If your practice manager mentioned Medicare rates went up this year, that’s technically true. It’s also not the full picture, and the gap between those two facts is costing some practices real money without anyone quite realizing why.
For the first time in Medicare Physician Fee Schedule history, CMS is now paying two different conversion factors depending on a physician’s participation status, and buried inside that split are adjustments that can quietly erase the increase entirely for a meaningful share of practices. Billing teams that only track the single headline number they’ve followed for years are, in a real sense, working from an outdated mental model of how Medicare reimbursement now works.
What Actually Changed in the 2026 Medicare Physician Fee Schedule
Two Conversion Factors, For the First Time Ever
Physicians participating in a qualifying Advanced Alternative Payment Model (APM) are now paid at a conversion factor of $33.5675, a 3.77% increase over 2025. Physicians outside a qualifying APM are paid at a separate, lower rate. This is a structural change to how Medicare calculates reimbursement, not a temporary adjustment, and it means two physicians billing the identical CPT code can now be paid differently based purely on their program participation status, something that’s never happened at this scale before.
The Number That Sounds Better Than It Is
Both 2026 conversion factors also include a temporary 2.5% bump from the One Big Beautiful Bill Act, which applies only for 2026. That means the headline increase you’re seeing this year is partly a one-time boost, not a permanent baseline improvement. When that provision expires, the real underlying rate practices should expect to plan around going forward is meaningfully smaller than this year’s number suggests.
The Catch: Why a Higher Conversion Factor Doesn’t Mean Higher Pay
This is the part that matters most and is getting the least attention.
The -2.5% Efficiency Adjustment
CMS applied a negative 2.5% efficiency adjustment to the work relative value units (RVUs) of nearly every non-time-based code in the fee schedule. In plain terms, CMS assumed physicians have become more efficient at performing many procedures and services, and cut the payment weight assigned to that work accordingly, regardless of whether that assumption actually holds true for a given practice or specialty.
The 50% Cut to Facility-Based Practice Expense
On top of that, CMS cut the indirect practice expense allocation for services performed in hospital settings by 50%. For facility-based procedures specifically, that produces real-world RVU reductions of roughly 10%, even in the same year the topline conversion factor is being reported as rising. A practice that only looks at the conversion factor headline, without checking how these two adjustments apply to its specific mix of codes and sites of service, can walk into 2026 expecting a raise and instead see reimbursement quietly decline on a meaningful share of its claims.
Who Gets Hit Hardest
The practices most exposed to this gap share a few characteristics: a high volume of non-time-based procedural codes, a significant share of services performed in hospital or facility settings rather than the office, and no current participation in a qualifying APM. Practices that are APM participants, bill mostly time-based codes, and perform most services in-office are far better insulated, they’re closer to actually seeing the reported increase reflected in real payments.
Specialties that lean heavily on procedural, facility-based work, certain surgical subspecialties, interventional cardiology, and specific diagnostic procedures performed in hospital outpatient departments, are more likely to feel the practice-expense cut directly. A primary care practice billing mostly office-based, time-based E/M visits is in a fundamentally different position than a specialty group doing a high volume of hospital-based procedures, even though both are technically subject to the same fee schedule update.
This is exactly the kind of shift that stays invisible until a practice’s finance team does a detailed code-by-code comparison against last year, which most practices don’t have the bandwidth to do on their own mid-year. A single aggregate revenue number can look flat or even slightly up overall, while masking a real decline concentrated in a specific set of codes or sites of service that a practice happens to bill heavily.
What Practices Should Actually Do About This
A few concrete steps matter more than watching the headline conversion factor number:
Check your APM participation status at the individual clinician level. This is no longer a practice-wide setting. Different physicians within the same group can now fall under different conversion factors depending on their own qualifying APM status.
Run your actual code mix against both adjustments, not just the conversion factor. A practice heavy in facility-based procedural codes needs a real comparison, not an assumption based on the reported topline increase.
Don’t build 2027 budget assumptions on 2026’s headline number. Since part of this year’s rate includes a one-time temporary provision, treat the 2026 figure as inflated relative to the baseline you should expect going forward.
Revisit this analysis whenever CMS publishes updates. The Centers for Medicare & Medicaid Services publishes ongoing fee schedule guidance and billing updates directly, and staying current there is worth the habit, particularly CMS’s MLN Connects newsletter, which covers exactly this kind of billing-relevant update on a rolling basis.
How This Connects to the Rest of Your Revenue Cycle
A conversion factor shift like this doesn’t sit in isolation from the rest of a practice’s billing operation, it compounds with everything else already putting pressure on revenue this year. We’ve already covered how prior authorization denials climbed 31% in 2026 under the new CMS-0057-F rule, and how patient collections have become the top revenue concern for most practices as high-deductible plans have grown. A quieter per-code reimbursement cut layered on top of both of those trends is exactly the kind of change that erodes margin gradually, not all at once, which makes it easy to miss until it’s already had months to compound.
This is also why accurate, specialty-specific medical coding matters more this year than in a typical year. A practice that’s precisely coding to the actual complexity and site of service it’s billing is in a much better position to see exactly where the 2026 adjustments are helping or hurting, rather than guessing based on a single topline number. RCM First’s billing and coding team tracks these fee schedule shifts as part of ongoing revenue cycle management, not as a once-a-year exercise, so changes like this year’s split conversion factor get caught in a practice’s actual numbers instead of surfacing as a surprise months later. For a deeper technical breakdown of how the two conversion factors interact with APM status, Medical Billers and Coders’ analysis walks through the mechanics in more detail.
Frequently Asked Questions
Why does Medicare now have two different conversion factors?
For the first time, CMS ties the conversion factor to a physician’s Advanced Alternative Payment Model (APM) participation status. Physicians in a qualifying APM are paid at a higher rate ($33.5675 for 2026) than physicians outside one, a structural change from previous years when a single conversion factor applied to everyone.
If the conversion factor went up, why might my reimbursement still go down?
Because CMS simultaneously applied a -2.5% efficiency adjustment to most non-time-based codes’ RVUs and cut the indirect practice expense allocation for hospital-setting services by 50%. For facility-based procedures specifically, that can produce a real reimbursement decline of roughly 10%, even though the topline conversion factor is reported as increasing.
Does this affect every practice the same way?
No. Practices with a high volume of facility-based, non-time-based procedural codes and no qualifying APM participation are the most exposed. Practices billing mostly time-based, in-office codes with APM participation are much better insulated from the reduction.
Is the 2026 conversion factor increase permanent?
Not entirely. Part of the 2026 rate includes a temporary 2.5% provision from the One Big Beautiful Bill Act that applies only for 2026. Practices should treat this year’s figure as somewhat inflated relative to the ongoing baseline going forward.
How can a practice find out exactly how these changes affect its own billing?
A code-by-code comparison of your practice’s actual billing mix against both 2026 adjustments, not just the reported conversion factor, is the only way to know for certain. This is the kind of analysis a dedicated revenue cycle team tracks on an ongoing basis rather than as a once-a-year check.
The 2026 Medicare Physician Fee Schedule looks like a modest pay increase on the surface. For a real share of practices, particularly those billing facility-based procedural codes without APM participation, it’s closer to a pay cut wearing a pay raise’s headline. Want to know exactly how these changes affect your practice’s actual numbers?
