CMS Outlines Major Changes in How it Will Pay for Physician Services

On July 14, the Centers for Medicare and Medicaid Services (CMS) released its Physician Fee Schedule (PFS) Proposed Rule for CY 2026. The proposed PFS, the first released under new U.S. Health and Human Services Secretary Robert F. Kennedy, Jr., outlines major changes in the methodology used by CMS to reimburse physicians for their services. In addition, CMS is proposing the creation of a new MIPS Value Pathway for pathology. The proposal includes a modest increase in payment rates.  

CMS proposes to make several significant changes to its payment methodology for physician services, including:   

• Reducing the PFS work relative value units via a new efficiency adjustment based on the cost of the Medicare Economic Index 

• Declining to update PFS practice expense (PE) data as outlined in AMA’s Physician Practice Information survey 

• Increasing indirect practice expense costs for practitioners in office-based settings 

• Utilizing the Medicare Outpatient Prospective Payment System to set relative rates and inform cost assumptions for some technical services.  

These changes will likely reduce the Medicare Relative Value Units used to calculate some physician payment rates.   

As required by the Medicare Access and CHIP Reauthorization Act (MACRA), CMS is proposing two conversion factors, the multiplier used to adjust payment rates each year. Physicians who are qualifying participants (QPs) in advanced alternative payment models will receive a slightly higher conversion factor update of 0.75 percent, and hence a bigger increase in payment rates. Physicians who are not QPs will receive an update of 0.25 percent.  The CY 2026 conversion factor also includes the 2.5 percent update just approved by Congress (see July ePolicy article, “President Signs Massive Tax and Budget Bill”) and an estimated +0.55 percent adjustment necessary to account for proposed changes in work RVUs for certain services. As a result, the total conversion factor increases 3.83 percent for QPs and 3.62 percent for non-QPs.  

The proposed rule’s impact table, which provides a specialty-specific breakdown of the impacts on each specialty’s overall payments, projects that overall payments for pathologists will decline approximately 2 percent; however, CMS has made site of service data available indicating that overall payments will decline by 3 percent in facilities such as hospitals, and 2 percent in non-facilities, such as physician’s offices. Independent laboratories fared similarly, with a 3 percent reduction in overall payments, almost all of which CMS indicates is provided in non-facility settings. Depending on the services performed, pathologists may see a slight increase in overall payments of approximately 1percent.  

Efficiency Adjustment: CMS is proposing to adopt a newly proposed “efficiency adjustment” as part of the PFS update process. CMS states in the rule that it has frequently relied on AMA Relative Value Scale Update Committee (AMA RUC) survey data to estimate practitioner time, work intensity, and practice expense, which are often reflected in the valuation of codes paid under the PFS. CMS maintains that AMA’s surveys have low response rates and that providers may have inherent conflicts of interest in responding (since their responses are used in setting their payment rates). As a result, the agency is proposing to reduce work relative value units equal to the sum of the past five years of the Medicare Economic Index (MEI) productivity adjustment. For CY 2026, this number would be 2.5 percent. In addition, CMS is proposing to make corresponding changes to the intraservice physician time for codes describing non-time-based services. According to the proposed rule, CMS is proposing to apply this to pathology, radiology, and surgical specialties; overall the impact on these specialties will be about -1 percent. The efficiency update would be applied every three years under CMS’s proposal.  

Practice Expenses: In addition, CMS is proposing, for the same reason as the efficiency adjustment, a series of changes to how it calculates PFS Practice Expense costs. The Agency is proposing to reject the practice expense data or cost shares from the AMA’s most recent PPI and Clinician Practice Information (CPI) Survey data. Instead, CMS has “modeled estimated payment impacts of the data’s implementation,” which it has included in the proposed rule for public comment and consideration for future rulemaking.   

In addition, CMS is proposing significant updates to its PE methodology. It is proposing to recognize greater indirect costs for practitioners in office-based settings compared to facility settings. CMS is also proposing to utilize data from “auditable, routinely updated hospital data (i.e., from the Medicare Outpatient Prospective Payment System to set relative rates and inform [its] costs assumptions for some technical services paid under PFS.” For CY 2026, CMS is proposing to start by using this data in setting rates for radiation treatment services, and for some remote monitoring services.   

