TL;DR. The CY 2026 Medicare Physician Fee Schedule Final Rule (CMS-1832-F) delivered the first nominal conversion factor increase in five years, but stacked a -2.5% efficiency adjustment on most non-time-based codes, a permanent split between QP and non-QP conversion factors, and a roughly 90% reimbursement cut for skin substitutes. Net impact varies by specialty: time-based and E/M-heavy practices come out close to flat, procedural specialties absorb a real cut, and wound care/podiatry practices using skin substitutes face a complete model reset.
The first pay bump in five years comes with strings
CMS released the CY 2026 Medicare Physician Fee Schedule Final Rule (CMS-1832-F) on October 31, 2025. It became effective for services on or after January 1, 2026. After five consecutive years of cuts to the conversion factor, this is the first nominal increase. That is the headline.
The headline is misleading.
The 2026 rule contains a +3.77% bump for clinicians who are qualifying participants in advanced alternative payment models, +3.26% for everyone else. It also contains a -2.5% efficiency adjustment applied to most non-time-based codes, a permanent split between QP and non-QP conversion factors, a 90% reduction in skin substitute reimbursement, and several telehealth changes that flip pandemic-era flexibilities into permanent policy. Net of all of this, office-based physician EBITDA margins are projected to drop 1-2 points between 2025 and 2027 according to McKinsey's 2026 US Healthcare Outlook, before a slow recovery toward 2029.
If your practice runs significant Medicare volume, here is what the rule actually changes and what to do about it.
The split conversion factor: two payment tracks now
For the first time in the history of the fee schedule, CMS has separated the conversion factor into two values. The CY 2026 conversion factor is $33.5675 for clinicians who qualify as APM participants, and $33.4009 for everyone else, both up from the CY 2025 value of $32.35 (a 2.83% reduction from CY 2024 per APTA's coverage of the rule).
Sixteen-cent gap. Sounds small. On a $2M Medicare book, the difference between QP and non-QP status is roughly $10,000 per year just from the conversion factor split, before any quality-based bonuses. Over a five-year window, the gap will widen because Congress structured the QP track to receive a +0.75% annual update versus +0.25% for non-QP clinicians.
This is a permanent two-track system. If you have any flexibility about whether to participate in an advanced APM, run the math. The administrative cost of qualifying is real, but the payment delta is now structural rather than experimental. For a deeper look at how MIPS and APM positioning affects your numbers in 2026, see the MIPS reporting checklist.
The efficiency adjustment is the trap door
Here is the part of the rule that did not make the press release.
CMS finalized a -2.5% efficiency adjustment that applies to most non-time-based, non-telehealth, non-maternity codes. The agency uses the Medicare Economic Index productivity adjustment percentage with a 5-year look-back to set the value, and the assumption is that procedures get more efficient over time so payment should reflect that (Hematology.org summary of CMS-1832-F).
The effect is uneven by specialty. Time-based codes (E/M visits, behavioral health, family medicine, psychiatry) are largely exempt. Procedural specialties (gastroenterology, surgery, radiology, dermatology) absorb most of the cut. So the +3.26% bump for non-QP clinicians is partially or fully offset by a -2.5% drag on the procedural codes that drive their revenue.
A dermatology practice doing 60% procedural revenue and 40% E/M will see something close to net flat from these two changes. A GI practice that is 80% procedural will see a real net cut once you stack the efficiency adjustment on top of practice cost inflation. Family medicine, which leans heavily on E/M, comes out best.
If you have not modeled your specific code mix against the CY 2026 update, do it. The headline number is not your number.
Skin substitutes: an 89% reimbursement cliff
If your practice uses skin substitutes, especially in wound care, podiatry, or vascular surgery, CY 2026 changes everything.
CMS restructured how skin substitutes are paid. Starting January 1, 2026, most skin substitutes are reimbursed at $127.28 per square centimeter as incident-to supplies under the PFS, rather than at the previously inflated rates that some products had reached (Medical Economics coverage of the 2026 PFS). CMS estimates this will reduce Medicare spending on these products by nearly 90% (CMS Newsroom announcement).
For a wound care clinic that built its revenue model around skin substitutes priced at $1,000-$2,500 per square centimeter, this is not a margin compression. This is a complete reset. We have already seen practices in this space reorganize their offerings, drop certain product lines, and renegotiate manufacturer contracts. If you have not done a full revenue impact analysis on this code family, do that this quarter.
CMS is targeting categories where it believes overpayment is structural. Practices that built around those payment levels need a new model.
Telehealth: pandemic flexibilities became permanent
The CY 2026 rule made several COVID-era telehealth flexibilities permanent. The three that matter most for outpatient clinics:
Direct supervision via real-time audio-video is now permanent. A supervising physician no longer needs to be physically in the suite to bill incident-to services. They can supervise via two-way video. This opens staffing models that mix in-person and remote coverage, particularly for multi-location practices and specialties that use NPs and PAs heavily.
