Medicare payments have been made under the Medicare Physician Fee Schedule (MPFS) for the services of qualified healthcare professionals for 35 years. Payments are based on the relative resources used to furnish these services and both relative value units (RVUs) and geographic practice cost indices (GPCIs)[1] are applied to each service for work, practice expense, and malpractice. Allowed payments are then calculated by multiplying the total RVUs by a conversion factor (see Illustration I).
The Centers for Medicare and Medicaid Services (CMS) publishes a Proposed Rule for the upcoming year, typically in July, followed by a Final Rule in early November. The Calendar Year (CY) 2026 MPFS Proposed Rule was published on July 14th, 2025, and stakeholders have until 5 p.m. on September 12th to submit public comments.
Conversion Factor
CMS is proposing two separate conversion factors and this is the first year it has done so. The qualifying Alternative Payment Model (APM) Conversion Factor (CF) is for services furnished by qualifying APM participants (QPs) and is proposed to be $33.59 (+$1.24 or 3.83 percent higher than the 2025 CF of $32.35). The non-qualifying APM CF is proposed to be $33.42 (+$1.07 or 3.3 percent higher than the 2025 CF). Variables included in calculating these conversion factors include a 0.55 percent positive budget neutrality adjustment, 0.75 percent (QP CF) and 0.25 percent (non-QP CF) update adjustment factors per the Medicare Access and CHIP Reauthorization Act (MACRA), and a one-time 2.5 percent increase, per H.R. 1, the One Big Beautiful Bill Act.
A Qualifying Participant (QP) in the Quality Payment Program (QPP) is an eligible clinician who participates in an Advanced Alternative Payment Model (APM) and who meets specific thresholds for number of Medicare beneficiaries and volume of Medicare payments that come through the APM. QPs will receive a higher physician fee schedule conversion factor than non-QPs. The 2025 thresholds for APM participants to qualify as QPs are 75 percent of their Medicare Part B payments and 50 percent of their Medicare beneficiaries must come from the APM.
The estimated impacts by specialty from RVU changes are shown in Illustration III, and these percentages do not include CF impacts. Individual practice volumes and service mix will determine the effect on a group’s Medicare revenues, and this information is found in Table 92 of the Proposed Rule. The estimated impacts for specialties in the hospital-based setting are driven primarily by the proposed adjustment to indirect PE allocation in the facility setting and the proposed efficiency adjustment.
Efficiency Adjustment (p.142)
CMS has historically relied on survey data from the AMA Specialty Society Relative Value Scale (RVS) Update Committee (RUC) to estimate practitioner time, work intensity, and practice expense to establish RVUs. They have longstanding concerns about relying on surveys with low response rates, low total numbers of responses, and wide variation in the responses. There is also a concern about including respondents who may have inherent conflicts of interest, i.e. their responses are used in setting their payment rates. And, according to CMS, research shows that the time assumptions built into the valuation of many MPFS services are likely overinflated. Their studies demonstrate that most notably, non-time-based services are overvalued. Non-time-based codes describe procedures, radiology services, and diagnostic tests that should become more efficient as their use becomes more common, the providers who are administering the services gain more experience, the technology is improved, and other operational improvements are implemented such as enhancements in procedural workflows. CMS conducted a pilot project by the Urban Institute in 2016 which compared data from electronic health records with direct observation and the ratios of fee schedule time to empirical time were often inflated, with the largest discrepancies in imaging and other test interpretations.
To mitigate these effects and to account for changes in medical practice, CMS is proposing to apply an efficiency adjustment to the work RVU and the corresponding intraservice portion of physician time for non-time-based services. CMS is seeking comments on whether and how they should consider additional efficiencies for services that require less time to perform. They are also questioning whether efficiencies are gained in services that are performed many times per day such as cataract extractions, skin biopsies, and CT scans, and whether the introduction of new artificial intelligence tools has or will lead to otherwise unaccounted for efficiency gains in specific services.
CMS is proposing to implement an efficiency adjustment of -2.5 percent for certain non-time-based codes and to apply this efficiency adjustment every three years. The codes that are being considered can be downloaded from the CMS website in Excel format at https://www.cms.gov/medicare/payment/fee-schedules/physician/federal-regulation-notices. An analysis of 47 CPT codes commonly performed in a diagnostic radiology practice shows an unweighted average reduction of -2.27 percent and Illustration IV shows the average for these 47 codes by modality.
