How the CY 2027 Medicare Physician Fee Schedule Changes Practice Economics

How the CY 2027 Medicare Physician Fee Schedule Changes Practice Economics

TL;DR: In its July 14, 2026 proposed rule, CMS proposed CY 2027 conversion factors of $33.17 for qualifying alternative payment model participants and $32.84 for everyone else, both lower than CY 2026. CMS also proposed a stabilizer to limit volatility in practice expense relative value units, replacing a mechanism anchored to practice expense per hour data from 2007 or earlier.

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What Did CMS Propose in the CY 2027 Rule?

CMS issued its proposed rule for the CY 2027 Medicare Physician Fee Schedule on July 14, 2026. Two provisions matter most for practice economics: the conversion factor, which sets the dollar value of every relative value unit billed to Medicare, and a change to how practice expense relative value units are calculated.

On the conversion factor, CMS proposed $33.17 for physicians and groups that qualify as participants in an advanced alternative payment model, and $32.84 for everyone else. Both figures are lower than the CY 2026 conversion factors. Because Medicare payment for any given service is the relevant relative value units multiplied by the conversion factor, a lower conversion factor reduces payment for every code unless an offsetting relative value unit change applies.

What Is the Practice Expense Stabilizer and Why Does It Matter?

The second major proposal addresses a technical but consequential mechanism: how CMS calculates the practice expense component of relative value units by specialty. Historically, this calculation has anchored specialty-level practice expense per hour to survey data collected in 2007 or earlier for many specialties, a dataset that has grown increasingly stale relative to how practices actually operate today.

In the CY 2027 proposed rule, CMS proposed phasing out that anchor and replacing it with a stabilizer designed to limit year-over-year volatility in practice expense relative value units. In practical terms, this means specialty-level practice expense allocations will move more gradually as new survey data, like the 2024 Physician Practice Information Survey figures documented on our overhead benchmarks page, phases into the calculation, rather than shifting abruptly in a single rule cycle.

How Do These Two Provisions Interact?

A practice cannot evaluate the impact of the conversion factor cut in isolation. If a specialty's practice expense relative value units rise because the stabilizer phases in more current cost data, that increase can partially offset the lower conversion factor for that specialty. If a specialty's practice expense relative value units are largely unaffected, the conversion factor cut flows through with less offset. The net effect is specialty-specific, and any practice modeling its 2027 revenue needs to run both provisions together rather than reacting to the conversion factor headline alone.

Which Practices Are Most Exposed to the Proposed Cuts?

Practices with a Medicare-heavy payer mix feel conversion factor reductions more directly than practices with a commercial-heavy mix, since many commercial contracts are negotiated as a percentage of the Medicare fee schedule and will reprice downward as the underlying schedule moves. Practices in specialties whose practice expense relative value units have been calculated off the oldest survey data stand to see the largest adjustments as the stabilizer phases in newer figures, though whether that adjustment helps or hurts a given specialty depends on how its current cost structure compares to the older baseline.

Primary care and office-based specialties with high indirect overhead per hour, as documented in the 2024 survey, are more likely to see practice expense relative value units move upward under updated data, which would partially cushion the conversion factor cut. Specialties whose cost structure has not changed materially since the older baseline are less likely to see an offsetting adjustment.

What Should a Practice Do Before the Rule Is Finalized?

CMS proposed rules are not final. The comment period, final rule publication, and any changes between proposed and final versions all matter, and we have seen conversion factors and RVU methodologies shift between proposed and final rulemaking in prior cycles. That said, waiting until the final rule to model impact leaves a practice with little runway to adjust before January 1.

We recommend practices take three steps now, ahead of the final rule:

This is exactly the modeling work we do inside our analytics and benchmarking engagements for clients heading into a fee schedule transition, and it pairs directly with the operating cost side of the equation covered in our per-hour overhead benchmark guide.

How Should a Practice Communicate This to Physicians and Staff?

Conversion factor reductions tend to generate anxiety disproportionate to their actual dollar impact until the modeling is done. In our engagements, we find it far more productive to walk physicians through the actual projected revenue change by code and payer than to discuss the cut as a single headline percentage. A 1 percent aggregate reduction in the conversion factor might translate to a much larger or smaller change in take-home compensation depending on a practice's specific payer mix and coding pattern, and physicians respond better to specific numbers than to industry-wide headlines.

Frequently Asked Questions

What are the proposed CY 2027 Medicare conversion factors?

CMS proposed $33.17 for physicians and groups qualifying as advanced alternative payment model participants, and $32.84 for all other participants, in the proposed rule issued July 14, 2026. Both are lower than the CY 2026 conversion factors.

What is the practice expense RVU stabilizer?

It is a proposed mechanism in the CY 2027 rule that limits year-over-year volatility in practice expense relative value units as CMS phases out an older calculation anchored to practice expense per hour data from 2007 or earlier, replacing it with a more gradual, currently-informed adjustment process.

Will every specialty see a Medicare payment cut in 2027?

Not necessarily. The conversion factor reduction applies broadly, but the practice expense RVU stabilizer may increase relative value units for specialties whose cost structure has shifted since the older baseline data, partially or fully offsetting the conversion factor impact for those specialties.

When will the CY 2027 rule be finalized?

CMS typically finalizes the Medicare Physician Fee Schedule rule in the fall following its proposed rule publication, for effective dates of January 1 of the following year. Practices should model the proposed figures now and revisit the model once the final rule publishes.

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Need help modeling how the CY 2027 proposed rule affects your specific payer mix and billing pattern? Schedule a discovery call and we will build the projection with you.