Key Takeaways
- CMS proposes dual conversion factors separating office-based from facility-based payments
- A new 2.7% efficiency adjustment affects evaluation and management codes
- Skin substitute products face dramatic payment reclassification
- Telehealth flexibilities extended but some temporary policies begin sunsetting
- Care management codes see meaningful increases in valuation
The 2026 Physician Fee Schedule proposed rule represents one of the most significant overhauls to Medicare physician payment in years — from dual conversion factors and a controversial efficiency adjustment to dramatic skin substitute reforms. Understanding these changes is essential for providers, hospitals, and payers planning their 2026 strategy.
2026 PFS Overview
CMS released the 2026 Physician Fee Schedule (PFS) proposed rule in July 2025, with a final rule expected by November 1, 2025, and implementation on January 1, 2026. The proposed rule contains numerous significant policy changes that would affect virtually every physician specialty and care setting.
Dual Conversion Factors
One of the most dramatic structural changes proposed for 2026 is the introduction of separate conversion factors for office-based and facility-based services. Under this proposal, services rendered in a physician office would be paid at a different base rate than the same services rendered in a hospital outpatient department or ambulatory surgical center.
The proposed office-based conversion factor is $33.29 while the facility-based conversion factor is $32.17 — a differential designed to better reflect the actual practice expense differences between settings. This structural change has significant implications for health system strategy and site-of-service decisions.
The Efficiency Adjustment Controversy
CMS proposes a 2.7% efficiency adjustment applied to evaluation and management (E&M) codes, reflecting the agency's view that physician productivity has increased with health information technology adoption. This proposal has drawn significant opposition from physician groups who argue it unfairly reduces payment without accounting for the increased complexity of modern patient care.
Skin Substitute Reforms
The 2026 proposed rule contains sweeping changes to how skin substitute products are classified and reimbursed. CMS proposes to reclassify most skin substitute products from physician-administered drugs (paid under the Medicare Part B drug payment methodology) to items covered under the clinical labor and medical supplies components of the practice expense relative value units.
Telehealth Policy Changes
CMS proposes to make permanent several telehealth flexibilities that had been extended on a temporary basis since the COVID-19 public health emergency. These include allowing audio-only visits for certain mental health services and permitting patients in their homes to be considered an originating site for telehealth visits without geographic restrictions.
Care Management Code Updates
The 2026 proposed rule includes meaningful increases in the valuation of care management codes including Chronic Care Management (CCM), Principal Care Management (PCM), and Transitional Care Management (TCM). CMS proposes to increase the relative value units for these codes to better reflect the clinical staff time and resources required to deliver comprehensive care management services.
Implications for Providers
- Review site-of-service strategies in light of dual conversion factor proposals
- Assess E&M coding patterns and impact of proposed efficiency adjustment
- Evaluate skin substitute product lines and prepare for potential payment changes
- Expand telehealth programs to leverage permanently extended flexibilities
- Invest in care management program infrastructure to capture increased CCM/PCM valuations
- Monitor the comment period and engage specialty societies in advocacy efforts