MIPS Value Pathways: CMS is proposing to adopt a new Merit-based Incentive Payment System (MIPS) Value Pathways (MVP) for pathology. The new pathway includes measures for quality, performance improvement and cost.  

Quality: The Quality category utilizes existing MIPS Quality and Qualified Clinical Data Registry measures to create this part of the pathology MVP pathway.   

The quality measures are as follows:   

• Q249: Barretts Esophagus 

• Q250: Radical Prostatectomy Pathology Reporting 

• Q395: Lung Cancer Reporting (Biopsy/Cytology Specimens) 

• Q396: Lung Cancer Reporting (Resection Specimens) 

• Q397: Melanoma Reporting 

• Q440: Skin Cancer: Biopsy Reporting Time – Pathologist to Clinician 

• Q491: Mismatch Repair (MMR) or Microsatellite Instability (MSI) Biomarker Testing Status 

• CAP30: Urinary Bladder Cancer: Complete Analysis and Timely Reporting 

• CAP34: Molecular Assessment: Biomarkers in Non-Small Cell Lung Cancer 

• CAP40: Squamous Cell Skin Cancer: Complete Reporting 

• QMM21: Incorporating results of concurrent studies into Final Reports for Bone Marrow Aspirate of patients with Leukemia, Myelodysplastic syndrome, or Chronic Anemia 

• QMM25: Use of Structured Reporting for Urine Cytology Specimens 

• QMM29: Use of Appropriate Classification System for Lymphoma Specimen 

• QMM30: Appropriate Use of Bethesda System for Reporting Thyroid Cytopathology on Fine Needle Aspirations (FNA) of Thyroid Nodule(s).  

Performance Improvement: For this category, CMS is proposing including 13 improvement activities that reflect actions and processes undertaken by clinicians who specialize in pathology, as well as activities that promote advancing health and wellness, patient engagement and patient-centeredness, shared decision making, and care coordination. These measures are as follows:  

• IA_BE_6: Regularly Assess Patient Experience of Care and Follow Up on Findings  

• IA_BE_15: Engagement of Patients, Family, and Caregivers in Developing a Plan of Care  

• IA_BE_X: Promote Use of Patient-Reported Outcome Tools  

• IA_BMH_12: Promoting Clinician Well-Being  

• IA_CC_9: Implementation of practices/processes for developing regular individual care plans  

• IA_CC_12: Care coordination agreements that promote improvements in patient tracking across settings  

• IA_CC_19: Tracking of clinician’s relationship to and responsibility for a patient by reporting MACRA patient relationship codes  

• IA_MVP: Practice-Wide Quality Improvement in MIPS Value Pathways  

• IA_PSPA_1: Participation in an AHRQ-listed patient safety organization  

• IA_PSPA_2: Participation in MOC Part IV  

• IA_PSPA_12: Participation in private payer CPIA  

• IA_PSPA_13: Participation in Joint Commission Evaluation Initiative  

• IA_ PSPA_X: Adopt Certified Health Information Technology for Security Tags for Electronic Health Record Data  

Cost Measures: CMS has proposed to include one MIPS cost measure within the cost performance category of this MVP:  

• MSPB_1: Medicare Spending Per Beneficiary (MSPB) Clinician (This MIPS cost measure applies to clinicians providing pathology care in inpatient hospitals).  

In addition, CMS proposed to maintain the threshold to avoid a MIPS penalty of up to 9 percent at 75 points for the CY 2026 performance year/2028 MIPS payment year and through the CY 2028 performance year/2030 MIPS payment year.   

ASCP is still in the process of reviewing the nearly 2,000-page regulation and will soon begin the process of developing a formal response to the agency’s proposals. ASCP will be reaching out to its advocacy partners on the rule, such as the American Medical Association and various pathology and clinical laboratory organizations with the hope of developing a coordinated, more impactful response to the Agency.   

To access the Medicare Payment Advisory Commission’s “basics” on the three Medicare fee schedules mentioned in this article, see below:  

• Physician Fee Schedule (click here) 

• Clinical Laboratory Fee Schedule (click here) 

• Outpatient Prospective Payment System (click here)