The Centers for Medicare & Medicaid Services (CMS) announced its proposed 2026 Medicare Physician Fee Schedule (PFS) on 14th July 2025, bringing some much-needed good news for doctors and healthcare providers. At the same time, the agency is finally cracking down on a massive waste problem that’s been growing unchecked for years while revolutionizing how practices deliver comprehensive patient care.

CMS is proposing a 2.5% base increase in Medicare physician payment rates for 2026 under the 2026 Medicare Physician Fee Schedule (PFS), with total increases reaching 3.8% for qualifying providers, while simultaneously targeting nearly $10 billion in wasteful spending on skin substitutes that has exploded by 3,800% in just five years.

The Payment Increase Breakdown by CMS

For the first time, Medicare will implement a two-tier conversion factor system that rewards value-based care participation. The proposed increases combine multiple components:

The $10 Billion Waste Crisis

While delivering positive news on payment rates, CMS is simultaneously tackling what may be Medicare’s most explosive spending problem. Medicare expenditures on skin substitutes have experienced unprecedented growth, skyrocketing from $256 million in 2019 to over $10 billion in 2024, a staggering 3,800% increase in just five years.

The 90% Solution – 2026 Medicare Physician Fee Schedule

CMS is proposing a fundamental restructuring of how Medicare pays for skin substitutes. Currently classified as biologicals with reimbursements reaching as high as $2,000 per square inch, the agency plans to reclassify these products as “incident-to supplies.”
This single change is expected to reduce spending on skin substitutes by nearly 90%, potentially saving billions for Medicare and taxpayers while incentivizing the use of products with proven clinical evidence.

Looking Ahead – 2026 Medicare Physician Fee Schedule

The 60-day comment period for the proposed rule ends on September 12, 2025, with implementation scheduled for January 2026. If finalized, the rule represents one of the most significant Medicare payment reforms in recent years, balancing provider payment increases with aggressive waste reduction measures and revolutionary care delivery transformation.

The proposed rule signals CMS’s commitment to protecting Medicare’s long-term sustainability while ensuring healthcare providers receive fair compensation for quality care. With skin substitute spending alone representing a potential $9 billion in annual savings, combined with enhanced care coordination reimbursements, the impact could be transformative for both Medicare’s fiscal health and the broader healthcare system’s focus on evidence-based, patient-centered care.

Why The 2026 Medicare Physician Fee Schedule Final Rule Matters for Your Practice

Navigate the 2026 Medicare Physician Fee Schedule Changes with Persivia

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