On July 14, 2026, CMS released the Medicare Physician Fee Schedule (PFS) proposed rule for calendar year (CY) 2027. The rule is a broad payment and policy package that proposes the following, among other changes:
- Decreasing the fee schedule conversion factor for physicians
- Adjusting policies for evaluation and management (E/M) visits
- Implementing a new methodology for practice expense relative value units (RVUs)
- Extending COVID-era telehealth flexibilities
- Updating payment policies for Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs)
- Refining the Ambulatory Specialty Model (ASM)
- Changing key aspects of the Medicare Shared Savings Program (MSSP) and Quality Payment Program (QPP)
- Requiring 340B drug reporting to support the Medicare Prescription Drug Inflation Rebate Program
- Updating Clinical Laboratory Fee Schedule (CLFS) policies in accordance with the Consolidated Appropriations Act, 2026.
While many provisions are technical, the rule points to several strategic priorities: recalibrating physician payment methodology, supporting care delivered through telehealth and accountable care models, reducing perceived duplicative payments, and expanding data reporting for 340B acquired drugs to support requirements tied to Medicare drug policy.
The proposed practice expense methodology changes may lead to a significant redistribution of Medicare payments across specialties. Health systems should model the potential impacts on employed physician groups, particularly in service lines with significant clinical labor costs or procedural volume.
2027 PFS Conversion Factor
CMS proposes decreasing the qualifying participant (QP) conversion factor (CF) by 1.19% (resulting in a proposed CF of $33.1693) and decreasing the non-QP conversion factor by 1.68% (resulting in a proposed CF of $32.8409). While the proposal includes statutorily required positive updates of 0.75% for QPs and 0.25% for non-QPs, as well as a 0.53% increase related to changes in work RVUs, these increases are more than offset by the expiration of the temporary 2.5% conversion factor increase enacted for CY 2026.
Evaluation & Management (E/M) Visit Policy Changes
CMS proposes the following changes related to E/M visits:
New E/M Complexity Add-On Modifiers
CMS proposes replacing the current E/M complexity add-on code (HCPCS G2211) with two new modifiers tied to complexity requirements for patients when they receive certain outpatient E/M visits. A new MOD1 modifier1 would be valued at 16% of the underlying E/M payment and would recognize the additional work associated with longitudinal, relationship-based care.
A second MOD2 modifier, available to clinicians participating in MSSP accountable care organizations (ACOs), the ACO Primary Care (PC) Flex Model, and the Long-Term Enhanced ACO Design (LEAD) Model, would be valued at 32% of the underlying E/M payment to reflect the added complexity of accountable care, including care coordination, population health management, beneficiary follow-up, and accountability for outcomes. CMS would eliminate separate payment for G2211 if the proposal is finalized.
Addressing Overlap Between Office/Outpatient E/M Visits & Global Surgical Packages
CMS asserts its current policy duplicates payment because portions of the work associated with E/M services overlap with work already included in the valuation of procedures with global periods. To account for this overlap, the agency proposes reducing Medicare payment when a physician bills a separately identifiable office/outpatient E/M visit (billed with modifier 25) on the same day as a procedure with a 0-, 10-, or 90-day global period.
Under the proposal, the highest-valued service would continue to be paid in full, while additional same-day E/M visits or procedures furnished by the same physician or group practice would be paid at 50%.
If finalized, this proposal could reduce reimbursement for physicians who commonly furnish separately billable E/M visits on the same day as procedures. This could affect surgical specialties, interventional providers, and hospital-owned specialty practices.
Site-of-Service Payment Differential Policies
CMS proposes eliminating an unintended payment disparity created by the CY 2026 practice expense changes by paying nursing facility E/M visits the same regardless of whether a patient is in a Medicare Part A skilled nursing facility (SNF) stay or a Part B nursing facility stay. CMS also seeks input on whether current facility and non-facility payment differentials accurately reflect physician practice costs, particularly for hospital-employed clinicians.
Indirect Practice Expense RVU Methodology
CMS proposes a major overhaul of the indirect practice expense methodology by allocating indirect costs based on both physician work and clinical labor RVUs for most services, while excluding procedures with 10- and 90-day global periods.
The agency would also phase out the Indirect Practice Cost Index (IPCI), which relies on decades-old specialty survey data, and replace its stabilizing effect with a new policy that generally limits annual practice expense RVU increases or decreases to 5%. CMS justifies the proposal by stating these changes will improve transparency and payment accuracy. However, in doing so, the agency is expected to redistribute Medicare physician payments across specialties over time.
