CMS Releases the 2027 Medicare Physician Fee Schedule Final Rule

Key Takeaways:

• CMS released its annual Medicare OPPS/ASC and Physician Fee Schedule final rules for 2027.

• The 2027 rules include significant efforts to reshape Medicare operations and compliance, with new requirements affecting provider-based departments, prior authorization, remote monitoring, physician billing and coding, quality reporting, ACO participation, and emerging software-based services.

• Providers will need to look beyond Medicare’s headline payment updates because the financial impact of the 2027 rules will vary substantially based on service mix, care setting, 340B participation and involvement in accountable-care arrangements.

Overview:

The Centers for Medicare & Medicaid Services’ (CMS) 2027 Medicare payment rules continue a broader shift in how and where the agency wants care delivered. Across these rules, CMS is using a combination of payment reductions, targeted incentives, site-of-service policies and new operational requirements. Taken together, the rules suggest that CMS is increasingly using both payment incentives and payment reductions to steer where and how Medicare beneficiaries receive care, making the practical impact much more dependent on a provider’s service mix and delivery model than the headline annual payment updates might suggest.

On Nov. 9, CMS published the Calendar Year (CY) 2027 Medicare Physician Fee Schedule (PFS) final rule in the Federal Register. Most provisions take effect Jan. 1, 2027, although certain policies have different implementation dates. The final rule includes numerous changes affecting Medicare Part B payment and coverage, the Medicare Shared Savings Program, the Quality Payment Program and the Medicare Prescription Drug Inflation Rebate Program.

CMS’s CY 2027 PFS final rule sends physicians something of a mixed message. On one hand, CMS is increasingly willing to pay more for the types of services it wants to encourage, including longitudinal relationships, preventive interventions and care delivered within accountable-care structures. On the other hand, the basic PFS conversion factors will decline in 2027, including a 2.31 percent reduction for clinicians who are not qualifying APM participants, as the temporary CY 2026 statutory payment increase expires. For physician practices confronting rising costs while being asked to invest more heavily in care coordination, technology, quality reporting and new delivery models, that request may ultimately prove more consequential than any individual payment policy in the final rule.

Highlights under the CY 2027 PFS final rule include the following:

• PFS Conversion Factors. CMS finalized a CY 2027 conversion factor of approximately $32.95 for qualifying participants (QPs) in Advanced Alternative Payment Models, a 1.83 percent decrease from CY 2026, and approximately $32.63 for clinicians who are not QPs, a 2.31 percent decrease. The conversion factors reflect the expiration of the temporary 2.5 percent CY 2026 statutory increase, a negative 0.12 percent budget-neutrality adjustment, and statutory updates of 0.75 percent for QPs and 0.25 percent for non-QPs.

• Practice Expense Updates
  • Indirect PE generally will be allocated using both work RVUs and clinical-labor PE RVUs. Ten- and 90-day global codes are excluded: CMS will allocate indirect practice expenses (PE) using the sum of physician work relative value units (RVUs) and clinical-labor PE RVUs, rather than using the greater of the two as it has done in the past. Previously, services with separately reportable professional, technical and global components (typically diagnostic and imaging services) already received this sum-based treatment, while most other services did not. The final rule extends sum-based treatment to other services, except codes with 10- and 90-day global periods. This change concerns the allocator used to distribute indirect PE; it does not establish a separate clinical-labor payment or guarantee an increase in a particular service’s reimbursement.
  • CMS phases out the Indirect Practice Cost Index over two years, reducing reliance on older specialty PE data. Over CYs 2027 and 2028, CMS will phase out its use of the Indirect Practice Cost Index (IPCI) in calculating PE RVUs. CMS concluded that the steps of the current methodology that rely on IPCI effectively favor outdated aggregate specialty data over more current service-specific inputs and limit the effect of improvements to the allocation methodology. In CY 2027, only half the measured variation in the IPCI will be applied to the indirect allocator. In CY 2028, the IPCI will no longer be part of the calculation.
  • CMS generally limits methodology-driven annual changes in PE RVUs to 5 percent, subject to exceptions. CMS finalized a stabilization adjustment that generally limits annual increases or decreases in a code’s PE RVUs attributable to the PE methodology to 5 percent. The adjustment is not a cap on the code’s total Medicare payment change and does not apply to new, revised, revalued or newly nationally priced codes.

• SNF Site-of-Service Adjustment. CMS finalized a policy equalizing the facility and non-facility PE RVUs for specified nursing-facility E/M services. Under the prior methodology, a service furnished to a beneficiary during a covered Part A SNF stay was paid using the facility rate, while the same nursing-facility service furnished to a resident who was not in a covered Part A SNF stay could be paid using the higher non-facility rate. CMS concluded that the beneficiary’s Part A coverage status did not adequately reflect differences in the practitioner’s PE, because the services were furnished in the same type of care setting. Beginning in CY 2027, CMS will set the facility PE RVUs equal to the non-facility PE RVUs for CPT codes 99304-99310, 99315 and 99316. CMS did not adopt a broader elimination of PFS site-of-service differentials but indicated that it may consider related policies in future rulemaking.

