Medicare Physician Fee Schedule (PFS)

The Medicare Physician Fee Schedule has governed Part B physician payments since January 1, 1992. For every covered service, CMS assigns three categories of relative value units (RVUs): physician work, practice expense, and malpractice expense. Those RVUs are adjusted for geographic cost differences using Geographic Practice Cost Indices (GPCIs), summed, and then multiplied by the conversion factor—a single dollar-per-RVU figure CMS sets each calendar year through federal rulemaking—to produce the national allowed amount. Medicare then pays 80 percent of that allowed amount once the annual deductible is satisfied; the beneficiary or a secondary payer is responsible for the remaining 20 percent coinsurance.

CMS publishes proposed PFS rules each July in the Federal Register and finalizes them in November, with changes effective January 1 of the following year. The conversion factor is subject to statutory budget-neutrality requirements: when RVUs increase for some services, CMS must reduce the conversion factor to prevent total PFS spending from exceeding a legislated ceiling unless Congress acts to offset those cuts. For CY 2026, CMS finalized two separate conversion factors for the first time under MACRA: $33.5875 for Advanced APM Qualifying Participants (a roughly 3.84 percent increase over 2025) and $33.4209 for all other providers (roughly 3.32 percent higher). These are the first positive updates in six years, though orthopedic specialty societies note cumulative inflation-adjusted losses since 2001 remain substantial.

The Medicare Physician Fee Schedule Database (MPFSDB) is the authoritative file CMS releases to Medicare Administrative Contractors (MACs) each year. It contains the total fee schedule amount, component RVU values, geographic adjusters, and payment policy indicators for every active HCPCS/CPT code. MACs implement these amounts on January 1; any mid-year legislative changes—such as the March 2024 Consolidated Appropriations Act correction that raised the CY 2024 conversion factor from $32.74 to $33.29—require CMS to release updated payment files to MACs.

For orthopedic practices, the PFS conversion factor and RVU assignments directly set the upper ceiling on Medicare revenue for every procedure and evaluation and management visit. Billing above the fee schedule amount yields no additional Medicare payment—the allowed charge is always the lower of the billed charge or the fee schedule amount. Misidentifying the correct facility versus non-facility rate (which differ because practice expense RVUs diverge by site of service) routinely causes either underbilling in the office setting or incorrect expectations for ASC cases. Budget-neutrality-driven conversion factor cuts also create year-over-year revenue cliffs that affect staffing and practice viability, which is why AAOS and AAHKS file formal comment letters annually and why tracking the final rule—not just the proposed rule—is essential before January 1 each year.