CMS Issues Anticipated PFS Proposed Rule amid Turbulent Backdrop

During a week in which headlines seized on a U.S. Supreme Court decision paving the way for thousands of layoffs of federal health workers, a reported billion-dollar grant backlog at the U.S. Department of Health and Human Services (HHS), and newly filed federal litigation by six major professional groups over what they call “unlawful, unilateral vaccine changes” made at HHS, the Centers for Medicare & Medicaid Services (CMS) quietly issued one of its most significant annual proposed rulemaking adjustments.

Officials said the calendar year (CY) 2026 Medicare Physician Fee Schedule (PFS) Proposed Rule would advance primary care management through new quality measures, reduce waste and unnecessary use of skin substitutes, and introduce a new payment model focused on improving care for chronic disease management, according to a news release and fact sheet issued by CMS.  

“For the last four years, powerful interests have targeted independent medical practices,” HHS Secretary Robert F. Kennedy, Jr. said in a statement that did not elaborate on what those interests were, or how they targeted medical practices. “Thanks to Dr. Oz’s decisive leadership, this rule modernizes CMS payment systems, eliminates perverse incentives, and harnesses better data to improve care for patients with chronic disease while protecting the future of hometown doctors.”

“We are taking meaningful steps to modernize Medicare, cut waste, and improve patient care,” added CMS Administrator Dr. Mehmet Oz. “We’re making it easier for seniors to access preventive services, incentivizing health care providers to deliver real results, and cracking down on abuse that drives up costs. This is how we protect Medicare for the next generation while helping Americans live longer, healthier lives.”

A Focus on Skin

CMS’s announcement put Medicare spending on skin substitutes at the forefront, citing what it described as “unprecedented growth” in spending, rising from $256 million in 2019 to over $10 billion in 2024, according to Medicare Part B claims data.

“This dramatic spending increase is largely attributed to abusive pricing practices in the sector, including the use of products with limited evidence of clinical value. In one notable case, the CMS Fraud Defense Operations Center stopped more than $1 million in improper payments for skin substitutes to a medical group practice,” CMS’s press release read. “The practice was submitting Medicare claims for wound care services allegedly performed by the owner, a psychiatrist.”

Officials said CMS currently treats skin substitutes as biologicals for the purposes of Medicare payment, which can reach as high as $2,000 per square inch, but is now proposing to pay for skin substitutes as incident-to supplies, a “change expected to reduce spending on these products by nearly 90 percent.” The proposed savings “would not come at the expense of patient access or quality of care,” the agency pledged, and “if finalized, this will save billions for Medicare and taxpayers and incentivize the use of products with the most clinical evidence of success.”

CMS went on to note that it is also proposing to “improve the care of chronic diseases by reducing burdens associated with the integration of behavioral health treatment into advanced primary care management” while also “proposing to make Americans healthier by removing 10 quality measures that did not directly improve patient health outcomes and adding five new outcome measures that focus on the prevention of chronic disease, including prescreening for diabetes.”

If the Proposed Rule is finalized, CMS said a change to the Medicare Diabetes Prevention Program will “allow more people with Medicare to access coaching, peer support, and practical training in dietary change, physical activity, and behavior change strategies to delay or prevent the onset of Type 2 diabetes for people with prediabetes, at no cost to the beneficiary.”

Officials said CMS is also issuing a Request for Information (RFI) to gather recommendations on improving wellness, prevention, and chronic disease management, to include input on nutrition counseling and physical activity.

A New Care Model

The Proposed Rule also suggests the creation of a new Ambulatory Specialty Model (ASM), a mandatory payment model focused on specialty care for beneficiaries with heart failure and lower back pain, which CMS described as “significant areas of Medicare spending.”