• Same-Day E/M + Minor Procedure. For CY 2027, CMS finalized a payment adjustment when a physician, or another physician in the same practice, furnishes a separately identifiable office/outpatient E/M service reported with modifier 25 on the same day as a procedure with a 0-day global period. Medicare will pay the highest-valued service at 100 percent of the otherwise applicable amount and reduce payment for the other affected same-day service or services by 20 percent. CMS narrowed the final policy from its proposal, which would have paid the lower-valued service or services at 50 percent and would have applied the adjustment to procedures with 0-, 10- and 90-day global periods.

• G2211/B1 Modifier. Beginning in 2027, CMS will transition the office/outpatient E/M visit-complexity payment currently reported using HCPCS code G2211 to a new B1 modifier appended to an eligible E/M base code. Modifier B1 applies when the practitioner serves as the continuing focal point for the patient’s healthcare needs or furnishes ongoing care related to a single serious or complex condition. When properly reported, modifier B1 will result in an additional payment equal to 16 percent of the payment amount for the underlying E/M service.

• Global Surgery Data. CMS will pause the mandatory reporting of postoperative visits using CPT code 99024, which CMS has required for certain practitioners and procedures as part of its MACRA global-surgery data collection. CMS explained that it has taken several steps to improve payment accuracy for the global services and is continuing to explore further steps to improve accountability and enable more accurate payment.

• Maternity Care Services Coding. CMS finalized changes to Medicare coding for maternity care services, adopting the revised CPT framework that moves away from the long-standing global maternity package toward more separately identifiable antepartum, labor and delivery, and postpartum services. The revised code set is intended to better reflect evolving clinical practice, including individualized prenatal care schedules. CMS also declined to finalize proposed HCPCS G-codes that would have preserved the prior global maternity coding structure, although the agency indicated that it may revisit bundled maternity coding in future rulemaking as it gains experience with the new code set.

• Remote Monitoring. CMS extended the established-patient requirement to remote therapeutic monitoring (RTM) and will now require an initiating visit for both remote physiologic monitoring (RPM) and RTM. CMS explained that these requirements are intended to ensure that the billing practitioner has sufficient information about the patient’s current medical status and clinical needs before ordering and managing remote-monitoring services.

• RPM/RTM Staffing. CMS is adopting, but delaying until Jan. 1, 2029, a requirement that clinical staff furnishing RPM and RTM services be employed by the billing practitioner or practice, rather than being personnel supplied through third-party contractor. Through Dec. 31, 2028, practitioners may continue using otherwise permissible third-party clinical-staff arrangements, provided the services satisfy the applicable incident-to supervision, billing, and other RPM or RTM requirements.

• Smoking Cessation/SBIRT. CMS will apply a 19.1 percent upward adjustment to the work RVUs for smoking and tobacco-use cessation counseling and for screening, brief intervention and referral to treatment (SBIRT) services. The finalized policy increases work RVUs for tobacco-cessation codes 99406 and 99407 and for SBIRT codes G2011, G0396 and G0397. CMS explains that the revisions better recognize the clinical intensity and work associated with these evidence-supported interventions.

• Rural Health Clinic (RHC)/Federally Qualified Health Center (FQHC) Telehealth. RHCs and FQHCs may continue furnishing qualifying mental health visits via telecommunications technology through Dec. 31, 2027, without satisfying the otherwise applicable initial and recurring in-person requirements. The underlying requirements call for an in-person mental health service within six months before the telecommunications service and at least every 12 months thereafter. Importantly, this is a statutory delay, not a permanent repeal of the in-person requirements. Separately, the Consolidated Appropriations Act, 2026, extended through Dec. 31, 2027, CMS’s authority to pay RHCs and FQHCs for qualifying non-behavioral-health visits furnished through telecommunications technology.

• Ambulatory Specialty Model. CMS established the mandatory Ambulatory Specialty Model in CY 2026 for selected specialists managing heart failure and low back pain. The CY 2027 final rule makes several technical and operational changes, including revisions to participant eligibility and exceptions, treatment of TIN changes and heart failure specialty redesignations, participant termination, data-submission requirements, the quality performance category, rural scoring adjustments, and collaborative care agreement requirements.

• Shared Medical Appointments. CMS finalized separate Medicare payments for shared medical appointments, a care model in which multiple patients with common medical conditions receive care in a group setting. New HCPCS code G0686 describes a voluntary group-based medical session involving two to 10 patients and furnished by a physician or other qualified healthcare professional, with G0687 serving as the related add-on code. Both codes will be added to the Medicare Telehealth Services List beginning in 2027.

