Conversion factor (Medicare)
A single dollar amount that CMS multiplies by the total Relative Value Units (RVUs) assigned to a CPT code to calculate the Medicare payment for that service, before geographic adjustment. The conversion factor is set each year in the Medicare Physician Fee Schedule final rule. A change to the conversion factor affects payment for every single CPT code billed to Medicare, making it the most globally impactful variable in the physician payment formula.
Why this matters for your clinic
The conversion factor is the lever that determines how many dollars each RVU is worth in a given year. A 3% reduction in the conversion factor means a 3% reduction in Medicare revenue per service, automatically, for every service type, regardless of your specific codes. Physicians and clinics with heavy Medicare exposure have seen several years of flat or reduced conversion factors in recent years, which has compressed Medicare revenue even as visit volumes held steady.
Congress frequently intervenes with year-end legislation to mitigate conversion factor cuts that CMS proposes under MACRA's budget neutrality rules. This creates annual uncertainty in Medicare payment projections that makes it difficult to finalize the following year's budget before the end of Q4. Any practice that finalizes its Medicare revenue budget in October without accounting for potential legislative changes is likely working from an inaccurate number.
The conversion factor is not the same as the payment rate. The payment rate for any specific service is conversion factor x total RVUs x GPCI adjustment for the locality. When two different sources cite different Medicare payment amounts for the same code, the discrepancy is almost always due to different geographic adjustment factors or the source using a prior year's conversion factor.
What good looks like
CMS publishes the conversion factor annually in the Medicare Physician Fee Schedule final rule, released each November. The AMA and MGMA publish summaries of conversion factor changes as part of their annual MPFS analysis resources.
Example
Recent Medicare conversion factor lineage: $33.89 in 2023, $33.29 in 2024, $32.35 in 2025 (CMS final rules). For CY 2026, the CMS final rule set dual conversion factors of $33.4009 (non-qualifying APM) and $33.5675 (qualifying APM) — the dual-CF structure was created by MACRA (2015), and OBBBA (Public Law 119-21, signed July 4, 2025) added a one-year 2.5% update for CY 2026. A CPT code with a non-facility total RVU of 3.00 pays $32.35 x 3.00 = $97.05 in Medicare for 2025, before GPCI adjustment. If the conversion factor had been $33.89 (as in 2023), the same code would have paid $101.67. That $4.62 difference per claim, across 20,000 Medicare claims per year, is a $92,400 annual revenue difference driven entirely by the conversion factor change.
From Sorso
Conversion factor uncertainty in Q4 is a recurring budgeting challenge for our Medicare-heavy clients. We build a conversion factor sensitivity table into every annual budget so ownership knows the exact revenue impact at three or four plausible conversion factor scenarios before Congress finalizes year-end legislation.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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