Medicare Physician Payment Falls 2.31% in 2027 Final Rule, Hitting Dermatology and Orthopedics Hardest

Medicare will reimburse most physicians 2.31% less per unit of work in 2027 under the final physician fee schedule released by the Centers for Medicare & Medicaid Services (CMS). According to the CMS fact sheet, the conversion factor drops from $33.40 to $32.63 for most clinicians.

The final reduction is steeper than the 1.68% cut CMS had proposed earlier. Clinicians who qualify as participants in advanced alternative payment models will also see a smaller payment factor, with the rate falling 1.83% from $33.57 to $32.95, compared with the 1.19% reduction previously suggested.

For Medicare beneficiaries, the change is subtle but important. Physician organizations say lower reimbursement, paired with increasing practice expenses, could make it more difficult for patients to access comprehensive care. Congress is the only body that can add money to the conversion factor, and lawmakers must act before the new rates take effect on Jan. 1.

The payment formula behind every Medicare visit

Each service billed to Medicare, whether an office visit or a knee replacement, is assigned a value in relative value units. Medicare then multiplies those units by the conversion factor to determine payment. When the conversion factor falls, nearly every service on the fee schedule pays less.

Much of the 2027 decrease stems from the end of a temporary boost. Public Law 119-21, the 2025 federal tax and spending law, provided physicians with a 2.5% increase for 2026 only. Statutory updates of 0.25% for most physicians and 0.75% for participants in alternative payment models offset part of that loss, Medical Economics reported.

The difference between the proposed and final figures came from a technical adjustment linked to the work values of certain services. CMS estimated in July that the adjustment would increase the conversion factor by 0.53%, but in the final rule it became a 0.12% reduction, deepening the cut.

Largest reductions hit dermatology and orthopedic surgery

The overall cut is an average, and some specialties will experience much larger declines because of a new same-day visit policy.

When a physician bills a separate office visit on the same day as a minor procedure with a zero-day follow-up period, Medicare will now pay 20% less for the lower-paid service. The policy applies when the same doctor, or another doctor in the same specialty within the same group, provides both services. CMS had initially proposed a 50% reduction that would also have applied to procedures with 10-day and 90-day follow-up periods, but it narrowed the policy after receiving 44,287 public comments.

CMS expects notable decreases for dermatology, otolaryngology, orthopedic surgery, and hand surgery, according to Chief Healthcare Executive. Final work values for total hip and knee replacements were set at 16.70 units each, down from 19.11, though higher than the 15.37 and 15.94 CMS had proposed. By contrast, clinical psychologists and clinical social workers are projected to see significant gains, with smaller increases expected for physical and occupational therapists, interventional radiology, and vascular surgery.

CMS portrayed the rule as a move toward prevention and coordinated care. "For too long, fee-for-service payment has rewarded volume over value, fueling a reactive system of sick care," CMS Administrator Dr. Mehmet Oz said. The rule adds a new billing modifier that increases payment for office visits by 32% when provided by clinicians in Medicare Shared Savings Program accountable care organizations (ACOs) or the Long-term Enhanced ACO Design Model. Beginning April 1, 2027, CMS-approved ACOs may also reduce or eliminate Part B cost sharing for assigned patients for most items and services.

Primary care physicians see the policy differently. The American Academy of Family Physicians said lower rates and the new same-day cut "could make it harder for Medicare patients to get the comprehensive care they need."

Congress remains the only way to change the rate

CMS writes the rules, but federal law determines the size of the annual update. The agency cannot raise the conversion factor on its own, and any change in relative values expected to increase spending by more than $20 million must be offset by cuts elsewhere in the fee schedule.

Congress has acted before. Lawmakers approved temporary increases to cushion fee schedule cuts in five of the last six years, according to MGMA government affairs staff quoted by Medical Economics in its review of 2027. Federal funding runs out on Dec. 11, setting up a year-end spending fight in which physician pay could be increased.

Whether that will happen is unclear. Republicans control both chambers until the new Congress is sworn in on Jan. 3, after Democrats won majorities in the House and Senate in the Nov. 3 election. Separately, Medicare telehealth flexibilities have already been extended through Dec. 31, 2027. Physician groups have also pushed for a permanent inflation-based update, but no such change has been adopted.

What patients should know before the new year

The payment cut does not change Medicare coverage. In traditional Medicare, the 20% Part B coinsurance is based on the approved amount, so a slightly lower rate may reduce that share for people without supplemental coverage.

The impact on access is harder to predict. Patients most likely to notice changes include those who depend on dermatology, ear, nose and throat, or orthopedic care. People who usually combine a skin check with a minor procedure in one visit may want to ask whether offices plan to change scheduling in 2027.

People choosing Medicare coverage can review their options before the annual enrollment window closes. Those in Medicare Advantage should confirm that their doctors remain in network, while people in traditional Medicare can ask whether a practice is still accepting new Medicare patients. Anyone with a worsening condition should not delay care while the payment rules change, since the adjustment affects reimbursement, not coverage.

Upcoming developments to watch include any year-end congressional action and the rule’s formal publication in the Federal Register. MedicalDaily will follow whether lawmakers alter the 2027 rate before it takes effect and how specialty practices respond.

Key questions answered

How much will Medicare cut physician pay in 2027? Most physicians face a 2.31% conversion factor cut, from $33.40 to $32.63. Clinicians in qualifying alternative payment models face a 1.83% cut.

Why is the final cut deeper than expected? A technical adjustment tied to work values shifted from an estimated 0.53% increase in July to a 0.12% reduction in the final rule.

What is driving most of the cut? A one-time 2.5% increase for 2026 under Public Law 119-21 is expiring.

Which specialties are hit hardest? Dermatology, otolaryngology, orthopedic surgery, and hand surgery, largely because of the new same-day visit payment reduction.

Can Congress stop the cut? Yes. Only Congress can add money to the conversion factor, and it has passed temporary fixes in five of the last six years.

Will Medicare coverage change? No. The rule changes what doctors are paid, not what Medicare covers.