Frequency limits are gone for subsequent inpatient visits, subsequent nursing facility visits, and critical care consultations. Previously, Medicare capped how often these could be delivered via telehealth. The cap is removed.
The process for adding services to the Medicare Telehealth Services List is streamlined. CMS removed the distinction between provisional and permanent services and limited review to whether a service can be furnished via interactive two-way audio-video.
The originating site facility fee under HCPCS Q3014 is set at $31.85 for CY 2026. If your practice serves as a telehealth originating site, that revenue stream is now stable and predictable.
Telehealth utilization has stabilized at 5.7-7.0% of all Medicare E&M visits according to a March 2025 medRxiv study, well below the April 2020 peak of 41% but well above the pre-pandemic baseline of 0.1%. In behavioral health and psychiatry, telehealth still represents 43.8% of E&M visits. The new permanent rules cement that mix.
Behavioral health and digital therapy got new codes
CMS expanded payment for Digital Mental Health Therapeutic (DMHT) devices that meet FDA criteria, with new HCPCS codes G0552-G0554 covering the device categories under 21 CFR 882.5803. This is a real opening for behavioral health practices already deploying app-based or device-based treatment alongside therapy.
CMS also created optional add-on codes that allow Behavioral Health Integration (BHI) and Collaborative Care Model (CoCM) services to be billed on top of Advanced Primary Care Management (APCM) base codes. For primary care practices with embedded behavioral health, this changes the billing math in your favor.
This matters because clinical social workers were the only provider type projected to receive a +4% increase in total Medicare allowed charges under CY 2025 PFS, the highest of any provider type. The 2026 rule continues that direction. Behavioral health is the one corner of the fee schedule where CMS is adding rather than cutting.
What the rule does not fix
Several structural problems remain.
Practice cost inflation still outruns payment. MGMA's June 2025 Stat poll found 90% of medical groups reporting YTD operating costs were higher than the same point in 2024, with average increases of approximately 11.1%. Labor was the top cost driver for 65% of respondents. Even with the CY 2026 conversion factor bump, your costs are growing faster than your reimbursement. The 25-year story of Medicare reimbursement declining 33% in real terms since 2001 does not change with this rule.
Budget neutrality is still law. Every increase to one code is funded by a decrease elsewhere. The conversion factor lift was made possible in part by the efficiency adjustment cut. Specialty winners and losers shift, but the total pool does not.
Prior authorization volume is unchanged. Physicians still average 39 prior auths per week and spend roughly 13 hours of physician + staff time on them (AMA 2024 Prior Authorization Survey). The 2026 rule did not address this. The 2027 prior authorization API rule is the policy lever for that, and it does not take effect for another year.
What to do this quarter
Run a code-level impact analysis
Pull your top 30 CPT codes by Medicare revenue from the past 12 months. Map each one against the 2025 vs 2026 fee schedule. The conversion factor change is straightforward, but the efficiency adjustment, the new skin substitute pricing, and any RVU updates can move individual codes by 5-15%. Do not assume the average increase applies to your mix.
For multi-location practices, run this by location. Different sites with different specialty mixes will see meaningfully different impacts.
Decide on QP status
If you are not in an advanced APM, model what it would take. The conversion factor delta is structural and will compound. Look at the Making Care Primary model, the Transforming Episode Accountability Model, and the Ambulatory Specialty Model launching in January 2027 for heart failure and low back pain. You may be eligible for one without realizing it.
Reset your skin substitute model
If you bill any skin substitute codes, get a new product economics analysis on every product you use. Check what your manufacturers are charging versus what Medicare now pays. Some product lines may simply not be viable at the new reimbursement.
Reconfigure for permanent telehealth
If you held off on telehealth investments waiting to see whether the flexibilities would stick, the answer is now yes for most of the things that matter. Direct supervision via video opens new staffing configurations for multi-location practices that need location-level visibility into how telehealth utilization compares site to site.
Build behavioral health adjacencies
If you run a primary care or specialty practice without integrated behavioral health, the new BHI/CoCM add-on codes plus the digital mental health codes change the ROI calculation. Talk to a CFO or analyst who can model the unit economics before you build.
The structural picture has not changed
This rule was a good year by recent standards. The first nominal pay increase in five years is real. The permanent telehealth rules are real. The new behavioral health codes are real.
But the long arc has not bent. Each year for the next decade, your Medicare revenue will face conversion factor pressure, budget neutrality redistributions, and efficiency adjustments. Each year, your operating costs will rise faster than reimbursement. The practices that make it through this are the ones managing payer mix, cost structure, and code-level economics with the same discipline they apply to clinical care.
If you want to see the full impact of CY 2026 on your specific practice, take the free assessment. Our fractional CFO services include code-level reimbursement modeling, payer mix analysis, and APM evaluation for clinics working through the shift.
