CMS' final 2027 physician fee schedule cuts pay and reworks ACO incentives

The Centers for Medicare & Medicaid Services (CMS) finalized a 2.31% cut to the Medicare physician fee schedule conversion factor for most clinicians in 2027, a deeper reduction than it proposed in July, while raising a key shared savings rate and adding incentives for accountable care organizations (ACOs).

The final rule, released Nov. 4, sets the rates Medicare pays for physician services, including those billed by hospitals and health systems for their employed physicians, starting Jan. 1.

CMS also issued its final 2027 outpatient payment rule the same day.

For clinicians who don't qualify through an advanced alternative payment model (APM), the conversion factor drops from $33.40 to $32.63, according to the CMS fact sheet.

For qualifying APM participants, it falls 1.83%, from $33.57 to $32.95. The July proposal had projected cuts of 1.68% and 1.19%.

Most of the decline comes from the expiration of a one-year 2.5% increase Congress provided for 2026. Statutory updates of 0.25% and 0.75% offset part of it, and an adjustment for changes to work relative value units (RVUs) moved from +0.53% in the proposal to -0.12% in the final rule.

"For too long, fee-for-service payment has rewarded volume over value, fueling a reactive system of sick care," CMS Administrator Mehmet Oz, M.D., said in a news release. "This final rule breaks from that status quo."

Shared Savings Program economics

In performance year 2024, 75% of the 476 participating ACOs earned shared savings totaling $4.1 billion, according to CMS.

The final rule changes several levers in the program's benchmarking and financial methodology, according to the Shared Savings Program fact sheet.

The shared savings rate for Level E of the BASIC track rises from 50% to 60%, narrowing the gap with the ENHANCED track's 75%. CMS said ACOs in BASIC Level E generate higher savings to the Medicare Trust Funds than ENHANCED track ACOs, yet fewer ACOs participate in it.

At the same time, CMS cut the maximum weight used to calculate the positive regional adjustment for lower-spending ENHANCED track ACOs from 50% to 35%, saying the current structure may encourage selection into that track "independent of an ACO's capacity to achieve genuine cost savings to Medicare."

The prior savings adjustment's scaling factor rises from 50% to 75%, which CMS said could ease the rebasing "ratchet effect" that lowers benchmarks after an ACO generates savings.

CMS will also account for the severity and case mix of an ACO's assigned population when applying the 5% cap on upward benchmark adjustments, and it finalized a growth adjustment that rewards ACOs for recruiting clinicians inexperienced with value-based care.

For agreement periods starting Jan. 1, 2027, a guardrail will keep the Accountable Care Prospective Trend no more than 1 percentage point below or 1.5 percentage points above national growth.

CMS is applying the lower guardrail retroactively for ACOs with 2024, 2025 and 2026 start dates, beginning with performance year 2025, and delayed 2025 financial reconciliation until November 2026 to do so.

CMS projects the benchmarking changes will add up to 1 million assigned beneficiaries in an average year, increase net federal savings by $5.5 billion over 10 years and increase shared savings net of losses to ACOs by $1.1 billion over 10 years.

Both projections carry wide ranges: plus or minus $3.3 billion and $3.6 billion, respectively.

Cost-sharing waivers and a new ACO payment modifier

Starting April 1, 2027, ACOs approved by CMS may reduce or eliminate Part B cost sharing for many items and services for assigned beneficiaries, a policy CMS said was informed by the ACO REACH Model.

Durable medical equipment, prosthetics, orthotics and supplies, and prescription drugs are excluded, and ACOs must apply. CMS will collect initial applications in early 2027.

Clinicians in Shared Savings Program ACOs and participant providers in the Long-term Enhanced ACO Design Model can append a new modifier, B2, to office and outpatient evaluation and management (E/M) visits to raise the visit payment 32%. CMS said the modifier recognizes resource costs such as total cost of care accountability and quality reporting. B2 claims count toward beneficiary assignment and benchmark and performance year spending. For other clinicians, add-on code G2211 becomes modifier B1, worth 16% of the E/M payment.

