On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) released the final version of the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) Final Rule. After five straight years of rate reductions, this year’s rule marks a meaningful shift: CMS finalized a 3.85% increase in physician reimbursement rates, signaling a potentially stabilizing moment for Medicare physician payments.
But this update isn’t just about numbers. The CY 2026 Final Rule also introduces several major updates in telehealth, chronic disease and behavioral health management, and digital health—and it opens the door for future reforms in how CMS evaluates and pays for emerging healthcare technologies.
Here’s an overview of the most significant changes and what they mean.
1. Physician Payment Rates Are Going Up
For the first time in years, CMS is increasing the conversion factor for the Physician Fee Schedule. A 3.77% increase for qualifying APM participants and 3.26% increase for non-qualifying participants for CY 2026 is a welcome change after years of cuts that have strained many practices.
To arrive at this figure, CMS used the CY 2025 conversion factor as a baseline, applied the required budget neutrality adjustment, and added a temporary statutory increase of 2.5% for 2026. CMS also included updates mandated by law.
In parallel, CMS is making structural adjustments to better reflect current physician practice trends, including:
- Reducing Work Relative Value Units (RVUs) for non-time-based services (e.g., procedures, radiology) by 2.5% (based on the Medicare Economic Index and excludes time-based codes like E/M and behavioral health), citing efficiency gains that haven’t been captured in current valuations.
- A key change in how it calculates indirect practice expense (PE) payments. Starting in CY 2026, the portion of PE RVUs tied to Work RVUs will be cut in half for non-facility services. This adjustment reflects CMS’s growing concern that practice expense calculations have overestimated physician overhead—particularly for services delivered in hospital-owned or facility-based settings where costs like rent, supplies, and staffing are already covered by the institution.
These changes aim to redistribute payments more equitably based on actual practice costs but could impact reimbursement in facility settings.
2. Telehealth Gets a Boost and a Simplified Review Process
Telehealth continues its march toward permanence in Medicare. CMS is:
- Streamlining the review process for adding services to the Medicare Telehealth Services List. The process will now involve three steps (down from five), focused on payment eligibility, statutory coverage under Section 1834(m), and service capability via interactive telecommunications.
- Teaching physicians can now supervise virtually in all teaching settings when services are virtual.
- Eliminating the “provisional” category, meaning all services added for 2026 are now considered permanent.
- Adding new telehealth services, including:
- Group behavioral counseling for obesity
- Multiple-family group psychotherapy
- An infectious disease add-on code for inpatient visits
- Auditory integrated sound processor services
Additionally, CMS permanently lifted frequency limits on certain nursing home and hospital telehealth visits and finalized rules allowing direct supervision via real-time telehealth (excluding audio-only), with exceptions for procedures that involve global surgery indicators.
However, CMS declined to expand telehealth coverage to dialysis services, telemedicine E/M visits, and home INR monitoring, citing inadequate evidence or misalignment with statutory requirements.
3. Expanded Support for Chronic Disease and Behavioral Health Management
Building on last year’s introduction of new HCPCS codes for Advanced Primary Care Management (APCM), CMS is doubling down on its support for integrated behavioral health services.
The 2026 Final Rule finalizes three optional add-on codes that can be used when a practitioner bills APCM base codes for the same patient in the same month. These codes are designed to encourage Federally Qualified Health Centers (FQHCs) and Rural Health Centers (RHCs) to integrate behavioral health and collaborative care services into their chronic care models.
CMS views this as a strategic way to expand access to behavioral health integration (BHI), especially in underserved primary care settings.
4. Digital Health Coverage Expands, but with Guardrails
CMS is gradually expanding its digital health reimbursement framework to reflect evolving treatment modalities.
For 2026, CMS finalized payment for devices used to treat ADHD under existing HCPCS codes for Digital Mental Health Treatment (DMHT). This marks a notable acknowledgment that FDA-authorized digital therapeutics have a role in behavioral health.
However, at least for now, CMS declined to extend this coverage to digital therapeutics for gastrointestinal disorders and fibromyalgia. It did, however, signal openness to future expansion.
Perhaps most importantly, CMS solicited and acknowledged feedback on how to approach Software-as-a-Service (SaaS), artificial intelligence (AI), and algorithm-driven tools under the current payment methodology. While no new payment rules were issued, CMS indicated it may propose changes in future rulemaking—a clear sign that digital innovation is on the agency’s radar.
5. Major Changes for Skin Substitutes
Skin substitutes are a high-cost item that’s become a financial flashpoint for ACOs due to rapid increases in utilization and per-unit costs. CMS finalized a sweeping overhaul of how skin substitutes are reimbursed.
Key changes include:
- A shift to an “incident-to” supply payment model
- Alignment of coding and payment with FDA regulatory categories
- A new flat national payment rate of $127.28
- Signals for potential future policy to differentiate reimbursement by product type
This is a cost containment move with real bottom-line impact, especially for ACOs managing large wound care populations. By eliminating high variability in skin substitute payments and standardizing reimbursement, CMS is trying to curb unnecessary spending and overutilization. Health systems need to review product formularies, evaluate clinical protocols, and prepare for more stringent oversight tied to outcomes and cost-effectiveness.
What This Means for Providers
The CY 2026 PFS Final Rule represents a pivot point in Medicare reimbursement—one that blends long-overdue physician pay increases with deliberate, strategic adjustments to align payment policy with current practice realities.
For physicians and administrators, now is the time to:
- Review how these changes will affect your reimbursement rates and service lines
- Revisit your telehealth offerings to ensure alignment with new coverage and supervision rules
- Consider opportunities to expand behavioral and chronic disease management, especially in FQHC and RHC settings
- Stay ahead of the curve on digital health tools—and track how CMS might handle SaaS and AI-driven services in future updates
The Final Rule goes into effect January 1, 2026. If your organization hasn’t begun evaluating its financial and operational impact, now is the time.
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