On October 31, 2025, CMS released the CY 2026 Medicare Physician Fee Schedule final rule. The rule outlines CMS’s annual updates to payment rates, policy priorities, and practice expense methodology under Medicare Part B. This rule marks a continued shift in how CMS measures provider efficiency, allocates practice expense, and values evolving care delivery models. Alongside modest increases in the conversion factor, CMS finalized broad adjustments to work RVUs and indirect practice expenses, which may reduce reimbursement to several practices. The rule also includes telehealth and value-based care updates that will impact payment and operational strategies for the coming year. Below are several highlights of the final rule most relevant to providers and health systems:
- Increase of conversion factor to $33.57 for qualifying alternative payment model (APM) participants and $33.40 for nonqualifying practitioners;
- “Efficiency adjustments” of -2.5% to work RVUs and corresponding intraservice portion of physician time for non-time-based services, based on the assumption that providers have become more efficient over time;
- Reductions to indirect practice expense (PE) RVUs for facility-based services (e.g., hospitals, ASCs) while increasing relative rates for office-based services;
- Various permanent telehealth flexibilities; and
- Clarification on the data requirements and calculation methodology for the Average Sales Price (ASP) rate setting and manufacturer rebate calculations associated with the pending Inflation Reduction Act (IRA) Part D rebateable drug requirements.
Advis provides more details below as applicable to these key components.
CY 2026 PFS Rate Setting and Conversion Factor
Beginning in CY 2026, there will be two separate conversion factors: one for qualifying alternative payment model (APM) participants (QPs) and one for physicians and practitioners who are not QPs. The final CY 2026 qualifying APM conversion factor of $33.57 represents a projected increase of $1.22 (+3.77%) from the current conversion factor of $32.35. Similarly, the final CY 2026 nonqualifying APM conversion factor of $33.40 represents a projected increase of $1.05 (+3.26%) from the current conversion factor of $32.35.
Negative 2.5% “Efficiency Adjustments”
CMS argues time assumptions built into the valuation of many PFS services are overinflated. Although many commenters disagree with this, CMS is finalizing application of an “efficiency adjustment” to the work RVUs and corresponding intraservice portion of physician time for non-time-based services. The AMA expects this -2.5% adjustment will apply to more than 7,000 services, equating to 95% of all physician services.
Practice Expense (PE) RVU Changes
CMS also finalized the reduction to indirect-practice-expense RVUs for physician services performed in facility settings, such as hospitals and ASCs, by reducing the portion of facility PE RVUs allocated based on work RVUs to half the amount allocated to non-facility PE RVUs. Though there will variance depending on the services, as an example, the American College of Cardiology expects this policy to result in -6% for facility-based yet +5% for office-based cardiology procedure reimbursement. (This new PE methodology will not apply to nuclear SPECT and PET services.)
Telehealth Services under the PFS
CMS is finalizing several telehealth proposals, including:
- Streamlining the process for adding services to the Medicare Telehealth Services List by removing the distinction between provisional and permanent services and limiting review on whether the service can be furnished using an interactive, two-way audio-video telecommunications system.
- Permanently removing frequency limitations for subsequent inpatient visits, subsequent nursing facility visits, and critical care consultations;
- Permanently adopting a definition of direct supervision that allows the physician or supervising practitioner to provide such supervision through real-time audio and visual interactive telecommunications (excluding audio-only).
CMS is not extending the current policy to allow teaching physicians to have a virtual presence for purposes of billing for services furnished involving residents in all teaching settings, which will be in effect through December 31, 2025. However, CMS will allow teaching physicians to have a virtual presence in all teaching settings, only in clinical instances when the service was furnished virtually, on a permanent basis.
Should you have any questions or would like to further discuss the impact of the proposed policies on your organization, please reach out to Advis at (708) 478-7030 to connect with our experts.
Published November 6, 2025