• Advance Care Planning. CMS established new coding and payment for specified advance care planning services furnished by clinical staff under the direction of a treating physician or other qualified healthcare professional. The final rule identifies G0572 for the initial service and G0573 for additional 20-minute increments, with both services also added to the Medicare Telehealth Services List beginning in 2027.

• Drug Inflation Rebates. The final rule makes several changes to implementation of the Medicare Prescription Drug Inflation Rebate Program, under which manufacturers may owe rebates when prices for certain Part B or Part D drugs increase faster than inflation. Of particular importance to 340B stakeholders, beginning Jan. 1, 2027, 340B covered-entity providers and suppliers must submit specified data elements for affected Medicare Part D claims to the Medicare Part D Claims Data 340B Repository.

• MSSP/ACOs. CMS finalizes many modifications to the Medicare Shared Savings Program (MSSP). Many changes are intended to provide accountable care organizations (ACOs) with additional financial incentives for participation, such as increasing the BASIC Track Level E shared savings rate from 50 percent to 60 percent. CMS recognizes that this change and other financial changes may impact ACOs’ decisions to participate in BASIC Track Level E or the ENHANCED Track. Accordingly, CMS is permitting eligible ACOs that have applied with a start date of Jan. 1, 2027, to change their final selection between the BASIC Track and the ENHANCED Track for a limited time. CMS also finalizes many other changes to the MSSP, including several changes regarding beneficiary assignment to an ACO and several changes to ACO reporting requirements. Notably, CMS also finalizes its proposal to allow eligible ACOs to reduce or eliminate Medicare Part B cost sharing for Part B services (excluding DME and drugs) for assigned beneficiaries subject to CMS approval beginning April 1, 2027. Participating ACOs finance the incentives and must apply for this flexibility in early 2027. CMS anticipates approving applications in the second quarter of 2027.

• ACO Longitudinal-Care B2 Modifier. CMS is establishing modifier B2 for eligible clinicians participating in specified qualifying Medicare ACO arrangements. When the applicable requirements are satisfied, modifier B2 will result in an additional payment equal to 32 percent of the payment amount for the underlying E/M service. The enhanced adjustment is intended to recognize the additional longitudinal care coordination and accountability associated with qualifying ACO participation.
• CLFS. CMS also addressed payment updates under the Clinical Laboratory Fee Schedule (CLFS). Annual payment reductions resulting from the private-payer data methodology are limited to 15 percent per year through CY 2029, continuing the statutory constraints on how rapidly CLFS rates may decline. The rule also revises the schedule for applicable laboratories to report private-payer rate and volume data to CMS, delaying the next reporting period and updating the associated regulatory requirements.

• Quality Payment Program (QPP): Traditional MIPS Sunset and New Specialty Pathways.
  • Traditional MIPS reporting ends beginning with the CY 2031 performance period. CMS is continuing its transition away from traditional Merit-based Incentive Payment System (MIPS) reporting toward MIPS Value Pathways (MVPs). CMS believes MVPs allow for a more cohesive participation experience by connecting activities and measures from the four MIPS performance categories that are relevant to a specialty, medical condition or particular population. CMS is ending traditional MIPS reporting beginning with the CY 2031 performance period/2033 MIPS payment year, giving clinicians through CY 2030 to transition to either MVP reporting or, where applicable, participation in an Advanced Alternative Payment Model. CMS delayed the sunset by two years from the timeline contemplated in the proposed rule.
  • CMS adds Diabetic Disease, Hypertension and Hospitalist MVPs. CMS expands the MVP portfolio with three new pathways focused on diabetes, hypertension and hospitalist care, beginning with the CY 2027 performance period. The disease-focused pathways offer practices an opportunity to align reporting more closely with their patient populations before the traditional MIPS sunset. The Diabetic Disease MVP measures and addresses matters such as glycemic assessment, kidney health, foot care, patient self-management and diabetes-related costs. The Hypertension MVP addresses both treatment and prevention for high-risk patients, including measures concerning blood-pressure control, BMI screening, and tobacco screening and cessation. The Hospitalist MVP includes measures addressing heart failure therapy, advance care planning, high-risk medications in older adults, appropriate vancomycin use and avoidance of sliding-scale insulin monotherapy in hospitalized patients with diabetes.
    • For a separate discussion of QPP/MIPS changes relating to health information technology and privacy requirements, see our recent client alert, Digital Health and AI: Key Regulatory, Reimbursement and Policy Developments.

BakerHostetler’s Healthcare team provides counsel to healthcare organizations nationwide regarding Medicare reimbursement and regulatory compliance.