The Medicare Physician Fee Schedule: What Otolaryngologists Need to Know

Vinay K. Rathi, MD, and Jack L. Birkenbeuel, MD, MBA, on behalf of the Otolaryngology Private Practice Section Business of Medicine Committee

What Is the Medicare Physician Fee Schedule?

The Centers for Medicare & Medicaid Services (CMS) determines Medicare fee-for-service payment rates using the Medicare Physician Fee Schedule (PFS). Established by Congress in 1992, the PFS provides reimbursement to more than 1.3 million clinicians and covers more than 8,000 services, including office visits, procedures, and imaging. CMS presently spends over $90 billion per year through the PFS, including over $900 million in reimbursement to otolaryngologists. 

Although payment rates under the PFS are specific to Medicare fee-for-service, the PFS shapes physician payment across the entire U.S. healthcare system. Medicare Advantage plans anchor physician reimbursement to PFS rates, and commercial insurers frequently reference PFS rates during contract negotiations. Commercial insurer rates are approximately 1.3- to 1.8-fold higher than PFS rates for physician services (though ratios vary by market and practice). As a result, even minor adjustments to the PFS can have substantial financial implications for physicians and practices.

In the Omnibus Reconciliation Act of 1989, Congress required that the PFS be budget-neutral.  This requires CMS to offset any projected increase in PFS spending by more than $20 million. To offset anticipated spending growth from new services or increased utilization of existing services, CMS reduces payments for other services or implements across-the-board cuts by lowering the annual payment conversion factor (see below).

How Does CMS Determine PFS Payment Rates?

CMS reimburses clinicians based on the estimated resources required to perform services, using the Resource-Based Relative Value Scale, which was developed by economists and compares services on a standard metric—relative value units (RVUs). CMS considers three resource categories:

• Physician work (time and intensity; approximately 50% of all RVUs)
• Practice expenses (direct and indirect costs; approximately 45% of all RVUs)
• Malpractice insurance premiums (approximately 5% of all RVUs)

CMS estimates are strongly informed by recommendations from the Relative Value Scale Update Committee (RUC) of the American Medical Association (AMA), which includes representatives from 22 major national specialty societies, including the AAO-HNS. AMA RUC recommendations to CMS are typically based on surveys of practicing physicians that evaluate the physician work required to perform a service and the associated visits, as well as the associated practice expense (PE) costs (e.g., for supplies, clinical staff time, and equipment).

PFS allocation of PE RVUs differs by place of service. PE RVUs are typically higher for physician services provided in offices because practices bear the direct costs of staffing, equipment, and overhead. In contrast, PE RVUs are generally lower for physician services provided in hospital outpatient departments, which CMS accounts for under a different payment system (the Hospital Outpatient Prospective Payment System). These payments to hospitals are commonly referred to as “facility fees.” To calculate payment for services, CMS applies a monetary conversion factor (the dollar value per RVU, updated annually) with an adjustment for geographic differences in resource costs.

What Was the 2026 Efficiency Adjustment?

Under the 2026 PFS, CMS devalued most procedural services by reducing the number of work RVUs allocated to intraservice time by 2.5%. For surgery, intraservice time is the “skin-to-skin” portion of the procedure. CMS positioned this policy as a reduction to account for increased procedural efficiencies derived from technological and workflow improvements and anticipates it will be reassessed every three to five years.

The “efficiency adjustment” disproportionately impacts procedural specialties. The magnitude of impact on individual otolaryngologists will depend on factors such as payer mix, procedure mix, and compensation model (e.g., based on collections versus work RVU production). CMS is considering additional reforms that could further devalue procedural reimbursement by reducing the work RVUs allocated to global period care.

How Can I Advocate for My Patients and Practice?

All otolaryngologists can help shape Medicare payment policy that affects patient access and the financial stability of our specialty. The AAO-HNS offers members meaningful avenues to effect change, such as:

1. ENT Political Action Committee (PAC)*—donors can bolster support to bipartisan legislators who are committed to the health of our patients and our field.

2. Physician Policy Payment (3P) Workgroup—members can alert the AAO-HNS socioeconomic advisory body to potentially harmful policies (e.g., new prior authorization requirements or non-coverage determinations) that merit a coordinated response by the Academy and allied parties.

3. Project 535—members can serve as the Academy’s “key contact” who communicates with their congressional representatives and staff about legislative issues.

You can read more on Medicare Payment Changes for 2026 to learn five key takeaways summarizing what is changing and how these changes may affect your day-to-day practice.

To learn more about the Academy’s advocacy efforts, visit https://www.entnet.org/advocacy/

This article is part of the Otolaryngology Private Practice Section (OPPS) Business of Medicine Insights series, an initiative providing members with expert guidance on the financial and operational aspects of practice management. To suggest topics and/or contribute to future articles, email OPPS 1st Vice Chair & BOM Chair Nora W. Perkins, MD, at nperkins@albanyent.com.

Join us at the AAO-HNS/F 2026 OTO Forum in Louisville, Kentucky, this March for in-depth conversations on the business of medicine and clinical excellence—open to all otolaryngologists from residents to established practitioners across every practice setting. Learn more and register today! 

_{*Contributions to ENT PAC are not deductible as charitable contributions for federal income tax purposes. Contributions are voluntary, and all members of the American Academy of Otolaryngology–Head and Neck Surgery have the right to refuse to contribute without reprisal. Federal law prohibits ENT PAC from accepting contributions from foreign nationals. By law, if your contributions are made using a personal check or credit card, ENT PAC may use your contribution only to support candidates in federal elections. All corporate contributions to ENT PAC will be used for educational and administrative fees of ENT PAC, and other activities permissible under federal law. Federal law requires ENT PAC to use its best efforts to collect and report the name, mailing address, occupation, and the name of the employer of individuals whose contributions exceed $200 in a calendar year.}