The PFS rule is the annual regulation issued by the Centers for Medicare & Medicaid Services (CMS) that sets payment rates for physician and clinical services covered under Medicare Part B. It determines how much Medicare pays for everything from office visits and surgeries to diagnostic tests and telehealth appointments, affecting more than a million healthcare providers across the United States.
Short for the Physician Fee Schedule rule, the PFS is published every year in the Federal Register as a “major annual rule.” It doesn’t just set prices. It also updates billing codes, expands or restricts which services are covered, adjusts quality reporting requirements, and implements policy changes that ripple through the entire healthcare system.
How the Payment Formula Works
Every medical service covered under the PFS is assigned a numerical weight called a Relative Value Unit, or RVU. Each service has three RVU components: one reflecting the physician’s work (time, skill, and judgment involved), one for practice expenses (rent, staff, equipment), and one for malpractice insurance costs. These three components are added together to produce a total value for the service.
Because it costs more to run a medical practice in Manhattan than in rural Arkansas, CMS applies a Geographic Practice Cost Index (GPCI) to each of the three RVU components. The GPCI adjusts payment up or down based on the cost of practicing medicine in a given area. The adjusted RVU total is then multiplied by a single dollar amount called the conversion factor, which translates the relative value into an actual payment.
For 2025, the conversion factor is $32.35, a decrease of about 2.83% from the 2024 value of $33.29. Congress sometimes intervenes with legislation to adjust these numbers. In March 2024, for instance, President Biden signed the Consolidated Appropriations Act, which provided a 2.93% update to the conversion factor for the remainder of that year.
What the PFS Rule Covers
The PFS is the primary payment method for a broad range of Medicare services:
- Professional services from physicians and other providers in private practice
- Services furnished “incident to” a physician’s care (excluding certain drugs)
- Diagnostic tests other than clinical laboratory tests
- Radiology services
Each year’s rule also introduces or modifies specific billing codes. One notable recent addition is the G2211 add-on code, which allows providers to bill extra for office visits involving complex, ongoing patient relationships. No specific diagnosis is required to use it. Instead, it captures the added complexity of managing a serious or chronic condition over time through shared decision-making and a continuous care plan. The code is appropriate when a practitioner has taken responsibility for a patient’s long-term care, not for one-off visits.
The Annual Rulemaking Cycle
CMS follows a predictable schedule. In the summer, typically July, the agency publishes a proposed rule laying out planned changes for the following calendar year. A public comment period follows, during which providers, professional organizations, and other stakeholders submit feedback. CMS reviews those comments and publishes the final rule in November, with most changes taking effect on January 1 of the next year. The CY 2026 final rule, for example, was published on November 5, 2025.
This cycle means providers, hospitals, and billing departments spend the fall preparing for new payment rates, updated codes, and revised policies before they go live at the start of the year.
Quality Payment Program Requirements
The PFS rule also sets policies for the Quality Payment Program (QPP), which ties a portion of Medicare payments to performance metrics. Most providers participate through a track called MIPS (Merit-based Incentive Payment System), which scores them on quality measures, cost efficiency, improvement activities, and use of health information technology.
In recent years, CMS has been shifting MIPS toward specialty-specific frameworks called MIPS Value Pathways, or MVPs. The 2025 rule finalized six new MVPs covering ophthalmology, dermatology, gastroenterology, pulmonology, urology, and surgical care. It also consolidated two neurology-focused pathways into a single one. These pathways aim to make quality reporting more relevant to what a given specialist actually does, rather than forcing all providers through the same generic measures.
Telehealth Provisions
The PFS rule has become a major vehicle for telehealth policy. Through December 31, 2027, Medicare beneficiaries can receive telehealth services from anywhere in the United States, not just from rural areas or medical facilities. An expanded range of practitioners can bill for telehealth during this period, and audio-only phone visits remain covered.
Starting January 1, 2028, the rules tighten significantly. For most non-behavioral-health services, patients will need to be located in a medical facility in a rural area to receive telehealth. Behavioral health is the major exception: Congress permanently removed geographic and location restrictions for behavioral health telehealth, meaning patients in both rural and urban areas can continue receiving mental health care by video or phone from home indefinitely.
The CY 2026 rule also permanently removed limits on how often certain telehealth visits can be billed, specifically for follow-up inpatient visits, nursing facility visits, and critical care consultations.
Provider Eligibility Changes
The PFS rule periodically expands which types of providers can bill Medicare directly. Starting January 1, 2024, Marriage and Family Therapists (MFTs) and Mental Health Counselors (MHCs) gained the ability to bill Medicare independently for mental health services. Their reimbursement rate is set at 75% of what a clinical psychologist receives under the fee schedule for the same service. This change was designed to expand access to behavioral health care, particularly in areas with provider shortages.
Why It Matters Beyond Medicare
Although the PFS technically governs only Medicare Part B, its influence extends far beyond the program. Many private insurers and Medicaid programs use Medicare rates as a benchmark when setting their own payment levels. When the PFS raises or lowers the value assigned to a particular service, commercial payers often follow. Changes to billing codes and coverage policies introduced through the PFS rule frequently become industry standards within a year or two. For patients, the rule shapes which services are readily available, how long appointments last, and whether providers in their area continue accepting Medicare.