavioral telehealth visits in Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs), including audio-only telehealth communications.
Skin Substitute Payment Reform Addresses $10 Billion Explosion
Perhaps the most dramatic change involves skin substitutes, where Medicare spending skyrocketed from $252 million in 2019 to over $10 billion in 2024. CMS is abandoning individual product pricing in favor of bundled payments based on FDA regulatory categories, promising significant savings to the Medicare Trust Fund.
Chronic Disease Focus Drives New Behavioral Health Codes
Responding to President Trump's "Make America Healthy Again" Commission, CMS proposes new Advanced Primary Care Management codes with behavioral health integration add-ons. Digital mental health treatment coverage is expanding to include ADHD devices, signaling a broader push toward an integrated care model.
Drug Pricing Policies Continue Evolution
The rule includes updated guidance on average sales price calculations, particularly for bundled arrangements and service fees. Manufacturers of autologous cell therapies must include preparatory procedures in their pricing. At the same time, the Part B inflation rebate program continues to be implemented.
Immediate Actions Required
Healthcare providers must immediately assess the financial impact on their practices, particularly those heavily dependent on procedural services affected by the efficiency adjustment. Comment periods are typically 60 days, making stakeholder input crucial for final rule modifications.
Organizations should review their telehealth infrastructure, evaluate skin substitute usage patterns, and prepare for new behavioral health coding opportunities. The rule also includes a separate Request for Information on reducing administrative burdens, available at https://www.cms.gov/medicare-regulatory-relief-rfi.
Bottom Line
While payment increases provide welcome relief, the efficiency adjustment and practice expense changes represent a fundamental shift in how Medicare values physician services. The emphasis on empirical data over survey responses and the integration of hospital cost data signal CMS's intent to base payments on more objective measures. Providers have a narrow window to influence these changes through the comment process.
This KZA alert summarizes key changes. For more information, you can find the full proposed rule below.