Practice Expense (p.204)
CMS typically establishes two separate PE RVUs, one for services furnished in a non-facility setting, such as a physician’s office, and one for services provided in a facility setting, such as a hospital. The current PE methodology relies on the AMA’s Physician Practice Information Survey (PPIS) data from 2008 that measures specialty-specific practice costs.
In 2024, the American Medical Association (AMA) conducted updated survey efforts and submitted data to CMS in early 2025 for consideration in CY 2026 rate setting. However, CMS has several concerns about this data and is not proposing to implement the PE/HR data in setting the 2026 rates. Their concerns include small sample sizes and sampling variation, low response rates, potential measurement errors, and incomplete data submission.
CMS is, however, proposing significant updates to its PE methodology to better reflect current clinical practice. Their original methodologies assumed physicians maintained separate practice locations even when some services were furnished in hospitals. Given a steady decline in the number of physicians who are working in private practice and a corresponding rise in physician employment by hospitals and health systems, CMS is proposing to recognize higher indirect costs for practitioners in office-based settings compared with facility settings. They believe allocating indirect costs for PE RVUs in the facility setting at the same rate as the non-facility setting may no longer reflect current clinical practice and are proposing to reduce the portion of the facility PE RVUs allocated based on work RVUs to 50 percent of the amount allocated to non-facility PE RVUs.
Overall, specialties that practice primarily in a non-facility setting will see an increase in PE RVUs and specialties that perform services primarily in the facility setting will see a decrease in PE RVUs because of this proposed reduction to the facility indirect PE. This proposed methodology change to indirect PE allocation would not affect the conversion factor, as the changes in valuation would be within the development of PE RVUs and would redistribute PE RVUs from the facility to the non-facility setting.
Virtual Direct Supervision
Under Medicare Part B, some diagnostic tests and “incident-to” services require direct (level 2) supervision. Historically, providers had to be present in the office suite and immediately available to furnish assistance and direction throughout the performance of the service; however, they do not have to be present in the room.
In March of 2020 the definition of “direct supervision” was amended to include a “virtual” presence using two-way, real-time audio/visual (video) communications technology. Providers were not required to have a real-time presence or observation of the service throughout the performance of the service and this policy was extended in the CY 2021, 2024, and 2025 MPFS Final Rules through December 31, 2025.
CMS is proposing to permanently adopt a definition of direct supervision that allows “immediate availability” of the supervising practitioner using audio/video real-time communications technology (excluding audio-only) for all services described under § 410.26, except for services that have a global surgery indicator of 010 or 090.
Procedures that would be excluded include:
- Minor procedures with preoperative relative values on the day of the procedure and postoperative relative values during a 10-day postoperative period included in the fee schedule amount.
- Evaluation and management services on the day of the procedure and during this 10-day postoperative period.
- Major surgery with a one-day preoperative period and a 90-day postoperative period included in the fee schedule payment.
CMS is also seeking comments on whether services with a 000 global surgery indicator should be excluded as well.
Incident To Services
“Incident To” services are submitted under the physician’s NPI but are performed by a non-physician practitioner (NPP) or mid-level and are commonly provided in a physician’s office. These services cannot be rendered on the patient’s first visit, or if a change to the plan of care occurs; however, after the encounter where the physician establishes a diagnosis and initiates the plan of care, an NPP or mid-level may provide follow-up care under the “direct supervision” of a qualified provider.
[1] GPCIs account for cost variations by geographic area.
Barbara Rubel
MBA, FRBMA
Senior Vice President, Marketing & Client Services
Barbara has been a leader with MSN Client Services since 1998. Her extensive background in strategic planning, market research, healthcare marketing and managed care negotiations provides a wealth of information to support MSN Clients.
Barbara has also been highly involved in industry organizations, serving as President of the Radiology Business Management Association (RBMA), the Georgia RBMA, and the Florida RBMA. In addition, she chaired the influential RBMA Federal Affairs Committee and the RBMA Technology Task force and was a member of the RBMA Data Committee. Her work on behalf of radiology has earned her the RBMA Special Recognition Award (2010), the RBMA Global Achievement Award (2013), and she is a Fellow of the RBMA.
