CMS Proposes Paying Physicians Differently

By Josh Smith, MD, MPH, and Lauryn Walker, PhD. Published September 4th, 2025.

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Since 1992, the Medicare Physician Fee Schedule (MPFS) has been used to calculate physician reimbursement based on a point system that estimates resources, time, and complexity of a given service. Additionally, the MPFS can be used to provide guidance around specific services that the Administration aims to prioritize. On July 14, 2025, the Centers for Medicare & Medicaid Services (CMS) released their proposed rule for the 2026 Medicare Physician Fee Schedule and included several provisions that, if adopted, would likely greatly impact physicians’ payments, and potentially increase payment for independent primary care physicians compared to other physicians. Specifically, CMS proposed adjustments to 2 key components of physician payments (1) relative value units and (2) conversion factor. As part of this process, CMS would be seeking new data sources to better inform future rate adjustments. CMS is soliciting public comments through September 12, 2025, at this link: https://www.regulations.gov/commenton/CMS-2025-0304-0009.

How are physicians paid in Medicare?

Generally, physicians are paid on a fee-for-service basis, with payment based on a point system that estimates the resources needed for each service. The point system is called the “relative value unit” and includes three components:

  1. Physician work (W) – Physician time, skills, training, and effort
  2. Practice expenses (PE) – Practice overhead costs, such as rent, and non-physician clinical and non-clinical staff
  3. Malpractice costs (MP) – Financial liability and insurance costs

Each of these components is assigned a certain number of points, or relative value units (RVU) that may vary by geography. Physician payments are given a monetary value when RVU’s are multiplied by a conversion factor (CF), which is a set dollar amount across all physician services (see Figure 1).1

Figure 1: How Medicare Pays Physicians: Medicare Fee-for-Service Calculation

Total RVUs (points)

The recently released CY 2026 Medicare Physician Fee Schedule proposes changes to calculations for the Work RVU, Practice Expense RVU and Conversion factor – potentially leading to increased payments for outpatient primary care providers and decreases for hospital-affiliated specialists.

Work RVU – Reconsidering How CMS Estimates Intensity of Services

Historically, CMS has used information from physician surveys (AMA Relative Value Scale Update Committee (AMA RUC)) to assess the physician time and intensity necessary for any given service. However, CMS notes that survey responses are low and respondents have inherent conflicts of interest, since responses are used for their payment.1 As a result, CMS proposed an immediate “efficiency adjustment” of -2.5% to the non-time-based component of approximately 9,000 procedures to account for the increased efficiency that results from technological and practice improvements. The majority of the impacted services are across surgical specialties, radiology, and pathology.2 Evaluation and management codes, care management, behavioral health, telehealth, and maternity codes are explicitly exempted from this adjustment.

In addition to the efficiency adjustment, CMS proposed that future adjustments would incorporate “empiric studies of time” with preference over time estimations from the RUC physician survey – a significant departure from prior policy.3 CMS has solicited comments from the public on empirical studies and data that may inform future time estimations. Comments may be submitted here and are due September 12.

Practice Expense RVU (peRVU) – Addressing Site of Care

Practice expense RVUs are intended to reflect the non-physician clinical and non-clinical labor costs and overhead costs associated with a given service, such as medical supplies, building space, and office equipment.3 PeRUVs account for 44% of the total RVU value, and therefore a significant portion of service payment. The proposed change to peRVUs would be the most drastic adjustment of this component in over a decade.

Historically, peRVUs are calculated separately for physicians offering services in a facility setting (i.e. inpatient/outpatient hospital or ambulatory surgical center) compared to physicians practicing in an office or clinic setting. Physicians in a facility setting are attributed lower peRVUs because they receive additional “facility payments” that are intended to cover many of those overhead costs. However, CMS states that facility-based provider peRVUs are likely still overstated under current methodology because current methodology “assumed physicians maintained separate practice locations even if they furnished some care in hospitals” 4 – resulting is assumed additional overhead costs. The proposed methodology decreases the peRVUs for facility-based providers based on the trends of more providers being directly employed by hospitals and health systems and not maintaining outside private practices. The proposed rule also increases peRVUs for office-based providers acknowledging increasing costs for maintaining office-based practices. 

Conversion Factor – Converting “points” to dollars and rewarding alternative payment models

For the first time ever, Medicare has proposed two separate conversion factors: (1) for physicians participating in qualifying alternative payment models (APMs), and (2) for physicians that do not participate in qualifying models. Physicians that participate in qualifying APMs (qualifying physicians) will receive a higher total conversion factor ($33.59) compared to physicians that do not participate in these models ($33.42), meaning that for the same service, a qualifying physician would receive slightly higher payment. For both groups, the conversion factor is increased from current payment (0.75% increase for qualifying physicians and 0.25% for non-qualifying physicians). The proposed conversion factors also include a temporary one-year 2.5% increase (enacted in 2025’s H.R.1), and a 0.55% budget-neutrality adjustment to account for proposed decreases in the efficiency adjustment described above. This conversion factor adjustment reflects the CMS priority to move away from a strictly fee-for-service model into more APMs. APMs include various payment models with “features to ensure accountability for quality and cost of care.” 2

Other Proposed Changes

Telehealth: These proposed rules put in place permanent protections for over 100 telehealth codes that were provisionally established during the COVID-19 pandemic. It also revises the review process for telehealth services with the aim of empowering clinical judgement to guide if a service can be safely furnished via telehealth. As one expert noted, CMS is indicating, “if a service can be reasonably done via video, it can be permanent.” 6 This includes follow-up visits for hospitalized patient and nursing home visits (along with permanent removal of frequency limits for furnishing these services), behavioral health, and direct supervision of non-physician clinicians.5 Other significant changes for family physicians include the proposal to delete G0136 (both for telehealth and in general) and the proposal to eliminate virtual supervision from teaching physicians for residents (mandating physical presence).

Advanced Primary Care Management: CMS is proposing additional add-on codes to the recently opened Advanced Primary Care Management (APCM) service to facilitate better integration of behavioral health services into primary care. These three new G-codes will be “directly comparable to existing CoCM and BHI codes,” though with decreased time-tracking requirements.5,7 CMS is also proposing expanded use of the add-on code for visit complexity, allowing it to be billed for visits at a patient’s home. APCM was established under the Biden Administration and intended to promote comprehensive care for patient with complex needs. Currently, patients receiving APCM must pay a monthly co-pay, resulting in low uptake. The 2026 proposed rule seeks comments on patient cost-sharing for APCM and whether the bundled service should include preventive services, which would effectively eliminate the co-pay.

Conclusion

These proposed rules in many ways reflect a shift in CMS priorities towards primary and preventative care and if adopted could result in improved compensation for primary care. Key takeaways from the proposed rules include:

  • Work RVUs for many proceduralists will decrease due to a 2.5% efficiency adjustment. Due to the requirement for budget-neutrality, this decrease in relative value for many services will translate into a 0.55% conversion factor increase for all services.
  • A temporary 2.5% increase in the conversion factor will similarly increase compensation for services.
  • Those practicing within qualifying alternative payment models (APMs) will receive higher compensation than those who are not (a difference of $0.17 per RVU).
  • Practice expense compensation will decrease for those billing in facility-based locations and will similarly increase for those in non-facility-based locations. Depending on how an office is financially structured (independent, system-affiliated non-facility-based, system-affiliated facility-based), payment may increase or decrease significantly.
  • The process to approve telehealth codes will be streamlined and clinicians will have greater flexibility in their use of telehealth for care provision.
  • New per member per month payments to improve behavioral health integration with decreased administrative and co-pay burden.

 

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