The Centers for Medicare & Medicaid Services (CMS) recently finalized the 2026 Medicare Physician Fee Schedule (PFS), introducing one of the most consequential sets of policy changes in years. These updates will materially impact physician reimbursement, practice economics, and strategic planning for providers. What follows highlights the most meaningful takeaways for physicians, administrators, and healthcare executives.
A Quick Refresher: How Medicare Physician Payments Are Built
Most Medicare professional payments are determined via the PFS, which follows a standardized calculation framework:
PFS Payment = [(Work RVU × Geographic Adjustments) + (Practice Expense RVU × Geographic Adjustments) + (Malpractice RVU × Geographic Adjustments)] × Conversion Factor
Work RVUs measure clinical effort and intensity, practice expense RVUs capture operating costs, and malpractice RVUs reflect liability premiums. The conversion factor translates total RVUs into dollars.
RVU changes must be budget-neutral, meaning increases for some services must be offset by decreases elsewhere. However, statutory updates enacted by Congress are not subject to budget neutrality and can increase total Medicare spending.
Beginning in 2026, Congress requires Medicare to adopt two separate conversion factors along with a one-time statutory increase:
Qualifying Participants (participating in an Alternative Payment Model; QPs): +0.75%
Non-Qualifying Participants (not participating in any Alternative Payment Model; Non-QPs): +0.25%
One-Time Increase (from the “Big Beautiful Bill”): +2.5%
After incorporating all updates, the 2026 conversion factors rise by:
QPs: +3.77%
Non-QPs: +3.26%
However, these higher conversion factors do not translate into broad payment increases for most physicians.
The New Efficiency Adjustment Could Offset Gains for Many Specialists
CMS is introducing a –2.5% “efficiency adjustment” to the work RVUs of non-time-based services—largely procedural codes. CMS believes historical time assumptions for many procedures are overstated and that this change will improve valuation accuracy.
Exempt from the adjustment are the following services:
Office-based Evaluation & Management
Care management
Behavioral health
Telehealth
Most time-based services
Because these categories are protected, many office-based specialties will experience net increases, while procedure-heavy specialties may see reductions even with higher conversion factors.
Major Overhaul to Practice Expense RVUs
Beginning in 2026, CMS will substantially revise how Practice Expense (PE) RVUs are allocated. The agency concluded that earlier methodologies overestimated indirect costs for hospital-based clinicians.
Key changes:
Office-based services will receive higher PE RVUs
Hospital-based services will receive lower PE RVUs (approximately half the non-facility value)
This shift is meaningful. Specialties that deliver large portions of care in hospitals—orthopedics, general surgery, neurosurgery, gastroenterology—are likely to be most affected.
Expected Winners and Losers in 2026
The following specialties will benefit most from the exemptions to the efficiency adjustment and higher PE values for office-based services:
Allergy/Immunology: ~ +7%
Rheumatology, Clinical Social Work: ~ +4%
Endocrinology, Family Practice, Psychology, Interventional Pain: ~ +3%
While, the following specialities will experience some of the largest payment reductions, primarily stemming from the efficiency adjustment and lower PE RVUs in facility settings:
One of the Most Consequential Changes: Skin Substitute Payment Reform
Medicare spending on skin substitutes has skyrocketed—from $252 million in 2019 to more than $10 billion in 2024, largely driven by average sales price (APS)-based reimbursement and high product launch prices. As such, CMS will make the following changes to skin substitutes in 2026:
ASP-based pricing will no longer be used
Skin substitutes will be reimbursed as bundled incident-to supplies, not biologicals
A single blended rate of ~ $127 will apply across products
This represents a major reduction for clinicians who historically billed high-cost skin substitutes products, particularly podiatrists, wound-care providers, and plastic surgeons.
Telehealth: Continued Simplification and Expansion
CMS continues to promote virtual care. Key 2026 updates include:
A unified telehealth services list (eliminating “temporary” vs. “permanent”)
Removal of frequency limits for certain inpatient, nursing facility, and critical-care telehealth visits
Permanent authorization of virtual direct supervision (real-time audio/video)
Telehealth remains a strategic growth area—especially for primary care and behavioral health.
Final Thoughts
The 2026 PFS introduces material changes to Medicare reimbursement. While statutory conversion factor increases drew early attention, the efficiency adjustment, Practice Expense rebalancing, and skin substitute payment overhaul will drive the most significant year-over-year payment changes. For healthcare organizations, now is the time to prepare for 2026 and:
Model Medicare reimbursement impacts across service lines
Re-evaluate hospital vs. office-based service strategies
Prepare for major shifts in wound care and procedural specialities
Identify opportunities in primary care, behavioral health, and telehealth
If you’d like assistance modeling these changes or understanding their operational and financial impact, contact Quantum Health Advisors. We are ready to help you navigate the complexities ahead.