The Centers for Medicare & Medicaid Services (CMS) on October 31 released the final rule for the 2026 Medicare Physician Fee Schedule, outlining sweeping changes that will significantly reshape how physicians are paid under Medicare. While the rule provides gains for some primary care and physicians in independent offices, many specialists – and those who provide most of their services in hospital outpatient departments, ambulatory surgery centers, or skilled nursing facilities – face substantial payment reductions.

Conversion Factor

The final payment rule includes a base conversion factor increase of 3.26% while qualifying Alternative Payment Model (APM) participants will receive 3.77%. These changes reflect a one-year 2.5% congressional boost, smaller statutory updates under MACRA, and minor work RVU adjustments.

The California Medical Association (CMA) continues to call on Congress to provide annual payment updates tied to the Medicare Economic Index (MEI) CMA surveys show inadequate Medicare payment is driving more physicians to limit participation or close their practices, reducing patient access to care.

Efficiency Adjustment

CMS finalized a controversial -2.5% efficiency adjustment that reduces payment for most non–time-based services to reflect presumed productivity gains from technology improvements. Time-based services such as E/M, care management, behavioral health, maternity, and telehealth are exempt. The agency also said it is moving away from relying on physician survey data to estimate clinical time and work intensity, citing methodological concerns. CMS will be releasing the billing codes that are exempt from the efficiency adjustment soon.

While CMA appreciates CMS’ efforts to stabilize primary care, the association remains concerned about the broader impact and unintended consequences for all practices.

Practice Expense

CMA confirmed the accuracy of California’s geographic practice expense updates in the final rule. CMS declined to use AMA’s recent practice expense survey data due to low response rates and incomplete reporting — a decision CMA supports, as the data undervalues California practices.

Site of Service

In a major shift, CMS is redirecting indirect practice costs away from facility-based services — recognizing only 50% of physician work for those settings — and toward non-facility-based services. As a result, according to an earlier AMA analysis, independent office-based physicians will see average increases of about 4%, while those providing services primarily in hospital outpatient departments, nursing homes, or ambulatory surgery centers could face cuts averaging -7% or more. While these changes represent general increases for primary care, some of the payment cuts to specialists are substantial.

Telehealth Updates

CMA and AMA successfully advocated for several telehealth provisions to be made permanent in the final rule, including:

• Lifting frequency limits for hospital and skilled nursing facility telehealth visits
• Allowing virtual direct supervision for most services
• Continuing pandemic-era policies allowing virtual supervision of residents providing telehealth care

CMA and AMA continue to urge Congress to permanently extend the pandemic-era telehealth flexibilities to allow patients outside of rural areas access to telehealth services from their homes and to protect these critical services from future government shutdowns.

Merit-Based Incentive Payment System

CMA welcomes CMS’ decision to maintain the Merit-Based Incentive Payment System (MIPS) threshold at 75 points to help physicians avoid steep penalties pursuant to AMA advocacy. CMA and AMA continue to push for a broader overhaul of the MIPS program, calling it clinically irrelevant, burdensome, and disproportionately punitive to small and rural practices.

New Mandatory Ambulatory Specialty Model

CMS will launch a mandatory Ambulatory Specialty Model in 2027 for certain specialists treating patients with chronic conditions such as heart failure and low back pain. It is intended to improve collaboration between specialists and primary care physicians to avoid unnecessary surgeries and hospitalizations. The program will adjust payments based on performance beginning in 2029, with potential swings of ±9%, increasing to ±12% by 2033. CMA had urged CMS to make participation voluntary.

Additional Provisions

• Chronic care integration: CMS finalized new codes to support advanced primary care and behavioral health integration — a change supported by CMA and organized medicine.
• Skin substitute oversight: Following explosive growth in billing for skin substitute products, CMS will implement new payment methodologies in 2026 to curb fraud and abuse.
• Drug pricing transparency: New requirements under Medicare Part B will increase manufacturer accountability for pricing and refunds on discarded single-dose drugs.

While CMA appreciates the appropriate geographic payment updates and efforts to stabilize primary care in the final rule, the fee schedule overall falls far short of addressing the fact that physician payments that have declined by 33% (adjusted for inflation) since 2001.

“While there are some welcome changes in this year’s rule, it does not address the chronic underpayment that threatens access to care and the stability of physician practices nationwide,” said CMA President René Bravo, M.D. “For too long, physicians have absorbed rising costs while payments stagnate. We are being asked to do more with less, and budget-neutral tweaks only shift the pain around. Without a lasting, inflation-based fix from Congress, access to care for millions of Medicare patients will continue to erode.”

CMA will share the more detailed AMA analysis when it is finalized.

Related Resources

• CMS Press Release
• Physician Payment Schedule Fact Sheet
• Medicare Shared Savings Program Fact Sheet
• Ambulatory Specialty Model Fact Sheet