The proposed 2026 Medicare Physician Fee Schedule (PFS) introduces a new, ongoing process described as the "efficiency adjustment." As not all codes in the Medicare PFS are revalued every year, the Centers for Medicare and Medicaid Services (CMS) purports that efficiency gains from increasing clinician experience and technological advancement without reimbursement adjustment represent overpayment of services. To remedy this, the agency proposes an efficiency adjustment reducing the work relative value unit (RVU) and intra-service time of the vast majority of services in the Medicare PFS.

The proposed efficiency adjustment for 2026 is –2.5%. This amount is the cumulative total of the Medicare Economic Index (MEI) productivity adjustment for the last five years (see table). The MEI is a measure of inflation affecting physicians' practice costs. The productivity adjustment reflects the most recent historical estimate of the 10-year moving average growth of private, non-farm business total factor productivity, as calculated by the Bureau of Labor Statistics. Neither of these measures are normally used to address the RVUs of the Medicare PFS.

The productivity adjustment is routinely part of the Inpatient Prospective Payment System (IPPS) and Outpatient Prospective Payment System (OPPS) reimbursement updates. Each year, the overall payment rates for these systems are increased by the hospital market basket rate, usually 2-4%, and then reduced by the productivity adjustment, ranging from 0.2%-0.8% over the last five years. This year, the hospital market basket increased by 3.2% and the productivity adjustment reduced the overall payment rate by 0.8%, resulting in a net increase to the IPPS/OPPS payment rates of 2.4%.

Proposed Efficiency Adjustment Breakdown

*Proposed, will be updated for 2026 final rule

The Medicare PFS does not receive regular market-based increases in payment rates and is not proposed to as part of this efficiency adjustment policy, as that would require a change in law. The proposal applies the last five years of the productivity adjustment, reducing physician reimbursement based on perceived productivity gains, while still denying an inflationary increase, which is applied yearly to the inpatient and outpatient hospital systems.

While this initial efficiency adjustment applies a look-back of 5 years, CMS proposes to continually apply this productivity adjustment-based reduction every three years moving forward. This timeline would align with regular updates of the Geographic Practice Cost Index (GPCI), which adjusts Medicare payments based on location and liability insurance RVUs.

There are exemptions to the proposed efficiency adjustment. CMS states that most time-based services, such as E/M visits, care management services, behavioral health services, services on the CMS Telehealth List, and maternity codes with a global period of MMM would not have the efficiency adjustment applied. After accounting for the exemptions, there are 8,960 codes that will be affected. Despite the CMS stated policy, there are some time-based codes on the list slated to receive the cut.

Importantly, a reduction of 2.5% to the work RVU of a code does not directly reduce total payment by that percentage. Medicare PFS payments are made up of work RVUs, practice expense RVUs and professional liability insurance RVUs. Each of these RVUs are multiplied by their corresponding GPCI, added together, and then multiplied by the conversion factor to arrive at the actual payment issued.

The American Medical Association (AMA) estimates the efficiency adjustment reductions will reduce total reimbursement to most specialties by about 1%. Access useful payment calculation visuals developed by the AMA here.

The ACC has identified several concerns with this proposal, including but not limited to:

• Reducing code values with a tool normally used to reduce an annual increase in payment without the accompanying formulaic increase.
• Broadly reducing code values with no consideration of changes in a specific service's circumstances.
• Reducing values for codes that were already reduced to account for increased efficiency via RVS Update Committee surveys performed over the last five years – including codes that are receiving efficiency reductions in this year's proposed rule.
• Presuming that services continually become more efficient indefinitely, which would lower all non-time-based code values to near zero in the long run.

This is an unprecedented proposal that will significantly affect nearly all specialties. The ACC will collaborate with the AMA and the House of Medicine to contest this proposal. Stay tuned for more updates and insights from the ACC Advocacy team on ACC.org/Advocacy and with the weekly ACC Advocate newsletter.