The 2026 Medicare Physician Fee Schedule Has Changed. Here Is What It Means for Physician Billing.

CMS finalized the 2026 Medicare Physician Fee Schedule (MPFS) in October 2025, with policies effective January 1, 2026. The changes affect how physicians are reimbursed under Medicare across the United States – introducing dual conversion factors, a new efficiency adjustment, revised practice expense methodology, expanded telehealth policies, and updated quality reporting requirements.

Healthcare organizations can no longer rely on last year's physician billing strategy. Understanding how these updates work together – and how they interact differently by specialty and care setting – is essential for accurate financial planning in 2026.

Think of the Medicare conversion factor as the base price Medicare uses to calculate physician payments. Every service is assigned a number of points called Relative Value Units (RVUs). The conversion factor translates those points into actual dollar payments.

For 2026, CMS introduced two separate conversion factors for the first time [1]:

• Qualifying APM Participants (QPs): $33.57 – a projected increase of $1.22, or +3.77%, from the prior conversion factor of $32.35
• Non-QPs and MIPS participants: $33.40 – a projected increase of $1.05, or +3.26%, from the same baseline

These increases combine MACRA's permanent payment updates with a one-year 2.5% legislative payment increase stipulated by statute and an estimated +0.49% adjustment for changes in work RVU values.

At face value, higher conversion factors mean higher Medicare reimbursement. But that is only part of the 2026 picture.

Alongside higher conversion factors, CMS finalized a 2.5% efficiency adjustment to the work RVUs and corresponding intraservice time for non-time-based physician services [1].

CMS's rationale: research has demonstrated that the time assumptions built into the valuation of many PFS services are likely overinflated, and that advances in technology, clinical workflows, and practice experience have made many non-time-based services more efficient over time. The 2.5% figure was determined using the Medicare Economic Index (MEI) productivity adjustment with a five-year look-back period.

The adjustment does not apply to every service. CMS exempted the following categories:

• Evaluation and Management (E/M) services
• Care management services
• Behavioral health services
• Services on the Medicare telehealth list
• Maternity codes with a global period of MMM

This means two practices billing Medicare in 2026 can have very different financial outcomes even with the same conversion factor. A primary care practice billing predominantly E/M services is largely exempt from the efficiency adjustment and may retain a greater share of the conversion factor benefit. A procedural specialty with high volumes of non-time-based surgical or diagnostic codes will see those services subject to the 2.5% reduction in work value.

For physician billing services teams, this requires a code-level review of the specific CPT codes a practice bills most frequently – not an organization-wide assumption that the conversion factor increase translates directly to higher revenue.

Talk to 3Gen's physician billing specialists about 2026 reimbursement impact by specialty →

Beyond the conversion factor and efficiency adjustment, CMS also revised how it calculates Practice Expense (PE) Relative Value Units – the portion of payment that reflects the costs of running a medical practice, including staff, equipment, and supplies.

The core change reflects how medicine has evolved: CMS is finalizing greater recognition of indirect costs for practitioners in office-based settings compared to facility settings [1]. The reasoning is that the original PE allocation methodology was established when most physicians maintained private practices. As physician employment by hospitals and health systems has grown, the prior methodology – which allocated indirect costs at the same rate for both non-facility and facility settings – no longer accurately reflects how practice costs are distributed.

What this means in practical terms for physician billing:

• Office-based and clinic-based practices – including primary care, internal medicine, rheumatology, and allergy and immunology – are expected to see a positive impact on payments from the revised PE methodology, as CMS recognizes a larger share of their indirect costs.
• Facility-based and hospital-based practices – including oncology, ophthalmology, infectious disease, and procedural specialties performing a significant portion of work in hospitals or ambulatory surgery centers – face greater reimbursement pressure under the revised methodology, because CMS assumes hospitals bear a larger share of the overhead costs for services furnished in those settings.

Two departments within the same health system could see meaningfully different reimbursement trends even with stable patient volumes. This makes specialty-level analysis of physician billing services performance essential – not just organization-wide averages.

CMS also finalized several permanent policy changes that affect how physicians bill for virtual care, remote monitoring, and care management services.

Permanently removed frequency limitations. CMS permanently removed frequency limits for subsequent inpatient visits, subsequent nursing facility visits, and critical care consultations furnished via telehealth [1]. Physicians who previously had to manage billing around these limits no longer need to do so.

Virtual direct supervision – permanently adopted. CMS permanently defined direct supervision to allow supervising physicians to fulfill oversight requirements through real-time audio and visual interactive telecommunications, rather than requiring physical presence for eligible incident-to services, diagnostic tests, pulmonary rehabilitation, and cardiac rehabilitation [1]. This has significant implications for billing services for physicians working in multi-site and teaching environments.