Extending & Expanding Telehealth Flexibilities
CMS proposes the following updates to its telehealth policies in the CY 2027 rule:
- Extending COVID-Era Telehealth Flexibilities: In accordance with legislation included in the Consolidated Appropriations Act, 2026, CMS would extend COVID-era Medicare telehealth flexibilities through December 31, 2027. Beneficiaries would continue to access telehealth services from home and other originating sites without geographic restrictions that historically limited utilization to rural areas. CMS also maintains coverage for certain audio-only services when clinically appropriate.
- New Services: CMS proposes adding five new services/codes to the Medicare Telehealth Services List for CY 2027, continuing the agency’s expansion of reimbursable telehealth services focused on chronic disease management, preventive care, patient engagement, and care coordination. These include advance care planning (GACP1/GACP2), shared medical appointments (GSMAS), pediatric speech-language pathology services (GSLPP), and vaccine adverse-effect E/M services (GADV1).
- Supervision of Residents: CMS proposes expanding flexibility for teaching physicians supervising residents when care is delivered to Medicare beneficiaries via telehealth. Under current policy, the teaching physician, resident, and patient must all be in separate locations for virtual supervision to satisfy Medicare requirements. CMS proposes to remove that restriction and allow billing when either the teaching physician or the resident is physically present with the patient while the other participant joins through real-time audio/video technology. The proposal applies only to services on the Medicare Telehealth Services List. CMS is not proposing to relax supervision requirements. The teaching physician must still maintain personal oversight and involvement in the portion of the service for which Medicare payment is sought, consistent with statutory teaching physician requirements.
RHC & FQHC Policy Updates
The rule proposes several policy changes related to RHCs and FQHCs. These include:
- FQHC Prospective Payment System (PPS) Update: CMS proposes a 2.5% FQHC PPS market basket update for CY 2027, resulting in a base rate of $212.91 (increased from $207.72).
- Behavioral Health: CMS proposes to continue telehealth flexibilities for RHCs and FQHCs by extending the suspension of the in-person visit requirement for Medicare mental health telehealth services through December 31, 2027, allowing beneficiaries to receive qualifying services remotely without a prior in-person visit.
- Telehealth: Congress extended Medicare authority for RHCs and FQHCs to furnish and bill non-behavioral telehealth services. CMS proposes only conforming regulatory updates to reflect the statutory extension and does not propose substantive changes to telehealth payment policy.
Ambulatory Specialty Model (ASM) Modifications
CMS proposes refining certain components of ASM. Key changes include a new rural scoring adjustment that adds five points to the final performance score for participants located in rural areas, voluntary patient-reported outcome (PRO) data submission incentives, revised quality scoring and benchmarking policies, updated low back pain quality measures, and greater flexibility for reporting improvement activities.
CMS also proposes clarifications related to Tax Identification Number (TIN) changes, specialty redesignations, participant exceptions, and payment adjustment administration. In addition, the agency would align ASM Promoting Interoperability requirements with broader Medicare interoperability policies by implementing a transition approach for electronic prior authorization reporting.
Medicare Shared Savings Program (MSSP) Changes
CMS proposes a substantial package of changes related to MSSP participation that address concerns that current benchmarking approaches discourage long-term participation. The changes include, but are not limited to:
- Benchmarking & Shared Savings Changes: CMS proposes increasing the shared savings rate for BASIC Level E ACOs from 50% to 60%, reducing certain benchmark advantages currently available to ENHANCED ACOs related to the application of regional efficiency performance, increasing the prior-savings adjustment scaling factor from 50% to 75%, and risk-adjusting benchmark growth limitations for ACOs serving higher-risk populations. The proposed rule also introduces a new growth adjustment intended to reward organizations that bring providers and beneficiaries who are new to value-based care into accountable care arrangements.
- Accountable Care Prospective Trend (ACPT) Adjustments: CMS proposes applying a “guardrail” policy to the ACPT that sets a ceiling and floor for the adjustment based on actual growth rates in national expenditures. In addition, CMS proposes moving away from calculating the ACPT for the full five years of the agreement prior to the start of the contract and instead calculating it annually.
- Patient Attribution & Engagement: CMS proposes several beneficiary assignment reforms and would allow approved ACOs to reduce or eliminate Medicare Part B cost sharing for selected services and patient populations beginning in 2027.
- Revisions to the Advance Investment Payment Methodology: CMS proposes implementing the revised advance investment payment methodology beginning January 1, 2028, replacing the current area deprivation index (ADI)-based approach with payments of $45 per quarter for beneficiaries who are rural, dual-eligible, or receiving the Low-Income Subsidy, and $25 per quarter for all other assigned beneficiaries. The new methodology would apply to new ACOs entering the program in 2028 and to ACOs receiving second-year advance investment payments.
