The Centers for Medicare and Medicaid Services released its proposed 2027 Medicare Physician Fee Schedule on July 14, 2026, cutting payment conversion factors that determine what physicians receive for Medicare services: 1.19% for practices participating in advanced alternative payment models and 1.68% for all other physicians. The CMS proposed rule, published in the Federal Register on July 16, is 1,592 pages and would take effect January 1, 2027, if finalized.
The cuts are not CMS choosing to reduce physician pay on their own terms. They reflect the expiration of a temporary 2.5% statutory payment increase that Congress provided for 2026 under legislation known as the One Big Beautiful Bill Act. When that one-year increase expires, current law requires a 2.50% reduction relative to 2026 payment rates, and even with modest statutory increases and upward adjustments from proposed changes to work relative value units, the net result is a conversion factor decrease.
Why This Matters
Physician payment under Medicare has been cut, frozen, or only marginally increased for nearly every year since the sustainable growth rate was repealed in 2015. Since 2001, Medicare physician payment has increased by approximately 11%, while the Medicare Economic Index, which tracks the actual cost of running a medical practice, has risen by more than 60%, according to the American Medical Association. In real terms, physicians are being paid significantly less per Medicare service every year while their practice costs rise.
This cumulative payment erosion has consequences for patients, not only physicians. When payment does not cover the cost of delivering care, physicians reduce Medicare volume, close practices, consolidate with larger health systems, or exit underserved markets. Rural communities, which depend heavily on solo and small-group physicians who often cannot achieve the economies of scale of large health systems, face the most acute access risk when payment cuts push practices below their financial break-even point.
Behavioral health is a specific and urgent concern. Mental health and substance use disorder provider shortages are already severe across the country, documented by the Health Resources and Services Administration as areas of critical professional scarcity. Behavioral health practices, which tend to be physician-only or small-group settings with lower overhead leverage than hospital-affiliated systems, depend disproportionately on Medicare payment rates and face proportionally greater financial pressure from conversion factor cuts.
What We Know So Far
According to the CMS fact sheet and analysis by Healthcare Finance News and Holland and Knight:
The proposed 2027 conversion factor for qualifying advanced alternative payment model (APM) participants drops from $33.5675 to $33.1693, a decrease of $0.40, or 1.19%. The proposed conversion factor for all other physicians (non-qualifying APM participants) drops from $33.4009 to $32.8409, a decrease of $0.56, or 1.68%.
The rule incorporates statutory payment updates of 0.75% for qualifying APM participants and 0.25% for non-participants, plus an estimated 0.53% positive adjustment from proposed changes to work relative value units. But these increases are more than offset by the expiration of the 2.5% temporary increase, producing a net cut in both categories.
The proposed rule also contains several significant policy components beyond the conversion factor changes:
- CMS proposes to overhaul the Merit-Based Incentive Payment System (MIPS), the primary quality reporting framework under which most physicians operate
- The rule restructures accountable care organization incentives under the Medicare Shared Savings Program
- CMS is proposing to modify practice expense relative value unit methodology, including removing an indirect practice cost index based on a 2007 survey
- Multiple Requests for Information signal potential future reforms to primary care, diagnostic coding, and the CPT valuation process
Where the Impact Is Highest
Not all physicians will feel the cuts equally. Physicians with a high proportion of Medicare patients in their practice revenue, high overhead costs, or practices in markets with limited payer mix diversification face the greatest financial pressure.
The three groups of most concern:
Rural practices: Rural physicians typically serve older, sicker patient populations with higher Medicare utilization and have fewer commercially insured patients to subsidize cuts in Medicare payment. Many rural practices operate on margins that are already thin. Healthcare Finance News and physician advocacy groups have consistently flagged rural primary care and specialty access as the first casualty of ongoing Medicare payment compression.
Behavioral health clinics: Mental health and psychiatry practices, which are already experiencing a national provider shortage, rely heavily on Medicare because it is the primary insurer for adults over 65 who have depression, anxiety, dementia, and other psychiatric conditions. Payment cuts make it harder for behavioral health practices to maintain staffing and may accelerate the trend of psychiatrists and therapists leaving Medicare participation.
