A 2.31% Medicare Cut Doesn't Mean Your Practice Will Lose 2.31%.

By Jennifer McNamara | Healthcare Inspired

Every year, the Medicare Physician Fee Schedule is released, and the conversation immediately turns to the conversion factor.

For 2027, CMS finalized a conversion factor of $32.95 for qualifying alternative payment model participants, representing a 1.83% decrease.

For nonqualifying participants, the conversion factor will be $32.63, a 2.31% decrease.

The expiration of the temporary 2.5% increase that applied in 2026 contributes to those reductions.

I understand the concern over declining reimbursement, especially with the operating costs practices are facing.

However, I would caution against using the conversion factor percentage to estimate the financial impact on an individual practice.

We need to look at what the practice actually bills.

Medicare reimbursement involves more than the conversion factor.

Physician work RVUs, practice expense RVUs, malpractice expense RVUs, geographic adjustments, and the setting in which services are performed all influence payment.

CMS also finalized changes to practice expense calculations for 2027.

Individual services may experience different reimbursement changes, even though the conversion factor is decreasing.

I would begin a financial review by pulling the practice's most frequently billed CPT codes and comparing the 2026 and 2027 Medicare payment amounts.

For practices with a significant Medicare population, I would expand that analysis to the entire claims dataset.

I would want to see the results by specialty, physician, procedure, and place of service.

I would also look at the services that account for the largest percentage of Medicare revenue.

A practice performing a high volume of procedures may experience a different impact than a primary care practice with predominantly office-based E/M services.

Applying a single percentage reduction to both practices would not provide an accurate forecast.

Practice expense changes deserve a closer look.

CMS is beginning a two-year phase-out of the indirect practice cost index and modifying how indirect practice expenses are allocated to certain services.

For practices, those calculations influence reimbursement for the resources associated with delivering care.

Staffing, equipment, supplies, and overhead costs vary considerably between specialties and settings.

The revised methodology may change the valuation of individual services.

I would want to understand where those changes are occurring, particularly for specialties with significant procedure volume or office-based clinical resources.

A practice can experience reduced reimbursement without changing anything about how it provides the service.

We need to account for those changes when evaluating financial performance.

Don't overlook commercial payer contracts.

I would also review the practice's commercial contracts.

Some agreements reimburse based on a percentage of Medicare. Others use fixed fee schedules or different contractual methodologies.

The specific contract language determines whether Medicare payment changes affect those rates.

I would not assume every commercial payer will reduce reimbursement because Medicare's conversion factor decreased.

I also would not assume those contracts are insulated from the changes.

Practices should know which contracts reference Medicare rates, the applicable fee schedule year, and whether updates occur automatically.

The same caution applies to Medicaid. State Medicaid programs establish their own payment policies, and Medicare changes should not be applied without reviewing the applicable state methodology.

Coding accuracy alone won't protect the financial performance of a practice.

I spend a great deal of time working through coding and documentation questions, but I also think practices need to recognize the limitations of coding as a solution to reimbursement problems.

A claim can be accurately coded and paid according to the payer contract while still generating insufficient reimbursement to cover the cost of providing the service.

There may be no coding error to correct.

I would rather see an organization identify an unfavorable reimbursement trend and evaluate its causes than repeatedly send claims back to the coding department looking for a problem that doesn't exist.

Coding, reimbursement analysis, contracting, and operational costs need to be considered together.

For 2027, I would recommend a detailed comparison of Medicare reimbursement using actual practice utilization.

Review the services, calculate the anticipated changes, and determine the financial exposure.

Then evaluate whether operational adjustments, payer contract discussions, or additional revenue integrity reviews are appropriate.

The 2.31% decrease tells us what happened to the nonqualifying conversion factor. It does not tell us what will happen to an individual practice's revenue.

That requires an analysis of the practice's actual services and reimbursement.

Next in the series: CMS is questioning global surgical payments and postoperative visit assumptions.

SOURCE CMS: CY 2027 Medicare Physician Fee Schedule Final Rule (November 4, 2026)