On January 1, Medicare’s conversion factor drops, and every commercial or MA contract pegged to “current year” Medicare drops with it. No one sends a letter.
Everyone in physician land is watching Washington right now. Will Congress extend the 2.5% bump? Will the final rule soften the blow? Will the specialty societies’ letters land?
That’s the loud story. Here’s the quiet one.
On January 1, Medicare’s conversion factor is scheduled to drop. And for a lot of practices, the bigger hit won’t come from Medicare. It will come from every commercial and Medicare Advantage contract that says “X% of the current Medicare fee schedule.” Nobody will send you a letter about that one.
What’s actually changing
The CY2027 proposed rule sets the non-APM conversion factor at $32.84, down from $33.40 this year, a 1.68% cut. Clinicians in qualifying APMs drop 1.19%, to $33.17.
This is not a new CMS policy. It’s an expiration. The one-time 2.5% increase Congress put into the One Big Beautiful Bill Act covered 2026 and nothing after it. Unless Congress acts, it goes away and current law takes over.
There’s a second expiration stacked on top. The APM incentive bonus, 1.88% this year, is also scheduled to end in 2027. If your practice counted on that check, it’s gone too.
The final rule is expected around November 1. The numbers may move. The direction probably won’t.
The plumbing problem nobody is talking about
Many commercial and MA contracts don’t have their own fee schedules. They borrow Medicare’s. “135% of the prevailing Medicare RBRVS” is one of the most common reimbursement terms in American healthcare.
What matters is which Medicare year the contract points to.
- Floating language (“current year,” “as updated annually”): when Medicare drops on January 1, your commercial rate drops with it. No renegotiation, no notice, no signature.
- Fixed-year language (“2024 Medicare fee schedule”): you’re insulated for now, but you’ve probably been leaving money on the table during the years Medicare went up.
- Silent or ambiguous language: the payer decides. Guess which way.
Run the math. A practice with $2 million a year in commercial revenue on floating, Medicare-pegged contracts loses roughly $34,000 in 2027 from the conversion factor alone, before any code-level RVU changes. That’s real money, and nobody voted on it.
The second-order failure: your denial and underpayment logic
This is where RCM teams get hurt quietly.
Most practice management systems flag underpayments by comparing what was paid against an expected allowable. If your 2026 allowables are still loaded in January, every Medicare-pegged payer will look like it’s underpaying you by 1–2%. Your team will chase variances that aren’t variances, or worse, someone will widen the tolerance to stop the noise. Once that happens, actual underpayments slip through for the rest of the year.
It goes the other way too. If a payer forgets to load the new schedule and keeps paying 2026 rates, you get overpayments. Those come back as recoupments, usually around the end of Q2.
What I’d do in the next 80 days
- Pull every payer contract and find the reimbursement clause. Mark each one floating, fixed, or ambiguous. Most practices don’t know this offhand, and they should.
- Quantify the exposure by payer. Use 2026 paid volume against the proposed 2027 conversion factor, then redo it after the November final rule.
- Use the cut as leverage. If a payer contract floats down with Medicare, January is a reasonable time to ask for an escalator floor. Payers don’t offer this unprompted.
- Schedule the fee schedule load in your PM system. Get the 2027 allowables in before the first January remits post, not after the first month of variance reports.
- Update patient estimates. Good Faith Estimates and self-pay quotes built on 2026 Medicare-pegged rates will be wrong on day one.
- If you’re in an APM, budget without the bonus. Plan as if it’s gone, and treat it as upside if Congress extends it.
The bigger point
Healthcare runs on references. One CMS number drives Medicare, Medicare drives commercial contracts, contracts drive expected allowables, and expected allowables drive which claims your team chases. When the top number moves, everything downstream moves too, whether or not anyone is watching.
Congress may still fix this. The final rule may still soften it. But you don’t want your 2027 revenue plan to depend on Congress acting on time.
The practices that do well in January will be the ones that read their contracts in October.
One quiet plumbing problem a week: the CMS deadline, payer behaviour or code change that reaches your claims before it reaches the headlines. Written by Mihir Rajput, Founder & CEO of Medalyze Medtech.
Healthcare 2030 is a weekly LinkedIn newsletter by Mihir Rajput.
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