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On October 31, 2025, the Centers for Medicare and Medicaid Services (“CMS”) released its CY 2026 Medicare Physician Fee Schedule Final Rule (“Final Rule”). Changes to the Physician Fee Schedule will take effect on January 1, 2026. The following are key highlights from the Final Rule:

Increased Conversion Factor: 

• The CY 2026 qualifying alternative payment model (APM) conversion factor is $33.57, which is a $1.22 (+3.77%) increase from the current conversion factor, while the CY 2026 non-qualifying APM conversion factor is $33.40, which is a $1.05 (+3.26%) increase from the current conversion factor.

Efficiency Adjustment:

• Finalized the application of an efficiency adjustment to the work relative value units (RVUs) and corresponding intraservice portion of physician time for non-time-based services. CMS relied on the Medicare Economic Index (MEI) productivity adjustment percentages over a five-year look back period to calculate the final efficiency adjustment of -2.5% for CY 2026.
• CMS will exempt time-based codes, services on the CMS telehealth list, and new codes for CY 2026 from those subject to the efficiency adjustment.

Practice Expense:

• Updated its practice expense (PE) methodology to recognize greater indirect costs for practitioners in office-based settings compared to facility settings.
• CMS will use auditable, routinely updated hospital data to set relative rates and inform its cost assumptions for certain technical services paid under the Physician Fee Schedule. For CY 2026, this data will be used to establish rates for radiation treatment services as well as certain remote monitoring services.

Telehealth:

• Streamlined its 5-step review process for requests to add services to, remove services from, or change the status of, services on the Medicare Telehealth Services list by removing steps 4 and step 5. Now, all services listed or added on the Medicare Telehealth Services List will be considered permanent. However, CMS may still remove services from this list based on internal review or feedback received from interested parties in accordance with section 1834(m)(4)(F)(ii) of the Social Security Act and 42 CFR § 410.78(f).
• Updated the definition of “direct supervision” to include supervision provided through audio/video real-time communications technology (excluding audio-only), for all services described in 42 CFR § 410.26, except for services that have a global surgery indicator of 010 or 090.
• Removed frequency limitations on providing services related to the following codes: Subsequent Inpatient Visits, Subsequent Nursing Facility Visits, and Critical Care Consultation Services via telehealth.
• CMS determined it will permanently allow teaching physicians to have a virtual presence in all teaching settings, only in clinical instances when the service was provided virtually.

Skin Substitutes:

• CMS will pay for skin substitutes that are not in sheet form, as incident-to supplies, categorize skin substitutes to align with their FDA regulatory status, such as 361 Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/P) and the device types: Pre-Market Approvals (PMAs) and 510(k)s, and use a single payment rate (app. $127.28) for the three categories of skin substitutes.

Drugs and Biological Products Paid under Medicare Part B:

• CMS created a definition for the term “bundled arrangement.” This is defined as “an arrangement regardless of physical packaging under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug or biological or other drugs or biologicals or another product or some other performance requirement…or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs or biologicals been purchased separately or outside the bundled arrangement.”
• When calculating the manufacturer’s average sales price (ASP), manufacturers must now submit reasonable assumptions including documentation of the methodology used to determine fair market value for current, new, and renewed contracts.
• Manufacturers must now provide certification that a bona fide service fee (BFSF) is not passed on to a client or customer of an entity for new and renewed BFSF contracts.
• CMS clarified that units of selected drugs sold at the maximum fair price (MFP) will be included in the calculation of the manufacturer’s ASP described in section 1847A(c) of the Social Security Act.
• The existing bundled payment policy for CAR T-cell therapies is extended to include autologous cell-based immunotherapy and gene therapy, such that preparatory procedures for patient-specific cell or tissue procurement required for manufacturing are included in the product payment.

Rural Health Clinics (“RHCs”) and Federally Qualified Health Centers (“FQHCs”):

• CMS adopted the add-on codes for advanced primary care management (APCM) that would facilitate billing for behavioral health integration (BHI) and psychiatric collaborative care model (CoCM) services when RHCs and FQHCs provide advanced primary care.
• RHCs and FQHCs will now be required to report the individual codes that make up the CoCM, communications technology-based services (CTBS), and remote evaluation services.
• CMS created a policy to pay for services that are established and paid under the Physician Fee Schedule and designated as care management services as care coordination services for purposes of separate payment for RHCs and FQHCs.
• For RHC and FQHC services that require direct supervision, physicians or supervising practitioners may provide such supervision through the use of audio/video real-time communications technology (excluding audio-only).
• CMS extended telemedicine flexibilities for RHC and FQHCs through December 31, 2026.  As a result, CMS will continue to pay for non-behavioral health visits provided through telecommunication technology for claims submitted with HCPCS code G2025, including audio-only visits.

Medicare Prescription Drug Inflation Rebate Program:

• CMS established a claims-based methodology to remove 340B units from Part D rebate calculations and created a Medicare Part D Claims Data 340B Repository.

Policies to Improve Care for Chronic Illness and Behavioral Health Needs 

• CMS created optional add-on codes for APCM services that serve to facilitate complementary BHI or psychiatric CoCM services.
• CMS established three new G-codes to be billed as add-on services when the APCM base code is reported by the same practitioner in the same month.
• To expand access to digital mental health treatment (DMHT), CMS expanded its payment policies for these services to also make payment for devices used in the treatment of ADHD.

To learn more about the CY 2026 Medicare Physician Fee Schedule Final Rule, please contact BMD Member Jeana Singleton at jmsingleton@bmdllc.com or Attorney Kate Crawford at khcrawford@bmdllc.com.