Solo and small-group practitioners: Large health systems can spread conversion factor cuts across large patient volumes and diversified payer mixes. Solo practitioners and small groups cannot. CMS has acknowledged this differential impact but has not proposed mechanisms to specifically protect small-practice viability in this rule.
What Doctors and Experts Say
"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 a statement about the broader proposed rule, as quoted by DistilInfo.
Physician groups immediately pushed back. Medical specialty societies have argued that neither conversion factor will cover the actual cost of delivering quality care in 2027, and that the recurring pattern of temporary congressional adjustments followed by expiration-induced cuts represents a fundamentally broken payment structure that does not serve patients or physicians.
A House Energy and Commerce subcommittee had examined potential long-term payment reforms in May 2026, according to Healthcare Finance News, and the 2027 proposed rule is expected to renew those congressional conversations.
What the Evidence Shows and What It Does Not
MedicalDaily Evidence Check
- Regulatory action type: Proposed rule (not final); public comment period open through September 14, 2026
- Conversion factor (APM qualifying): Proposed $33.17 (from $33.57), -1.19%
- Conversion factor (non-qualifying APM): Proposed $32.84 (from $33.40), -1.68%
- Cause: Expiration of the temporary 2.5% CY2026 payment increase
- Implementation date if finalized: January 1, 2027
- Rule length: 1,592 pages
- Comment deadline: September 14, 2026
- What it shows: A proposed net reduction in Medicare physician payment beginning in 2027, driven by the expiration of a congressional temporary increase, not a CMS policy choice to cut
- What it does not show: Whether Congress will pass a new temporary increase before year-end (as it has done in many prior years), or whether the proposed rule will be finalized exactly as proposed
- What readers should know: This is a proposal, not a final rule. Congress frequently acts to modify or block physician fee schedule cuts before they take effect. However, physicians and patients should track congressional developments through the fall.
Who Is Most Affected?
- Medicare patients in rural areas who depend on solo or small-group practices for primary care, surgery, and specialty access face the greatest risk if payment cuts cause those practices to reduce Medicare participation or close
- Medicare patients in need of mental health care , given existing behavioral health shortages that may be exacerbated by payment pressure
- Physicians in small practices who lack the volume and payer-mix diversification to absorb per-unit payment reductions
- Medicare patients broadly , who may see longer wait times or reduced access if physician practices limit new Medicare patients in response to payment reductions
What You Can Do Now
- Medicare patients who want to weigh in on this proposed rule can submit public comments through the federal rulemaking portal at regulations.gov by the September 14, 2026 deadline. Search for "CY 2027 Medicare Physician Fee Schedule."
- Patient advocacy organizations including the American Academy of Family Physicians and specialty societies will be submitting formal comments; patients can add their voice through these organizations' advocacy channels.
- Medicare patients in rural areas or who rely on a solo practice should monitor whether their physician announces any changes to Medicare participation as a result of this proposed rule.
- Physicians and practice administrators can review the full proposed rule and CMS's detailed specialty-level impact tables at CMS.gov to understand how the proposed changes affect their specific practice.
Cost and Access: What Patients Should Know
The proposed conversion factor cut is a change in how much Medicare pays physicians per service, not a change in what patients pay out of pocket. However, if payment cuts lead physicians to limit new Medicare patients, refuse Medicare assignment, or close practices, patient costs can rise through three mechanisms: patients traveling farther for care, seeing non-participating physicians who can charge more than the Medicare rate, or delaying care until conditions worsen.
For Medicare Advantage members, payment impacts may vary; check with your plan about any network changes if your physician announces changes to their participation.
What Happens Next
The comment period closes September 14, 2026. CMS will review comments and typically issues a final rule in November. Congress may act before year-end on a physician payment update bill, as it has done in many recent years, potentially changing the final conversion factor. MedicalDaily will report on significant developments in the congressional response to this proposed rule and on any final rule changes before the January 1, 2027 effective date.
The Bottom Line
CMS has proposed cutting Medicare physician payment by 1.19% to 1.68% in 2027, driven by the expiration of a temporary congressional payment increase that had been in effect for 2026. Rural practices, behavioral health clinics, and solo practitioners face the greatest financial pressure from the proposed cuts. The rule is not final. Public comments are open through September 14, 2026. Congress has historically acted before year-end to address physician payment cuts, and that pattern may repeat for 2027.
