Glossary · Reimbursement

Conversion factor (CF)

The conversion factor (CF) is a national dollar multiplier—set at $32.3465 for 2025—that CMS multiplies by a service's geographically adjusted relative value units (RVUs) to produce the Medicare-allowed payment for that service under the Physician Fee Schedule.

Verified May 8, 2026 · 7 sources ↓

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Definition

Source · Editorial summary grounded in 7 cited references ↓

Under the Medicare Physician Fee Schedule, every CPT code carries a set of relative value units reflecting physician work, practice expense, and professional liability insurance. Those RVUs are first adjusted for local costs using Geographic Practice Cost Indices (GPCIs), then multiplied by the CF to yield an actual dollar payment. The CF is the single national number that converts an otherwise unitless RVU total into a reimbursement check.

CMS recalculates the CF every year through a statutory formula that weighs growth in the total Medicare beneficiary population, economy-wide medical inflation, legislative changes, and whether spending on physician services in the prior year exceeded or fell short of a benchmark target. When aggregate spending runs over target, the formula pulls the next year's CF downward to restore budget neutrality; a budget neutrality adjuster is also applied whenever RVU changes across the fee schedule would shift total Medicare outlays by more than $20 million. The 2025 CF of $32.3465 represents the fifth consecutive annual reduction, a cumulative real-dollar decline when inflation is factored in.

The CF applies separately to facility and non-facility payment amounts. A total knee arthroplasty performed in a hospital setting uses the facility CF calculation, whereas the same procedure coded in a freestanding ambulatory surgery center uses the non-facility rate. Private payers often anchor their own fee schedules to a percentage of the Medicare CF, so movement in the CF ripples well beyond Medicare claims.

Why it matters

A CF cut of even 2–3% compresses every Medicare-covered orthopedic service simultaneously—from a level-4 office visit to a complex revision arthroplasty—without any change in the underlying RVU values or the work performed. Because many commercial contracts are written as a percentage of the Medicare fee schedule, a CF reduction can trigger automatic cuts across a practice's entire payer mix. Practices that fail to monitor annual CF updates risk building budgets and compensation models on stale dollar figures, leading to underprojected revenue, erroneous cost estimates presented to patients, and misaligned contract renegotiation positions.

Common mistakes

Where people most often go wrong with this concept.

Source · Editorial brief grounded in cited references ↓

Confusing the CF with the RVU itself: the CF is the dollar multiplier applied after RVUs are tallied, not a standalone payment amount.
Forgetting that the CF differs for facility versus non-facility settings, causing incorrect payment estimates for the same CPT code billed in different sites of service.
Assuming the CF is fixed mid-year: Congress has passed mid-year patches before, so using a January CF for year-end projections without checking for legislative updates can overstate or understate revenue.
Applying last year's CF when calculating patient cost estimates or verifying EOBs, especially in Q1 before practice management systems are updated.
Treating the CF as the only variable when revenue drops: RVU revaluations and GPCI changes can move payment amounts independently of the CF.

Related codes

Codes commonly involved when this concept appears in practice.

CPT

Modifiers

26 Professional component 52 Reduced services

Frequently asked questions

Source · Generated from the editorial pipeline, verified against 7 cited references ↓

01What is the Medicare conversion factor for 2025?

CMS finalized a 2025 conversion factor of $32.3465, a reduction of approximately 2.8% from the 2024 value and the fifth consecutive annual cut.

02How is the conversion factor used to calculate a Medicare payment?

Multiply the total geographically adjusted RVUs for a CPT code by the CF. For example, if a service carries 10.0 adjusted RVUs and the CF is $32.3465, the Medicare-allowed amount is approximately $323.47 before any deductible or coinsurance.

03Why does the conversion factor keep decreasing?

The statutory formula penalizes years in which aggregate Medicare physician spending exceeds a target growth rate, and a budget neutrality requirement forces CMS to offset RVU increases in one specialty with reductions elsewhere. Congress has not passed permanent inflation-linked increases, so the CF has eroded in real terms over time.

04Does the conversion factor apply to private payer claims?

Not directly, but many commercial contracts are structured as a percentage of the Medicare fee schedule, so a lower CF mechanically reduces the allowed amount under those contracts as well.

05Is the CF the same for a procedure done in a hospital versus an office?

The same national CF dollar value is used, but the total RVU inputs differ by site of service—facility rates exclude the practice expense component that is bundled into the facility's own payment—so the resulting dollar amounts are not the same.

06Can CMS change the conversion factor outside of the annual final rule?

CMS cannot unilaterally alter the statutory formula, but Congress can and has enacted mid-year patches that temporarily raise or hold the CF. Providers should monitor legislative activity throughout the year, not only in November when the final rule is published.

Sources & references

Editorial content was developed using the following public sources. Last verified May 8, 2026.

Mira AI Scribe

Mira's documentation layer does not select or override the CF—that value is set nationally by CMS—but it participates meaningfully in the variables the CF acts upon. Specifically, Mira flags site-of-service discrepancies (facility vs. non-facility) that change which CF-based rate schedule applies to a claim. When a note documents a procedure performed in a hospital outpatient department but the claim is queued to a non-facility fee schedule, Mira surfaces that mismatch before submission, preventing both overpayment exposure and underpayment. Mira also uses the current CF when generating real-time patient cost estimates: it retrieves the operative CPT codes and modifiers from the structured note, pulls the corresponding total RVUs, applies the active CF, and returns a dollar-denominated estimate that reflects the correct payment year. During year-end transitions, Mira prompts coders to confirm which CF is active for dates of service that straddle the January 1 rule change, reducing the risk of estimates or pre-authorization requests being built on a superseded value. Because many commercial contracts reference a percentage of the Medicare fee schedule, Mira's contract optimization module also accepts a user-defined CF multiplier so that payer-specific allowed amounts can be benchmarked accurately against the Medicare baseline.

See Mira's approach

Related terms

Relative Value Unit (RVU) Reimbursement

A Relative Value Unit (RVU) is a numeric weight assigned to each CPT code that quantifies the resources required to perform a medical service; when multiplied by a conversion factor and geographic adjustments, it determines Medicare and commercial payer reimbursement.

Geographic Practice Cost Index (GPCI) Reimbursement

A Geographic Practice Cost Index (GPCI) is a Medicare locality-specific multiplier applied to each of the three RVU components—physician work, practice expense, and professional liability insurance—to adjust the Physician Fee Schedule payment for local cost differences. Together, the three GPCIs ensure that reimbursement reflects what it actually costs to deliver care in a given market.

Work RVU (wRVU) Reimbursement

A Work Relative Value Unit (wRVU) is a CMS-assigned numeric weight reflecting the physician time, skill, effort, and clinical judgment required to perform a specific CPT-coded service. It is the largest of the three RVU components and is the metric most commonly used to measure and compensate physician productivity.

CPT code Coding

A CPT code is a standardized five-digit numeric code, maintained by the AMA, that identifies a specific medical or surgical service for billing and reimbursement purposes. In orthopedics, CPT codes cover everything from office visits and joint injections to complex spinal fusions and total joint replacements.