ACOs applying for a Jan. 1, 2027, start will get another chance to change their track or level selection during the application cycle's Phase 2 request for information period. CMS is also removing the prepaid shared savings option, citing low uptake.

What else changes for ACOs

Beginning with performance year 2028, CMS will exclude from assignment calculations primary care services an ACO professional bills through a non-ACO taxpayer identification number (TIN).

The same year, advance investment payments shift to a flat quarterly amount of $45 for each beneficiary who is dually eligible, enrolled in the Part D low-income subsidy or living in a rural county, and $25 for other beneficiaries, replacing a score based in part on the Area Deprivation Index.

Starting Jan. 1, 2027, an ACO participant TIN without a written agreement to participate in a performance-based risk Medicare ACO initiative will not count as having participated, so "Legacy" TINs in CMS Innovation Center ACO models won't count toward a Shared Savings Program ACO's experience with risk.

Practice expense and site of service

CMS finalized a two-year phase-out of the indirect practice cost index, which ties each specialty's total practice expense RVUs to data from 2007 or earlier, replacing it with a stabilizer meant to limit short-term swings.

The agency also adjusted indirect practice expense for visits to patients in a Part A skilled nursing facility stay, consistent with the site-of-service payment differential it finalized for 2026.

CMS asked for comments on whether the differential between facility and nonfacility payment is still appropriate, particularly for physicians employed by a hospital, health system or other entity. The agency said it will consider the feedback in future rulemaking.

Same-day visits and specialty impacts

CMS will pay 20% less for the lower-paid service when a separately identifiable office or outpatient E/M visit billed with modifier -25 falls on the same day as a 0-day global procedure by the same physician or a physician of the same specialty in the same group.

The July proposal would have paid the second service at 50% and included 10- and 90-day global procedures.

CMS projects significant decreases for dermatology, otolaryngology, orthopedic surgery and hand surgery, largely from that policy and the practice expense changes.

The agency finalized work RVUs of 16.70 for total hip and total knee arthroplasty, down from 19.11 but above the 15.37 and 15.94 it proposed.

Quality reporting and specialty models

The traditional Merit-based Incentive Payment System (MIPS) reporting option ends beginning with the 2031 performance period, according to the CMS release.

Clinicians have through 2030 to move to MIPS Value Pathways (MVPs), which CMS said already cover about 98% of clinicians, or to advanced APMs. The rule adds MVPs for diabetes, hypertension and hospitalists.

CMS also finalized refinements to the Ambulatory Specialty Model, which launches Jan. 1 and holds specialists accountable for the cost and quality of care for heart failure and low back pain.

In a July statement on the proposed rule, AMGA said the model "remains mandatory, two-sided, and duplicative of existing Quality Payment Program structures."

340B data and other provisions

Covered entities under the 340B Drug Pricing Program must submit certain data for Part D claims involving 340B-discounted drugs, including those dispensed by contract pharmacies, to a Medicare Part D Claims Data 340B Repository, beginning with claims with dates of service on or after Jan. 1, 2027, under the Medicare Prescription Drug Inflation Rebate Program provisions in the rule.

CMS delayed the deadline for the first quarterly submission, covering January through March 2027, to Sept. 30, 2027.

The Consolidated Appropriations Act, 2026, extended Medicare telehealth flexibilities through Dec. 31, 2027. The rule limits clinical lab fee schedule payment reductions to 15% a year through 2029 and implements limits on Medicare eligibility under Public Law 119-21, which CMS calls the Working Families Tax Cut legislation, including procedures for termination and appeal rights.

"Medicare should reward clinicians for keeping people healthy," Health and Human Services Secretary Robert F. Kennedy Jr. said in the release.

Reaction

The American Academy of Family Physicians lauded some improvements to primary care that the group had sought for years. But the organization criticized the prospect of payment cuts.

“Lower physician payment rates and a new cut to certain same-day services could make it harder for Medicare patients to get the comprehensive care they need,” the AAFP said.

The group also said the reduced rates come as physicians are grappling with inflation.

“Physicians will once again begin the year with lower rates as practice costs continue to rise,” the AAFP said.