(July 18, 2025) – On July 14, the Centers for Medicare & Medicaid Services released the calendar year 2026 proposed rule for updates to the Physician Fee Schedule payments, Medicare Shared Savings Program and Medicare Prescription Drug Inflation Rebate Program.
Key highlights proposed include:
- Implement two separate conversion factors, which include the 2.5 percent update as required by the One Big Beautiful Bill Act:
- One for qualifying alternative payment model participants (increases the conversion factor by 3.83 percent).
- One for physicians and practitioners who are not qualified participants (increases the conversion factor by 3.62 percent).
- Makes an efficiency adjustment to certain work relative value units of -2.5 percent.
- Recognizes greater indirect costs for practitioners in office-based settings compared to facility settings by establishing two practice expense RVUs: facility and non-facility.
- Pays for skin substitutes as incident-to-supplies instead of biologicals, thereby reducing Medicare spending on these products by nearly 90 percent.
- Changes the Medicare Diabetes Prevention Program to allow more beneficiaries to access coaching, peer support and behavior change strategies to delay or prevent the onset of Type 2 diabetes for people with prediabetes.
- Integrates behavioral health services into Advanced Primary Care Management. Rural Health Centers and Federally Qualified Health Centers would be required to report the individual codes that comprise the Psychiatric Collaborative Care Model code G0512.
- Makes permanent the telehealth flexibility, defining direct supervision to include virtual presence via audio/video real-time communications technology. This would support workforce flexibility and expand access to care in rural areas while maintaining safety and quality standards. CMS proposes revising § 405.2401(b) to define 'direct supervision' as immediate availability via interactive telecommunications technology, excluding audio-only for most services.
- CMS proposes to continue paying RHCs and FQHCs for services furnished via telecommunication technology using the current methodology through Dec. 31, 2026.
- Maintains the 15 percent payment reduction for services provided by therapy assistants and adjusts KX modifier thresholds.
- Permanently removes frequency limitations for subsequent inpatient visits, nursing facility visits and critical care consultations.
- Implements a new claims-based methodology to remove 340B units of drugs from Medicare drug inflation rebate calculations.
- Creates a 340B claims data repository allowing voluntary data submission by 340B covered entities. This will enable CMS to begin usability testing for the 340B repository.
- Implements the Ambulatory Specialty Model mandatory payment model focused on specialty care for Medicare beneficiaries with heart failure and low back pain. Model participants would be physician specialists in select geographic regions assessed on measures and activities relative to their peers who are also model participants and of a similar specialty type, treating the same chronic condition.
- Five-year alternative payment model with five performance years beginning Jan. 1, 2027, and ending Dec. 31, 2031. Payment years will occur two calendar years following each ASM performance year.
- Ambulatory Specialty Model will test whether adjusting payments for specialists based on their performance on targeted measures of quality, cost, care coordination and meaningful use of certified electronic health record technology CEHRT results in enhanced quality of care and reduced costs through more effective upstream chronic condition management. ASC would leverage the existing Merit-based Incentive Payment System Value Pathway MIPS Value Pathway framework.
- ASM participants would receive neutral, negative or positive payment adjustments on future Medicare Part B payments for covered professional services based on their performance during an ASM performance year. As is done under MIPS, clinicians participating in ASM would continue to bill Medicare under the traditional fee-for-service system for services furnished to Medicare FFS beneficiaries.
- Clinicians in the selected regions will be selected for mandatory participation if they meet an annual threshold of 20 or more attributed episodes from an Episode-based Cost Measure.
- CMS will select regions through a stratified random sampling methodology to select 25 percent of the CBSAs and metropolitan divisions nationwide.
- Removes ten quality measures and adds five new outcome measures.
- CMS proposes to adopt PFS care management services as care coordination services for RHCs and FQHCs. The new services adopted under the PFS would automatically become PFS care coordination services unless an alternative process is developed. CMS seeks comment on whether this alignment process is sustainable or if a more effective approach should be adopted.
- CMS is seeking stakeholder feedback on reducing administrative burdens and streamlining Medicare regulations in response to Executive Order 14192, Unleashing Prosperity Through Deregulation.
Program changes would be effective on or after Jan. 1, 2026, unless otherwise noted.
Comments on the proposed rule are due to CMS by Sept. 12, 2025, and can be submitted electronically at http://www.regulations.gov by using the website's search feature to search for file code "CMS-1832-P."
Please reach out to Shannan Flach at sflach@kha-net.org or Jaron Caffrey at jcaffrey@kha-net.org if you have questions or feedback that you would like KHA to reflect in our comment letter to CMS.
--Jaron Caffrey