Physician Fee Schedule Final Rule Includes One-Time 2.5% Payment Increase

Healthcare groups including the American Medical Association say Medicare's payment policies for clinicians remain broken.

The Physician Fee Schedule final rule released last week features a pair of increases in the conversion factor for clinician payments.

The Centers for Medicare & Medicaid Services (CMS) Physician Fee Schedule (PFS) sets payments for the services of physicians and other healthcare providers who can bill CMS. The payment policies set under the PFS are for services provided in several healthcare settings, including hospitals, physician offices, ambulatory surgery centers, skilled nursing facilities, and hospices.

Under the PFS, payments are based on the resources required to deliver services. Relative value units (RVUs) are applied for each service for work, practice expense, and malpractice expense. The RVUs become payment rates with the application of a conversion factor.

In the 2026 PFS final rule issued on Oct. 31, CMS sets separate conversion factors for qualified practitioners participating in advanced alternative payment models and non-qualified physicians and practitioners. For qualified practitioners participating in advanced alternative payment models, the conversion factor is $33.57, which represents a 3.77% increase from the current conversion factor of $32.35. For non-qualified physicians and practitioners, the final rule increases the conversion factor by 3.26%, from $32.35 to $33.40.

The increases in the conversion factors include a one-year increase of 2.5% under the One Big Beautiful Bill Act.

The PFS final rule includes an efficiency adjustment of negative 2.5% based in part on the Medicare Economic Index. Research indicates that the time assumptions built into the valuation of many PFS services are "overinflated," according to CMS.

"In order to mitigate these effects and take into account changes in medical practice, we are finalizing application of an efficiency adjustment to the work RVUs and corresponding intraservice portion of physician time for non-time-based services that we expect to accrue gains in efficiency over time," CMS said in a prepared statement.

In the future, the efficiency adjustment will periodically apply to all codes except time-based codes such as evaluation and management services, care management services, and behavioral health services, according to CMS.

The PFS final rule represents a step forward in Medicare reimbursement, Health and Human Services Secretary Robert F. Kennedy Jr. said in a prepared statement.

"The new Medicare fee schedule delivers a major win for seniors, protects hometown doctors, and safeguards American taxpayers,” Kennedy said. "It realigns doctor incentives and helps move our country from a sick-care system to a true health care system."

Healthcare associations raise concerns

Several healthcare associations had a negative reaction to the PFS final rule.

"While we are pleased to see a marginal increase to the 2026 Medicare conversion factors, [the] final rule includes many policies that will threaten the financial sustainability of medical groups and cause significant disruption to their operations," Anders Gilberg, senior vice president of government affairs at the Medical Group Management Association, said in a prepared statement.

Medicare reimbursement for clinicians remains insufficient. According to Gilberg, medical groups have had to deal with a 2.83% cut to the Medicare conversion factor during all of 2025, and the 2026 conversion factors are barely an increase over 2024 payment levels.

"This does not remedy previous cuts that medical groups have absorbed due to flawed policy, nor does it address potential future cuts resulting from budget neutrality," Gilberg said. "Further undermining the 2026 conversion factor increases are arbitrary cuts to work and practice expense relative value units (RVUs) that do not accurately reflect the cost of providing care and disproportionately impact certain specialties."

The American Medical Association also raised concerns about the trends in Medicare reimbursement.

"That physicians are not facing a reduction in reimbursements—as we have in the past—is a significant positive for 2026 and a win for patients' access to care," AMA President Bobby Mukkamala, MD, said in a prepared statement. "Yet, this one-time correction does not keep up with increasing costs, and private practices across the country are expressing concern this rule would further put them at a disadvantage merely for treating patients at a hospital or ambulatory surgery center."

The AMA said the efficiency adjustment is particularly problematic.

"The efficiency adjustment would reduce payment for more than 7,000 physician services—95% of all services provided by physicians," the AMA said in a prepared statement. "The AMA has proposed an alternative that strengthens primary care payment while improving the accuracy of time data used in payment determinations."

The PFS final rule also undermines independent physician practices, according to Mukkamala.

"We're concerned that, at a time of increasing consolidation in healthcare, this rule will make it harder for independent practices to remain viable parts of our health system," Mukkamala said.

Medicare's policies for physician reimbursement are broken, and the PFS final rule does not address the problem, Jerry Penso, MD, MBA, president and CEO of AMGA, said in a prepared statement.

"While we appreciate the modest payment increase finalized by CMS for 2026, this temporary relief does not address the fundamental structural problems plaguing Medicare physician reimbursement," Penso said. “The conversion factor increase, driven by a one-time congressional intervention, provides a short-term reprieve, but the underlying erosion of physician payment continues to threaten access to care and the viability of high-value, team-based medicine."