Medicare 2027 Practice Expense Rule: 5% Cap, 2-Year Phase-In

CMS proposes to remove the indirect practice cost indices from Medicare practice expense values over 2 years, and to cap the 2027 practice expense change for most unchanged codes at 5.0%. The American Medical Association's July 2026 summary of the proposed rule says those indices run from 0.6 to 2.2 by specialty, so the removal moves money between specialties.

The proposed rule came out on July 14, 2026. The comment period closed on September 14, 2026. If CMS finalizes it, the changes take effect on January 1, 2027.

What Changes in the Practice Expense Formula

Practice expense relative value units, or PE RVUs, pay for rent, staff, supplies and equipment. They make up a large part of what Medicare pays for a typical office visit or procedure. CMS proposes three changes to how it builds them, according to the AMA's summary of the proposed rule.

• Indirect practice expense would be allocated using both physician work RVUs and clinical labor, for every service except 10-day and 90-day global period codes.
• The specialty-level indirect practice cost indices, which range from 0.6 to 2.2, would be removed from the PE RVU calculation over a 2-year transition.
• A stabilization adjustment would hold PE changes to no more than 5.0% a year for services that are not new, revised or revalued.

The AMA notes that CMS gave no reason for excluding the 10-day and 90-day global codes. The AMA says those codes would lose out in any redistribution the change causes. Surgical and procedural practices should check which of their top codes carry a global period.

How the 5.0% Stabilizer and the 19% Limit Work Together

Medicare already limits the damage a single year can do. By statute, a code that is not new or revised cannot lose more than 19.0% of its total RVUs in one year, according to the AMA. The proposed stabilizer is tighter and applies first.

The order matters for budgeting. The 5.0% stabilizer applies to practice expense before the statutory phase-in. Under the proposal, no unchanged service would see its practice expense value move more than 5.0% in a year before the 19.0% limit is tested.

Limit	Size	What it covers	Applied
Proposed PE stabilizer	5.0% per year	PE RVUs of services not new, revised or revalued	First, before the phase-in
Statutory phase-in	19.0% per year	Total RVUs of codes that are not new or revised	Second
IPCI removal	2 years	Specialty indices from 0.6 to 2.2	Transition 2027 to 2028

Source: American Medical Association, 2027 Medicare Physician Payment Schedule and Quality Payment Program Proposed Rule Summary, July 2026.

The Conversion Factor Underneath

Practice expense changes move relative values. The conversion factor turns those values into dollars. CMS's July 14, 2026 fact sheet proposes two conversion factors for 2027.

Group	2026	Proposed 2027	Change
Qualifying APM participants	$33.57	$33.17	-1.19%
Non-qualifying participants	$33.40	$32.84	-1.68%

Source: CMS, CY 2027 Medicare Physician Fee Schedule proposed rule fact sheet, July 14, 2026.

The drop comes from the end of the one-year 2.5% increase Congress gave for 2026. Offsetting items are small. CMS applies a 0.53% adjustment to balance coding and payment changes, and the statutory update is 0.75% for qualifying participants and 0.25% for the others. The anesthesia conversion factors fall 0.89% for qualifying participants and 1.38% for the others, to $20.4165 and $20.2143.

The AMA cites CMS's own projection that the Medicare Economic Index, the measure of physician practice cost growth, will be 2.5% for 2027. For a practice outside an advanced alternative payment model, that is a 1.68% cut against 2.5% cost growth, a gap of 4.2 percentage points.

Facility Versus Office: The 2026 Cut Carries Over

The 2026 rule cut the work-RVU share of facility practice expense to half the non-facility amount. The AMA says that cut reduced facility-based payment by 7.0% and raised office-based payment by 4.0%.

CMS now calls some results of that policy "unintended, but significant." It proposes to restore equal payment for nursing facility visits in 2027. It also asks for comment on three options: a percentage below 50.0%, a new modifier to identify employed physicians, or other methods.

Independent practices billing in the office gained from the 2026 split. Practices that perform procedures in hospitals or surgery centers lost. A practice with both should split its Medicare revenue by place of service now, so it can model 2027 under each option.

Other Proposed Items That Touch Billing

• CMS proposes to accept 88.0% of the AMA/Specialty Society RVS Update Committee recommendations on new and revised codes, and 100.0% of the Health Care Professionals Advisory Committee recommendations.
• Two complexity add-ons would raise the associated E/M payment by 16.0% for the first and 32.0% for the ACO longitudinal care add-on, according to CMS.
• When a global procedure and an E/M visit happen on the same day, CMS would pay the most expensive service at 100.0% and the other at 50.0%.
• CMS proposes to pause collection of CPT code 99024 post-operative visit data, citing burden on physicians.
• Clinical laboratory fee schedule cuts would continue at up to 15.0% a year through 2029.
• Telehealth authority for non-behavioral services would extend through December 31, 2027.

What an Administrator Can Do Before the Final Rule

The rule is still a proposal, so the numbers can change before January 1, 2027.

Pull the 20 highest-paid Medicare codes for the last 12 months. Mark which have a 10-day or 90-day global period and which are billed in a facility. Then apply the 5.0% stabilizer and the 1.68% conversion factor drop to each. That gives a worst-case range for Medicare revenue per code before the specialty-level index changes are known.

Sources

• American Medical Association, 2027 Medicare Physician Payment Schedule and Quality Payment Program Proposed Rule Summary, July 2026
• CMS, Calendar Year (CY) 2027 Medicare Physician Fee Schedule Proposed Rule fact sheet, July 14, 2026