- Merit-Based Incentive Payment System Clinical Quality Measure (MIPS CQM) Reporting: CMS proposes continuing to allow MSSP ACOs to use the MIPS CQM reporting option beyond 2026, avoiding the need for ACOs to transition to a different quality reporting method and reducing administrative burden.
Collectively, these proposals signal CMS’ continued effort to encourage long-term ACO participation, improve benchmark accuracy, and expand provider engagement in value-based payment models. It is important to note that these changes are proposed to take effect with new MSSP agreements executed on or after January 1, 2027.
Quality Payment Program (QPP) & Interoperability Updates
CMS proposes sunsetting traditional MIPS after the 2028 performance year, making MIPS Value Pathways (MVPs) the principal reporting pathway beginning in CY 2029 for most MIPS-eligible clinicians. The agency also proposes revising the existing MVPs, adding core measure selections, updating specialty-specific measures, and retiring lower-value reporting elements. In addition, the rule proposes making electronic prior authorization reporting optional with bonus scoring treatment in 2027, before transitioning to a mandatory requirement in 2028. A new Electronic Prior Authorization for Prescription Drugs measure would also be introduced beginning in CY 2028.
For the Advanced Alternative Payment Model (AAPM) bonus, CMS proposes shifting qualifying participant (QP) determinations to the Taxpayer Identification Number/National Provider Identifier (TIN/NPI) level and implementing new qualifying payment and patient thresholds included in the Consolidated Appropriations Act, 2026, which reduced the payment threshold to 50% and the patient threshold to 35% for the 2026 performance year/2028 payment year. Physicians are only required to meet one of the thresholds to qualify for the AAPM bonus.
CMS also proposes several changes related to interoperability, including extending MIPS CQM reporting options, creating a new Medicare electronic CQM (eCQM) pathway, and revising quality reporting requirements to address concerns regarding data completeness.
In addition, CMS proposes restructuring aspects of the Promoting Interoperability program and introducing more flexible electronic quality reporting pathways, including greater use of Fast Health Interoperability Resources (FHIR)-enabled quality measurement and targeted health IT metrics.
Healthcare organizations should continue to consider investments in FHIR-enabled data exchange, quality reporting infrastructure, and electronic prior authorization capabilities as CMS advances broader interoperability objectives.
340B Program Reporting Requirements
CMS proposes a new requirement that 340B covered entities report Medicare Part D claims information quarterly. CMS states that the reporting requirement is intended to improve the agency’s ability to identify 340B-discounted drug units and properly account for them when administering the Medicare Prescription Drug Inflation Rebate Program. The agency argues that more precise identification of 340B utilization is needed to prevent duplicate financial obligations associated with the same drug units.
For participating hospitals, the proposal could create substantial administrative and technology requirements. Organizations may need to evaluate whether existing pharmacy information systems, contract pharmacy arrangements, and data collection processes can support consistent quarterly reporting. More broadly, the proposal likely reflects increasing federal scrutiny of 340B utilization and a growing overlap of 340B program oversight with Medicare policy.
Clinical Laboratory Fee Schedule (CLFS)
CMS proposes updating Clinical Laboratory Fee Schedule (CLFS) regulations to implement provisions from the Consolidated Appropriations Act, 2026 that require applicable laboratories to collect private-payor rate data from January 1 through June 30, 2025 of the collection period. Laboratories would report the data to CMS during a revised reporting window of May 1 through July 31, 2026 for most Clinical Diagnostic Laboratory Tests (CDLTs), and January 1 through March 31, 2026 for Advanced Diagnostic Laboratory Tests (ADLTs), with the statutory reporting cycle resuming in 2026.
CMS also proposes codifying statutory CLFS payment protections, including no payment reductions in CY 2026 and a maximum 15% annual reduction in CYs 2027 through 2029. While the proposal does not change laboratory payment methodologies, it aligns CMS regulations with recent legislation and provides greater predictability around both reporting requirements and future CLFS payment updates.
How Forvis Mazars Can Help With Medicare PFS Payment & Policy Changes
Forvis Mazars is committed to helping healthcare organizations and physician enterprises maintain regulatory excellence by monitoring evolving federal policies and strategically adapting. If you have questions about how the 2027 PFS proposed rule may affect your organization, please reach out to a professional on our team today.
- 1 MOD1 and MOD2 are placeholders for modifiers that will be created and published in the 2027 PFS final rule.