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Analyzing Medicare’s 2026 Physician Fee Schedule
The final rule and its possible effects on ASCs
BY ALEX TAIRA | NOVEMBER 14, 2025
The Centers for Medicare & Medicaid Services (CMS) recently issued the 2026 Medicare Physician Fee Schedule (MPFS) final rule, effective January 1, 2026.
The rule includes a 3.26 percent update to the physician conversion factor, mostly thanks to a one-year, 2.5 percent increase passed as part of the One Big Beautiful Bill Act earlier this year. Since the COVID-19 pandemic, the physician conversion factor has decreased in each of the past five years even though Congress stepped in most years to partially mitigate the cuts. While the positive conversion factor is good news, it is a stopgap solution. The conversion factor has been historically decreasing year over year due to complicated reasons, and the one-year boost does not address any of those reasons. To truly address the underlying issue, Congress will need to take up an actual payment system reform.
CMS also finalized a negative 2.5 percent “efficiency adjustment” to the work relative value unit and interservice time for about 8,000 codes. The agency believes that code reevaluations are occurring too slowly to accurately account for increases in clinician experience and technological advancement. In other words, a code might be carrying a valuation from years ago that reflects perhaps overpayment by today’s practice patterns. Therefore, CMS finalized this 2.5 percent reduction to the work component of the codes.
This efficiency adjustment is complicated because the physician fee schedule does not include any inflationary updates. For example, the surgery center payment system also has a productivity adjustment, but it has a year-over-year inflationary adjustment in the payment system, which physicians do not have. So, this 2.5 percent reduction, which also will be applied in future years, represents a year-over-year decrease to physician rates on this work component.
The final rule also includes a cut to the indirect practice expense component of payments for facility-based procedures. CMS believes that it is overpaying for procedures performed in facilities because some of that payment to physicians accounts for costs already covered by the facilities. Therefore, the agency wants to rebalance the codes between procedures performed in facilities and outside of facilities.
Based on this new policy, facility-based services will get only 50 percent of the indirect practice expense compared to services delivered in non-facility settings, such as an office. And because of budget neutrality, this could mean substantial reductions to that one component of the physician payment. However, for specialists like those in ASCs who practice primarily in facilities, this could have a compounding effect and result in significant consequences.
The agency also finalized a new Ambulatory Specialty Model (ASM) targeted at specialists who provide treatment for congestive heart failure or lower back pain. The model is built on the existing Merit-based Incentive Payment System (MIPS) framework and will run for five years beginning on January 1, 2027. CMS has stated that the model will initially include specialists in about one-quarter of core-based statistical areas.
In September, ASCA submitted comments on the MPFS proposed rule opposing the two payment policies and providing feedback on the ASM proposal. ASCA will work with specialty organizations on determining its next advocacy steps in response to this disappointing final rule.
Write Alex Taira at ataira@ascassociation.org with any questions.