CMS proposes rule aligning Medicare physician payment with ‘Big Beautiful Bill,’ MACRA

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The Trump administration proposed a sweeping physician payment rule on Monday that rewrites Medicare payment to comply with recently passed GOP tax and policy law — and decade-old healthcare legislation.

The CMS’ proposed physician fee schedule for 2026 includes a base rate hike of 2.5%. The increase was a handout to providers in the controversial “One Big Beautiful Bill,” which slashes federal Medicaid spending by $1 trillion and is expected to cause millions of Americans to lose health insurance, further pressuring reimbursement for hospitals and physicians. President Donald Trump signed the bill into law on July 4.

The draft regulation also, for the first time, includes two separate conversion factors for doctors depending on whether or not they participate in alternative payment models — a stipulation of the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which reformed how the government pays providers in the federal healthcare programs.

The more than 1,800-page rule also cracks down on a commonly abused billing practice in Medicare, expands care coordination for the prevention of chronic diseases, cements select telehealth flexibilities, cuts back on efforts to measure and improve health equity, and takes a step toward site neutrality.

“This rule modernizes CMS payment systems, eliminates perverse incentives, and harnesses better data to improve care for patients with chronic disease while protecting the future of hometown doctors,” HHS Secretary Robert F. Kennedy Jr. said in a statement Monday following the rule’s release.

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Draft payment updates

Medicare’s payments to doctors are based on the resources used to furnish a service as measured by relative value units, or RVUs. RVUs, which are meant to cover both the cost of labor and practice expenses, become payment rates after a conversion factor is applied.

If Monday’s rule is finalized, beginning next year regulators will apply two separate conversion factors when calculating physicians’ payment rates based on their participation in alternative payment models, which are meant to hold providers accountable for the quality and cost of care.

The proposed update to the conversion factor is three times as large for doctors in qualifying APMs than those not participating in the arrangements: 0.75% versus 0.25%.

Proposed changes also include a 0.55% adjustment to account for changes to select work RVUs.

Overall, this results in a conversion factor of $33.59 for doctors in qualifying APMs, up 3.8% year over year, and one of $33.42 for doctors not in such models, up 3.6% year over year.

Physician groups said the bump was welcome but modest, especially following what they view as years of underpayment in Medicare that’s contributed to practice closures and threatened patient access.

“While this proposed rule includes a boost, it is very underwhelming,” said Dr. Carol Langford, the president of the American College of Rheumatology, in a statement.

The CMS has proposed Medicare payment cuts for the last five years, though Congress has normally stepped in to prevent them. Still, that wasn’t the case in 2025 — physician payments fell 2.9% this year.

The new draft regulation also proposes a first-of-its-kind “efficiency adjustment” to certain work RVUs, cutting them by 2.5%. The adjustment is meant to account for practice efficiencies that build up over time that aren’t factored into current RVU calculations, so payments are being inflated as a result, regulators said.

Physician groups said they’re reviewing that proposal. Lobbies are unlikely to take favorably to an idea that would dampen reimbursement.

However, doctor associations said they do support proposed updates to how the CMS calculates practice expense that would recognize larger indirect costs for doctors in office-based settings, compared to those working in hospitals.

“The original allocation methodologies assumed physicians maintained separate practice locations even if they furnished some care in hospitals. Since the methodologies were established decades ago, there has been a steady decline in the number of physicians working in private practice, with a corresponding rise in physician employment by hospitals and health systems,” the CMS wrote in a fact sheet on the rule.

“Therefore, we believe that the allocation of indirect costs for [practice expense] RVUs in the facility setting at the same rate as the non-facility setting may no longer reflect contemporary clinical practice,” the CMS said.

Partially as a result of that policy, the impacts of the rule vary drastically based on specialty and site of practice.

For example, chiropractors would see Medicare reimbursement drop by 17% next year for services furnished in hospital-owned settings. However, payment would drop just 2% in non-hospital sites of care, according to estimates in the rule.

