A 2027 Medicare payment cliff is taking shape for medical practices

Medicare handed physicians a 2.5 percent pay raise to start 2026, but the increase is written to last a single year, and a stack of offsetting cuts is already eating into it. As practices set 2027 budgets, the math points to a payment cliff: the temporary raise lapses Dec. 31, a new Medicare efficiency adjustment keeps shaving the value of thousands of procedural codes, and the long-term fix practices have lobbied for remains stuck in Congress.

Two voices from the Medical Group Management Association have laid out the stakes in recent conversations with Physicians Practice. Andy Swanson, MPA, FACMPE, chief customer success officer at MGMA, has tracked how the cuts land on benchmarking and recruiting. Anders Gilberg, the association's senior vice president of government affairs, has pressed Congress for a structural overhaul. Together they sketch a payment system that practice leaders say is increasingly hard to plan around.

The raise comes with fine print. CMS set two 2026 conversion factors, $33.40 for clinicians outside an advanced alternative payment model and $33.57 for those inside one, in its final rule for the Physician Fee Schedule. The figures fold in a one-year 2.5 percent bump that Congress passed in the One Big Beautiful Bill Act, small statutory updates and a budget neutrality adjustment. The American Medical Association warned that those gains will be blunted or even reversed for some physicians once other changes in the rule are applied, and said the rule could make it harder for independent practices to stay viable.

The biggest of those changes is a new efficiency adjustment, a 2.5 percent cut to the work relative value units and intraservice time of roughly 7,700 non-time-based codes, effective Jan. 1. Time-based services such as office visits and behavioral health are exempt, which largely shields primary care. Procedure-heavy specialties are not as lucky. Swanson told Physicians Practice that surgical and many nonsurgical providers should expect a 1.5 percent to 2.5 percent reduction on affected codes "not tied to the provider's actual performance in encounters, but just on paper."

That lands on top of a year in which physician pay and productivity split for the first time in years, with compensation rising even as encounters fell. Swanson has called two pressures unsustainable over the long term: pay rising while measured production falls, and practice costs climbing while reimbursement stays flat or drops against inflation. "There's going to be a breaking point on reimbursement," he said, describing the combination as "a recipe long term for problems."

The squeeze is sharpest in specialties that are already hard to recruit, including urology, interventional cardiology and diagnostic radiology. Swanson's advice to administrators in those fields is blunt: do not assume you can trim a starting salary by 2.5 percent to absorb the cut. Starting pay has plateaued after its post-pandemic run-up, he said, but it has not fallen, and shaving an offer is unlikely to land a top candidate in a tight market. The better lever, he argued, is schedule and case-mix management, steering high-acuity patients to the specialists equipped for them.

Gilberg has taken the longer-term case to Capitol Hill. In a statement to the House Energy and Commerce health subcommittee, he urged lawmakers to overhaul the payment system and scrap MIPS "tournament" scoring, writing that "Congress must intervene to create long-term stabilization for the Medicare reimbursement system that has long threatened the livelihood of our nation's medical practices." Even with the 2026 increase, he noted, the new rates sit "barely above 2024 reimbursement levels," and he described the Merit-based Incentive Payment System as built on "opaque scoring methodologies and the punitive tournament-style model."

MGMA is backing three bills: one that would tie annual updates to inflation through the Medicare Economic Index, one that would raise the decades-old budget neutrality threshold, and one that would replace MIPS with a new performance system in 2027. None has cleared Congress, and the temporary 2026 raise is set to expire at the end of the year, leaving the underlying structure unresolved.

For practice leaders, the near-term work is operational. Swanson suggests watching one number beyond work RVUs heading into 2027: total visit volume, paired with the size of the patient panel each clinician carries, a metric he says can reset expectations for how many patients providers at each acuity level should handle. "What was old, maybe new again," he said. The efficiency adjustment is not a one-time event. CMS plans to recalculate it every three years, with the next update due in 2029.