November 3, 2025
On Friday, October 31, the Centers for Medicare & Medicaid Services (CMS) released its CY 2026 Physician Fee Schedule (PFS) Final Rule, outlining significant shifts in how Medicare pays for clinician services. There is both positive and significantly negative news in this final rule.
Conversion Factor and Payment Updates
On the positive front, CMS finalized a 2.5 percent positive update for FY 2026 that is required under the One Big Beautiful Bill Act of 2025. In addition, CMS finalized its policy to implement two conversion factors for 2026:
$33.57 for clinicians in qualifying Alternative Payment Models (APMs)
$33.40 for others, modestly higher than 2025 levels.
This is the first time in the history of the fee schedule that there will be two different conversion factors, depending on whether clinicians are in traditional fee-for-service or providing care under the APM structure. These are value-based care models that also require taking financial risk and potentially sharing in any savings they can generate. To learn more about value-based care models, please visit https://paltmed.org/ACOs/vbc-pathway.
Practice Expense Methodology
On a significantly negative front and despite strong objection from PALTmed, with more than 300 letters sent to the agency, CMS is moving ahead with an updated practice expense (PE) calculation that refines how indirect costs are assigned between “facility” and “non-facility” settings. Because services delivered in skilled nursing facilities (SNF) are billed under the “facility” rate, this change will reduce PE reimbursement for many on-site practitioner services.
Historically, nursing home codes have had identical facility and non-facility PE RVUs. According to CMS' Medicare Claims Processing Manual, SNFs—billed as place of service (POS) 31—are classified as facility settings, while nursing facilities—billed as (POS) 32—are considered non-facility settings. Under the finalized changes, however, this distinction would have a significant impact. For example, CPT code 99309, the most commonly used code in nursing homes, would see an estimated 6% payment reduction if calculated using facility PE RVUs with POS 31. In contrast, when billed using non-facility PE RVUs with POS 32, reimbursement for the same service would increase by approximately 10%. Of course, many clinicians who see patients/residents in the facility may not even know the patient's POS designation. However, it will become critical that clinicians are aware of the status of their patients/residents in the facility.
In its comments, PALTmed highlighted how this reduction fails to align with the real‐world cost environment of long-term care settings, urging CMS to maintain equal PE valuation across nursing home settings and to consider data specific to PALTC practice environments. CMS noted in their response that, “We acknowledge the comments requesting exemptions for specific services or providers. While we have reviewed these requests, we are not persuaded that there are exceptions to be implemented that are consistent with the assignment of PE RVUs that reflect the relative resources involved in furnishing the services. However, we are interested in objective data that would help us understand and improve how indirect PE is allocated across settings of care, both in general and for specific kinds of services. We would consider such information in future rulemaking.”
See PALTmed’s previous article on what these changes mean to PALTmed members: What the 2026 Medicare Physician Fee Schedule Proposed Rule Means for PALTmed Members.
Skin Substitutes: Major Cost Recalibration
CMS will now pay for skin substitute products, used in wound care, as “incident-to” supplies under a single national rate of about $127, rather than as separately priced biologicals. The agency estimates this will save Medicare roughly $19.6 billion in 2026.
Telehealth and Supervision Flexibility
CMS made permanent several pandemic-era flexibilities that benefit nursing facilities. Frequency limits for telehealth-based subsequent nursing facility visits have been permanently lifted, allowing greater continuity of care. In addition, “direct supervision” can now be provided via real-time audio-video technology, enabling supervising physicians to remotely oversee nurse practitioners or physician assistants. These provisions offer new operational flexibility but require a compliant telehealth infrastructure.
Expanded Use of G2211 Add-On Code to Home and Residence Visits
CMS has finalized, as previously proposed, the expansion of HCPCS code G2211 to be billed as an add-on code with the home or residence E/M visit code family (CPT codes 99341, 99342, 99344, 99345, 99347, 99348, 99349, and 99350). The agency also finalized a refinement of the G2211 descriptor, which now reads: “Visit complexity inherent to evaluation and management associated with medical care services that serve as the continuing focal point for all needed health care services and/or with medical care services that are part of ongoing care related to a patient's single, serious condition or a complex condition. (Add-on code, list separately in addition to home or residence or office/outpatient evaluation and management service, new or established).”
The add-on code is intended to address the longstanding lack of distinction between E/M codes for visits involving a longitudinal practitioner-patient relationship versus those that do not. While G2211 provides additional recognition for the complexity of ongoing care, CMS acknowledges that payment imbalances remain for E/M visits that are part of longitudinal care. The agency invites ongoing feedback on more holistic approaches to recognizing these differences and notes that any future changes would require formal notice and comment rulemaking.
Efficiency Adjustments
A new –2.5 percent efficiency adjustment applies to certain non-time-based services, offsetting some gains from the conversion factor increase. This does not affect services provided in the nursing homes.
As PALTmed staff further analyzes the final rule, we will provide updates.