Where The CY2027 Cuts Come From

Each bar decomposes a specialty's proposed change in Medicare allowed charges into its four policy channels. Negative components extend left of zero, positive components right. The vertical tick marks the net.

CMS publishes specialty impact estimates in the proposed rule's regulatory impact analysis. Those estimates measure the effect of relative value and policy changes. They do not include the change in the conversion factor, because the conversion factor applies to everyone equally and therefore redistributes nothing.

That is a reasonable way for CMS to present redistribution. It is a poor basis for a practice budget, because the conversion factor is real money.

What this changes

A dermatology practice that budgeted against 9 percent has understated its Medicare exposure by roughly a quarter. On a practice collecting four million dollars at a 45 percent Medicare mix, the difference between the reported figure and the all-in figure is about $47,000 a year.

CMS proposes that when a separately identifiable office visit is furnished by the same practice on the same day as a procedure carrying a 0, 10, or 90-day global period, the most expensive service is paid at 100 percent and everything else that day at 50 percent.

Operationally it reaches a single common workflow: diagnose a problem and treat it in the same encounter. Any physician who routinely appends modifier 25 is exposed.

What this changes

Mohs surgery, which is procedurally intensive and rarely billed with a same-day office visit, falls about 5 percent. The office visit and lesion destruction codes that anchor general medical dermatology fall two to six times as much.

Under one rule, in one year, two specialties move in opposite directions by more than twelve points. The mechanism is the G2211 conversion.

CMS proposes turning the visit complexity add-on from a standalone code into a modifier that raises the associated E/M by 16 percent, with a second modifier worth 32 percent for practitioners in a Shared Savings Program ACO. For procedural specialties this is worth a tenth of a point. For a visit-heavy cognitive specialty it is worth 5.4.

What the pairing tells you

Put the modifier 25 proposal and the G2211 conversion side by side and the direction is legible. CMS is moving money away from same-day procedural encounters and toward longitudinal, visit-based, accountable care. Agree with the policy or not, the strategic implication is the same.

Dermatology

The most exposed of the three, and the only one where modifier 25 dominates. Evaluation and management codes are 31 percent of the specialty's allowed charges and CMS's factors imply a 14.5 percent average reduction on those lines.

Opthamology

A milder and far more uniform story, driven by practice expense and the conversion factor. One exception worth naming: intravitreal injection falls 9.6 percent because it is frequently billed with a same-day visit. A retina-weighted practice is meaningfully more exposed than a cataract practice.

Plastic Surgery

The least exposed of the three, with a small Medicare book in absolute terms at $267 million nationally. A large share of plastic surgery revenue is cosmetic and self-pay, entirely outside the fee schedule. For a cosmetically weighted practice this rule is close to a non-event.

CMS publishes a practitioner-level file. It gives the distribution of individual clinicians within each specialty by change in total relative value units. For dermatology the distribution is concentrated at the severe end.

The same is not true elsewhere

Roughly 70 percent of ophthalmologists fall between negative 5 and negative 1 percent. For that specialty the average is a reasonable predictor for an individual practice. For dermatology it is not, and a general dermatology practice and a Mohs-heavy practice inside the same specialty face reductions differing by a factor of four.

Medicare impact percentage, multiplied by your Medicare share of revenue, equals the impact on total revenue. This is the step practices most often skip, and it moves the answer more than any policy variable in the rule.

The same is not true elsewhere

The ordering differs from the Medicare percentages. Ophthalmology has less than half of dermatology's Medicare exposure but a heavier Medicare mix, which closes much of the gap. Plastic surgery has a similar Medicare percentage to ophthalmology and a fraction of the revenue effect.

Two practices in the same specialty, one at 20 percent Medicare and one at 60, are in materially different situations under an identical rule.

A defensible practice-level estimate takes four steps and about a day of analyst time.

The same is not true elsewhere

The ordering differs from the Medicare percentages. Ophthalmology has less than half of dermatology's Medicare exposure but a heavier Medicare mix, which closes much of the gap. Plastic surgery has a similar Medicare percentage to ophthalmology and a fraction of the revenue effect. Two practices in the same specialty, one at 20 percent Medicare and one at 60, are in materially different situations under an identical rule.

01 Reprice your top codes

Take the top twenty to thirty CPT codes by Medicare allowed charges and reprice them against proposed CY2027 relative value units and whichever conversion factor applies to you. CMS publishes Addendum B and a CY2026-to-CY2027 analytic crosswalk alongside the proposed rule.

02 Split by site of service

Apply the facility and non-facility differential to your actual volume distribution. Since CY2026, where you deliver care is a revenue variable independent of anything clinical.

02 Multiply by Medicare share

Skipping step 2 understates exposure for dermatology, otolaryngology, and podiatry. Skipping step 4 overstates it for everyone.

Proposals do change. CMS narrowed the CY2026 efficiency adjustment between proposed and final rules, and the modifier 25 concept is itself a revival of a CY2019 proposal CMS chose not to finalize. Build two budget scenarios, not one.

We matched every allowed service line to its CY2026 final and CY2027 proposed relative value units on HCPCS code, modifier, and facility indicator, priced each at the applicable conversion factor, and weighted by CMS's discount-adjusted allowed services. Policy effects were isolated using the adjustment factors CMS published alongside the rule rather than an estimate of our own, which removes a large source of analyst discretion.

Validation, stated honestly

Reproducing CMS's own published methodology, which excludes the conversion factor, our model returns −10.1 percent for dermatology against CMS's 9, −9.3 for otolaryngology against 9, −7.5 for orthopedic surgery against 7, and −5.6 for hand surgery against 5.

The model runs more negative than CMS in every case, by 0.3 to 1.1 points, and preserves the ordering. The residual is most plausibly the small share of unmatched code lines, budget neutrality redistribution we do not model, and CMS reporting whole percentages without decimals.

For most of the past decade the physician payment conversation was about the conversion factor and whether Congress would patch the annual cut. That conversation still happens, and CY2027 still turns on the expiration of a one-year patch.

But the larger movements are now structural. CMS is rebuilding practice expense methodology, has added a recurring efficiency adjustment falling on procedural work, has made site of service a payment variable, and proposes to apply a multiple procedure reduction to same-day evaluation and management. For dermatology the conversion factor accounts for 1.5 of an 11.6 point reduction. The same-day proposal accounts for 7.5.

For every specialty we examined, the conversion factor is the smallest of the four channels.

The addenda are published. The utilization files with CMS's own adjustment factors are published. The practitioner-level distributions are published. None of this is a surprise to anyone who reads it, and all of it can be run against a specific practice today.

What we would argue against

Reading this as a reason to sell. Physician-owned groups still outperform hospital-owned peers on cost control, and after a decade of research the evidence that consolidation reduces spending remains absent. What has changed is that independence became a more quantitative decision than it used to be. The practices treating it that way are the ones still independent in five years.

Where the margin comes back

This rule cuts revenue, not physician production, so the offset has to work at the entity level too.

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