CMS 2026 Medicare Payment Proposals Shift Focus to Primary Care and Outpatient Clinics
The Centers for Medicare & Medicaid Services (CMS) released its 2026 proposed payment rules adjusting Medicare reimbursements for physicians and hospitals, aiming to shift spending towards primary care and freestanding outpatient clinics. These settings often deliver equal or better quality care at lower cost than hospital-owned settings, thus improving overall Medicare value and efficiency within statutory budget neutrality. CMS proposes to reduce reimbursements for hospital outpatient departments (HOPDs) and increase payments for office-based and primary care services, addressing longstanding distortions that have incentivized hospital consolidation and the undervaluing of time-based primary care specialties relative to procedural specialties.
Historically, Medicare has reimbursed hospital-owned clinics at significantly higher rates than freestanding clinics for identical services, encouraging hospital acquisitions of physician practices and increasing market consolidation. Similarly, higher reimbursements for procedural specialties compared to primary care have contributed to a primary care physician shortage by disincentivizing medical students from entering primary care. Undervaluation of primary care results in access challenges for chronically ill patients who need continuous care.
CMS aims to recalibrate the Physician Fee Schedule (PFS) by challenging the American Medical Association’s (AMA) Specialty Society Relative Value Scale Update Committee (RUC), which influences reimbursement rates for physician services. The 2026 proposal introduces an "efficiency adjustment" reducing payment for non-time-based services by 2.5%, redistributing funds to time-based specialties such as primary care and psychiatry, increasing their reimbursement by 1-4%. This adjustment targets inflated valuations of procedural services historically identified by experts and the Government Accountability Office.
The proposal also alters practice expense calculations by moving away from AMA survey data, which CMS cites as flawed due to small samples and measurement errors. Instead, CMS plans to allocate a smaller share of indirect costs to hospital-based services and increase payments for office-based care, better reflecting the actual costs physicians incur in different settings. This change supports reversing Medicare-driven hospital market consolidation.
An expansion of the Primary Care Exception (PCE) for residency programs is recommended to allow primary care residents to deliver higher-level evaluation and management services with indirect supervision, aiding the financial sustainability of residency programs amid primary care shortages. Previously, CMS temporarily expanded services covered under PCE during the public health emergency but has since reversed these expansions.
Within the Outpatient Prospective Payment System (OPPS), CMS proposes site-neutral payment policies for drug administration services in off-campus provider-based departments, aligning payments with lower Physician Fee Schedule rates instead of higher hospital outpatient rates. This approach is projected to save Medicare $280 million in 2026 and reduce patient cost-sharing by $70 million, easing financial burdens for beneficiaries requiring outpatient treatments such as chemotherapy.
CMS also plans to phase out the Inpatient-Only List, allowing more surgical procedures to be reimbursed in outpatient settings like Ambulatory Surgery Centers (ASCs), expanding the list of ASC-eligible procedures by 547 codes. This transition supports quality care delivery at lower costs and could reduce Medicare spending significantly, for example by approximately $1.2 billion annually if joint replacements shift from inpatient to outpatient settings.
These reforms collectively seek to address payment policies that favor costly hospital-based care over efficient, office-based primary care and outpatient services, thereby encouraging competition and improving care accessibility and affordability. The public comment period for the 2026 PFS and OPPS proposals recently closed, with a final rule expected in fall. Industry pushback is anticipated, but CMS is encouraged to maintain and build upon these proposals, particularly expanding the PCE to support primary care workforce development.
Overall, CMS’s 2026 payment proposals mark incremental yet meaningful steps to correct longstanding distortions in Medicare reimbursement structures. By rebalancing payments toward primary care and freestanding clinics and reducing hospital-driven market consolidation incentives, these reforms have potential to improve Medicare’s value and align reimbursements more closely with actual care costs and outcomes.