Teaching physician virtual presence – permanent. In response to extensive public comment, CMS permanently allows teaching physicians to have a virtual presence for services furnished virtually in all teaching settings – a flexibility that had been set to expire December 31, 2025 [1].

Advanced Primary Care Management (APCM) – new add-on codes. CMS created new optional add-on G-codes for APCM services to support complementary behavioral health integration (BHI) and Psychiatric Collaborative Care Model (CoCM) services when the APCM base code is reported [1].

Remote monitoring methodology. CMS is using hospital OPPS data to inform payment rates for some remote monitoring services, moving away from survey data toward more auditable, routinely updated sources [1].

Organizations that update their documentation, coding, and physician billing workflows to reflect these permanencies can improve reimbursement for care they are already delivering. Those continuing with outdated billing processes will miss legitimate reimbursement opportunities that are now permanently available.

The Merit-based Incentive Payment System (MIPS) is CMS's value-based performance program for physicians – measuring quality of care, cost, use of technology, and practice improvement activities, with scores influencing future Medicare payment adjustments.

For 2026, the core MIPS framework remains stable [2]:

• Performance threshold: 75 points
• Quality: 30%
• Cost: 30%
• Promoting Interoperability: 25%
• Improvement Activities: 15%

Although the scoring framework is unchanged, MIPS performance continues to directly influence future Medicare payment adjustments. Accurate clinical documentation is the foundation that connects quality reporting to physician billing outcomes – when documentation accurately reflects the care provided, organizations are better positioned to improve MIPS scores, reduce compliance risk, and support stronger audit readiness.

Healthcare organizations should monitor MIPS performance throughout the year rather than treating quality reporting as a year-end activity.

The 2026 MPFS makes clear that an annual payment review is no longer sufficient. Healthcare organizations need physician billing services infrastructure that can analyze reimbursement by specialty, monitor code-level trends, and adapt quickly as payer rules evolve.

Five priorities for 2026 physician billing strategy:

• Review reimbursement by specialty and care setting. Not every specialty will experience the same financial impact. The interaction between the conversion factor increase, the efficiency adjustment, and the PE methodology changes differs significantly depending on what a practice bills and where care is delivered. A code-level review by specialty is the most accurate way to understand 2026 impact.
• Strengthen clinical documentation and coding accuracy. The 2026 MPFS changes reimbursement at the code level. Ensuring documentation supports the specific codes being billed – and that the right codes are being selected for each service type and setting – is foundational to both compliance and accurate reimbursement.
• Update billing workflows for telehealth and care management. Permanent telehealth flexibilities and new APCM add-on codes represent reimbursement opportunities that require updated billing workflows and documentation standards to capture correctly.
• Monitor reimbursement trends throughout the year. Declining payments, denial pattern changes, and reimbursement shortfalls tied to 2026 MPFS changes may not be obvious immediately. Regular monitoring by payer, specialty, and CPT code enables early identification and correction.
• Educate physicians and revenue cycle teams on 2026 changes. The efficiency adjustment and practice expense methodology changes will affect billing decisions that physicians and coders make at the point of care. Keeping clinical and billing teams aligned on what has changed – and what it means for specific services – reduces preventable revenue leakage.

At 3Gen Consulting, our physician billing services teams help healthcare organizations translate CMS policy changes into specific, actionable billing and documentation strategies – by specialty, by care setting, and by high-volume CPT code. Rather than applying a one-size-fits-all approach, we analyze the actual reimbursement impact on each practice's service mix and build billing workflows that protect revenue before claims are submitted.

For a closer look at how denial prevention connects to physician billing performance, see Denial Prevention vs. Denial Management: Why the Distinction Is Costing U.S. Providers Millions in 2026.

The 2026 Medicare Physician Fee Schedule is not simply an annual payment update. It restructures how physician services are valued, reimbursed, and managed across the U.S. healthcare system.

The conversion factor increases do not automatically mean higher revenue. The 2.5% efficiency adjustment reduces work values for many procedural and diagnostic services. The practice expense methodology revision creates different reimbursement trajectories by care setting. And the permanent telehealth changes create new reimbursement opportunities – but only for organizations that update their billing processes to capture them.

For healthcare organizations that evaluate reimbursement by specialty, strengthen clinical documentation and coding, modernize physician billing services workflows, and monitor reimbursement trends throughout the year, 2026 presents both challenges and opportunities. The organizations that identify and act on both will be better positioned to protect revenue, maintain compliance, and improve long-term financial performance.

If your organization has not yet assessed how the 2026 MPFS changes interact with your specific specialty mix and care settings, that assessment is the most valuable first step. Connect with 3Gen's physician billing specialists.