“The model aims to enhance the quality of care and reduce low-value care by improving upstream chronic disease management. Participants will be held accountable for their performance, generating savings,” CMS’s press release read. “The proposed ASM, one of the newest CMS Innovation Center models, aims to improve beneficiary and provider engagement, incentivize preventive care, and increase financial accountability for specialists. ASM rewards specialists who detect signs of worsening chronic conditions early, enhance patients’ function, reduce avoidable hospitalizations, and use technology that allows them to communicate and share data electronically with patients and their primary care providers.”

If finalized, the new model would begin in January 2027 and run for five performance years, through December 2031.

Payment Adjustments and Telehealth Promotion

Finally, CMS proposed to reduce payment differentials for physicians across settings of care by leveraging hospital data to calculate more accurate payment rates for certain services, and also to make some COVID-era flexibilities permanent while simplifying the process for making services available by telehealth.

“This move reflects our continued shift toward smarter, data-informed policymaking,” said Chris Klomp, Deputy Administrator and Director of the Center for Medicare at CMS. “We’re advancing technical improvements that reward high-quality, efficient care; addressing the root causes of unique health challenges; and aligning health care spending with value so that new innovations help to deliver better quality at a lower price.”

Industry Reaction

Response to the Proposed Rule was cautious and mixed. The American Hospital Association (AHA) said members can expect to receive a Regulatory Advisory with additional details.

The American Medical Group Association (AMGA) issued a press release bearing a subhead reading “Temporary Fixes Mask Deeper Structural Issues.”

“AMGA today reiterated its call for comprehensive reform of the Medicare Physician Fee Schedule (PFS), warning that last-minute congressional interventions to avert further reductions to the conversion factor (CF) are unsustainable and obscure the need for lasting structural improvements,” the statement read. “While recent legislative action has temporarily halted a decrease in the Medicare conversion factor for 2026, this stopgap approach only highlights the fundamental instability of the current system. Without congressional intervention, the conversion factor would have once again declined – continuing a trend that undermines the financial viability of group practices and integrated systems of care and the broader goal of high-value care.”

The Association labeled the physician payment adjustments as statistically insignificant.

“Even with the inclusion of a one-year, congressionally mandated +2.5% increase and technical adjustments to account for changes in relative value units (RVUs), the proposed CY 2026 conversion factors – $33.59 for QPs and $33.42 for non-QPs – barely represent a modest rebound from the current $32.35 rate,” AMGA’s statement said. “These incremental increases fail to reverse the long-term erosion in Medicare physician payment, which has not kept pace with inflation or practice cost growth.”

“Health systems and medical groups continue to bear the brunt of an outdated and underfunded reimbursement model,” AMGA President and CEO Jerry Penso said in an accompanying statement. “Without systematic reform, Medicare’s current fee-for-service framework will remain misaligned with the shift toward high-value care.”

AMGA added that it was “reviewing the rule closely” and plans to file additional comments with CMS. The 60-day comment period for the Proposed Rule ends Sept. 12.  

For a fact sheet on the CY 2026 Physician Fee Schedule Proposed Rule, go to: https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2026-medicare-physician-fee-schedule-pfs-proposed-rule-cms-1832-p.

For a downloadable fact sheet on the CY 2026 Quality Payment Program proposed changes, go to: https://qpp-cm-prod-content.s3.amazonaws.com/uploads/3362/2026-QPP-Proposed-Rule-Fact-Sheet-and-Policy-Comparison-Table.pdf.

For a fact sheet on the proposed Medicare Shared Savings Program changes in the CY 2026 PFS Proposed Rule, go to: https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2026-medicare-physician-fee-schedule-proposed-rule-cms-1832-p-medicare-shared.  

To view the new Ambulatory Specialty Model (ASM), go to: https://www.cms.gov/priorities/innovation/asm-ambulatory-specialty-model-frequently-asked-questions.

To view the CY 2026 PFS proposed rule, go to: https://www.federalregister.gov/public-inspection/current.

Mark Spivey is a national correspondent for RACmonitor and ICD10monitor who has been writing and editing material about the federal oversight of American healthcare for nearly 20 years. He can be reached at mcspivey33@gmail.com.