Endocrinologists outside of hospital sites would see Medicare reimbursement increase 6%, while their peers in hospitals would see payments cut by 10%, the rule predicts.

Still, the proposal is a step in the right direction of equalizing payment between hospital and physician office settings, Nicolas Ferreyros, the managing director of the Community Oncology Alliance, said in a statement.

Skin substitutes

The rule also proposes reforming how Medicare pays for skin substitutes, an area of spending that’s skyrocketed as a result of abusive pricing practices, according to the CMS.

Medicare spending on skin substitutes, materials used to replace skin and aid in wound healing, has risen from $256 million in 2019 to more than $10 billion in 2024, per government data.

That’s because providers are pushing products without clear evidence of clinical value, occasionally to drive profits: In one case, CMS regulators stopped more than $1 million in improper payments to just one practice, according to the agency.

The CMS is proposing to pay for skin substitutes as supplies, instead of biologicals. That will reduce spending on the materials by nearly 90%, saving Medicare billions of dollars, regulators said.

Telehealth provisions

Medicare began covering more virtual care during the coronavirus pandemic, but much of the coverage remains on a temporary basis, despite heavy lobbying by the telehealth industry.

The rule is a mixed bag for virtual care. It further codifies Medicare payment for select physician services, permanently adopting a Medicare waiver that allows physicians to supervise treatments via real-time audio and video. It also extends a waiver allowing clinics to bill for telehealth services through 2026.

However, regulators are not proposing to extend a waiver that allows teaching physicians to be present virtually for billing purposes. Moving forward, teaching physicians will have to be in-person during services furnished by residents to qualify for Medicare payment if the rule is finalized as drafted.

New mandatory payment model

The proposed rule creates a new mandatory payment model, called the Ambulatory Specialty Model, that’s meant to improve disease management for Medicare beneficiaries with heart failure.

The five-year model is aimed at holding specialists who treat Medicare patients with heart failure accountable for management of their other chronic conditions, like low back pain. If approved, it would run from 2027 through 2031.

The Ambulatory Specialty Model is the second payment model proposed by the CMS’ innovation center under the Trump administration, which has generally pared back such tests.

In March, the agency canceled four tests early and halted two before they began. The CMS said in May it would pursue a refreshed strategy focusing more on disease prevention and management, and helping beneficiaries reach health goals through access to technology. Then, earlier this month, regulators proposed a model adding new prior authorization requirements to some Medicare services.

Shared savings and MAHA

The rule modifies eligibility and financial reconciliation requirements in the Medicare Shared Savings Program to allow accountable care organizations to have fewer Medicare beneficiaries. MSSP is the largest ACO program in traditional Medicare, with more than 650,000 participating providers covering more than 11.2 million people.

The proposed regulation also eliminates select health equity adjustments and screening measures in MSSP. Improving health equity was a key priority of regulators in the Biden administration, but the Trump administration has hustled to erase such policies since taking over Washington.

Instead, the “Make America Healthy Again” movement, which is centered on improving wellness, curbing chronic disease and pharmaceutical skepticism, has been Kennedy’s guiding light as HHS secretary.

MAHA’s influence is evident in the fee schedule, which proposes new codes for advanced primary care services meant to help integrate behavioral health and psychiatric care in Medicare.

“The Administration is directing our focus towards understanding and drastically lowering chronic disease rates, including thinking on nutrition, physical activity, healthy lifestyles, over-reliance on medication and treatments, the effects of new technological habits, environmental impacts, and food and drug quality and safety. As such, focusing on the prevention and management of chronic disease is a top priority for us,” the fact sheet on the rule reads.

The rule also proposes adding a new “Advancing Health and Wellness” subcategory to the Merit-based Incentive Payment System, which adjusts Medicare payment to doctors based on their performance.

Comments on the rule are open until Sept. 12. Along with feedback on the rule, the CMS asked for comments on how it could further deregulate and improve chronic disease management.

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