Practice Management Alert

CMS is proposing making PE reimbursement more responsive to current market conditions.

In the CY 2027 Medicare Physician Fee Schedule (MPFS) proposed rule, the Centers for Medicare & Medicaid Services (CMS) is proposing to change its methodology for calculating practice expense (PE) relative value units (RVUs).

The changes, if finalized, could affect practice reimbursement for years, potentially redistributing Medicare payments across specialties and practice settings. Here’s what you need to know.

Understand the PE RVU Background

Every MPFS payment is built on three RVU components — work RVU (physician time, effort, skill, and judgement); practice expense RVU (staff, supplies, equipment, overhead); and malpractice RVU — that are intended to reflect the relative resources required to furnish a Medicare-covered service. Many outpatient practices that provide office-based services rely on PE RVUs as a substantial portion of their total reimbursement. Changes to the methodology that CMS uses to calculate PE RVUs could alter reimbursement even when coding, documentation, work RVUs, and malpractice RVUs remain unchanged.

Historically, CMS has relied on physician surveys, disseminated through organizations like the AMA, to collect information and analyze data on practice expenses. CMS says it has concerns about low survey response rates, inconsistencies in the collected data (such as significant variation in collection methods between specialties), lack of routine updates, and potential discrepancies in the data between survey estimates and actual costs, and is thus proposing changes to the framework for evaluating and setting PE RVUs.

CMS has used the aforementioned physician surveys for years to estimate indirect overhead costs at the specialty level. Portions of the current PE methodology remain tied to specialty-level PE-per-hour survey data that may date to 2007 or earlier, which CMS believes may not fully reflect current practice costs, as physician practices operated in a markedly different environment during that time. Since then, practices have experienced significant changes in labor costs, technology adoption, regulatory requirements, and care delivery models, leading CMS to question whether historical PE-per-hour data continues to accurately represent current indirect practice expenses. CMS believes reducing reliance on these legacy data sources could improve payment accuracy, but questions remain about whether a new or different methodology would adequately capture specialty-specific cost differences.

Get a Handle on What CMS is Proposing

CMS proposes to phase out the final adjustment step that aligns specialty-level PE RVUs with historical PE-per-hour expense data. According to CMS, the proposal would not eliminate direct PE inputs, physician work RVUs, or specialty-specific indirect allocators; rather, it would remove a historical adjustment that ties overall PE RVUs to older specialty expense data. CMS proposes implementing a PE “stabilizer” designed to reduce abrupt fluctuations during the transition.

The PE RVU proposal does not change CPT^® coding, modifier usage, or compliance or documentation requirements. However, it could significantly alter how Medicare reimbursement is distributed across specialties and practice settings by changing the methodology used to calculate practice expense RVUs.

If the proposed changes are finalized, a practice may code and document encounters and services in the same ways but potentially earn less through reimbursement, because PE RVUs are a major component of payment for many office-based services. Different specialties may gain reimbursement while others lose money, and the impact could be felt beyond 2027, as the payment rates could be influenced for years to come.

Some Specialties May Face Larger Impact

If CMS moves toward more objective and auditable cost measures, some specialties may find that historical PE assumptions favored them, while others may benefit from a modernized methodology; CMS acknowledges that these reforms are intended to make payments more sensitive to current market conditions.

Note, also, that CMS is requesting public comment about whether current facility versus nonfacility payment assumptions remain appropriate. Changes to these payments could significantly impact independent physician practices, hospital-employed physicians, multispecialty groups, and office-based procedural practices, depending on who truly bears the overhead costs associated with delivering care.

Office-based practices should evaluate the projected financial impact and consider commenting if they believe the proposed methodology does not accurately reflect their current overhead and operating costs. Other questions practices could ask include:

1. Which services generate the majority of Medicare revenue?
2. What percentage of payment for those services comes from PE RVUs?
3. Do current Medicare assumptions accurately reflect staffing, equipment, rent/mortgage, technology, and supply costs?
4. Would updated cost data increase or decrease payment for our practice model?
5. Do current facility/nonfacility differentials reflect real-world expenses?

While the immediate effects may be hard to determine and quantify, practices should continue to pay attention to these proposed changes as the rule is examined and possibly finalized. Moving from the current methodology to a more dynamic approach intended to reflect current costs and market conditions could have significant impacts on some specialties, though the specifics may be difficult to determine until the changes are implemented. CMS is accepting public comment electronically until Sept. 14, 2026.

Rachel Dorrell, MA, MS, CPC-A, CPPM, Production Editor, AAPC