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The Centers for Medicare & Medicaid Services has released the proposed rule for the 2027 Physician Fee Schedule, which federal leaders say contains some of the most significant Medicare reforms in years. The proposed rule includes an overall reduction to PFS conversion factors following a one-year reprieve from scheduled cuts, as well as an overhaul of physician quality reporting and value-based care systems, including the Medicare Shared Savings Program.
What CMS Says the 2027 Physician Fee Schedule Will Accomplish
“These changes would make it easier for clinicians to focus on prevention, improve coordination for patients, and ensure Medicare rewards better outcomes rather than more services,” CMS Administrator Dr. Mehmet Oz said in an emailed statement. However, physician groups have already slammed the conversion factor updates, saying neither conversion factor will cover the actual costs of delivering quality care.
Two Conversion Factors Under the Proposed Rule
The rule provides two conversion factors: one for physicians participating in a qualifying alternative payment model under the Quality Payment Program and one for those reporting under the program’s Merit-Based Incentive Payment System. If finalized as is, the rule would enact a qualifying APM conversion factor of 0.75% and a non-APM conversion factor of 0.25%.
Why Conversion Factors Are Decreasing Under the 2027 Physician Fee Schedule
CMS clarified that the conversion factors would ultimately decrease under the rule. Federal law requires a 2.50% reduction in Medicare payments under the PFS, which was avoided last year under Public Law 119-21, also known as the One Big Beautiful Bill Act. Therefore, the proposed CY 2027 qualifying APM conversion factor would be $33.10, a decrease of about $0.40, and the non-qualifying APM conversion factor would be $32.80, a decrease of about $0.56.
A Broader Overhaul of Practice Expense Methodology
The proposed CY 2027 conversion factors reflect a major change that would affect the work relative value units for some services. CMS is on a broader effort to reform the practice expense methodology, beginning by reducing reliance on specialty-specific practice expense per-hour data as told by physician surveys conducted by the American Medical Association. The agency said these surveys have historically had low response rates and discrepancies between actual data, particularly problematic for specialty providers.
Multi-Year Changes Planned Under the 2027 Physician Fee Schedule
The proposed rule would initiate a multi-year shift from the surveys, beginning with phasing out the methodology that ensures the overall number of practice expense RVUs by specialty is consistent with data from 2007 or earlier. Eventually, CMS hopes to replace it with a practice expense stabilizer that anchors values to a specific point in time. The rule would also adjust the allocation of indirect practice expense for physician visits to patients in skilled nursing facilities, aligning with the current site-of-service payment differential policy finalized last year.
New Billing Rules and Codes
The proposed rule would also decrease payment by 50% when a separately identifiable office or outpatient evaluation and management visit is done by the same physician or practice on the same day as a global procedure, with the least expensive service subject to the reduced rate. As part of the Make America Healthy Again initiative, CMS is also seeking to create an HCPCS code for shared medical appointments, which the agency said help reduce and manage chronic illness while addressing social isolation and loneliness. The rule would also create two additional HCPCS codes for advance care planning services, distinguishing billing work from time spent by clinical staff.
Transforming Value-Based Care Under the 2027 Physician Fee Schedule
Physician quality reporting and value-based care programs are also slated for major reform in the coming years. By 2029, CMS wants to sunset the traditional MIPS reporting system in favor of MIPS Value Pathways, specialty-specific sets of measures and activities for MIPS reporting. The MVPs have been voluntary since their introduction in 2023, but CMS wants clinicians to transition fully to the sets, which it considers more clinically meaningful.
New MVPs and Their Expected Reach
The agency also proposed three new MVPs focused on diabetes, hypertension and hospital-based care. If finalized, CMS said the updated MVP options would provide a relevant reporting option for about 98% of specialties. Physicians have long complained that MIPS has not captured actual patient outcomes or the true quality of care, while also being a heavy administrative burden and disproportionately penalizing smaller or safety-net practices.
Restructuring the Medicare Shared Savings Program
The proposed rule also included a major overhaul of the MSSP, with updated benchmarking and financial methodologies. Under the rule, CMS intends to balance incentives for accountable care organizations in the higher levels of the BASIC and ENHANCED tracks, proposing a 60% shared savings rate, up from 50%, for Level E of the BASIC track and a 35% maximum weight, up from 50%, for the positive regional adjustment for ACOs in the ENHANCED track.
Addressing the Rebasing “Ratchet Effect”
CMS said reducing this gap in savings percentages should increase participation and the long-term success of ACOs, especially since ACOs in Level E have generated higher Medicare savings than those in the ENHANCED track. The proposed rule would also increase the prior savings adjustment’s scaling factor from 50% to 75% to provide relief from the rebasing “ratchet effect,” in which the savings an ACO generates later reduce its rebased benchmark, making it harder for cost-cutting ACOs to generate savings later.
Encouraging New ACO Participation Under the 2027 Physician Fee Schedule
To encourage new ACO participation, CMS also proposed a benchmark growth adjustment for practices with limited experience with risk or value-based care. The adjustment would be applied to the highest existing benchmark adjustments eligible to the ACO, not exceeding the proposed risk-adjusted 5% cap. The rule would also implement a guardrail limiting the Accountable Care Prospective Trend to no more than 1 percentage point below, or 1.5 percentage points above, national growth rates, with retroactive application of the lower guardrail for PY 2025 reconciliation.
What CMS Leadership Says About the Reforms
“Expanding accountable care is a critical part of making the Medicare program work well for patients,” John Brooks, CMS Deputy Administrator and Director of the Center for Medicare, said in the press release. “Our goal is simple: deliver better outcomes for patients by appropriately incentivizing providers, improving quality measurement, and reducing administrative burden.”
What This Means for Physicians and ACOs Going Forward
With conversion factors set to decline, MIPS transitioning toward specialty-specific Value Pathways by 2029, and significant restructuring proposed for the Medicare Shared Savings Program, the 2027 Physician Fee Schedule represents a substantial shift in how physicians are paid and evaluated under Medicare. Physician groups’ early criticism of the conversion factor cuts suggests the rule will likely draw significant public comment before finalization, particularly from specialties concerned about how the practice expense methodology changes and MVP transition will affect their reimbursement going forward.
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