If you only read the press release, the 2026 Medicare update sounds like good news: the conversion factor went up. If you actually bill inpatient or skilled nursing facility services for a living, you already know the press release doesn’t capture the whole picture, and the gap between those two realities is exactly why the mpfs 2026 final rule deserves a more careful read than most providers have time to give it.
The Number Everyone’s Talking About
CMS finalized conversion factor increases of 3.77% for Qualifying APM participants and 3.26% for everyone else, driven by a temporary 2.5% pay bump, small baseline adjustments, and a positive 0.49% budget neutrality factor. On its own, that’s the kind of update that would normally translate into straightforward, broad-based reimbursement gains.
But reimbursement isn’t determined by the conversion factor alone. It’s calculated by multiplying the conversion factor against relative value units, and this year’s rule made significant changes to how those RVUs get allocated, particularly for care delivered in facility settings.
The Practice Expense Change That Changes Everything
RVUs are built from three components: physician work, practice expense, and malpractice. Facility-based practice expense RVUs have always been set lower than non-facility rates, reflecting CMS’s assumption that hospitals and skilled nursing facilities absorb the bulk of overhead costs like staffing, space, and equipment. The 2026 final rule pushed those facility-based practice expense RVUs down even further.
For providers whose work happens almost entirely in inpatient or SNF settings, that creates a direct collision between two forces moving in opposite directions: a higher conversion factor pulling reimbursement up, and reduced practice expense RVUs pulling it back down. The net result depends heavily on your specific code mix, location, and Medicare Administrative Contractor, which is exactly why national headlines about the conversion factor increase can be so misleading at the practice level.
The POS 31 vs. POS 32 Distinction Worth Memorizing
Nowhere is this tension more visible than in place-of-service coding. POS 31, for skilled nursing facilities, is paid at the facility rate. POS 32, for nursing facility or long-term care settings, is now paid at the non-facility rate, which can mean meaningfully higher reimbursement for the exact same CPT code, depending entirely on where the documentation places the encounter.
For groups working across both environments, that spread isn’t a minor technical detail this year. It directly shapes revenue mix, and it raises the cost of any place-of-service coding error, whether that error leaks revenue or creates audit exposure.
The Efficiency Adjustment’s Quiet Reach
The final rule also layers in a broad efficiency adjustment, cutting work RVUs by 2.5% and reducing overall payment by roughly 1% for most specialties. Family medicine and psychiatry are largely spared from this particular reduction, and E/M services are excluded from the adjustment directly.
That exclusion offers inpatient providers only partial relief, though. Since so much inpatient billing depends on facility-exclusive services, those services remain exposed to the broader budget neutrality and practice expense redistribution mechanics built into the rule elsewhere, regardless of whether the specific E/M codes are directly targeted.
Telehealth Policy Becomes Permanent
Among the more straightforwardly positive elements of the rule, CMS made several telehealth flexibilities permanent for inpatient and skilled nursing facility care: removing frequency limits on subsequent nursing facility telehealth visits, permanently allowing virtual direct supervision via real-time audio and video, and expanding flexibility for teaching physician presence in virtual settings.
The tradeoff is that as these flexibilities shift from temporary pandemic policy to permanent rule, CMS is expected to apply increased scrutiny to telehealth billing accuracy, originating site eligibility, and supervision documentation going forward.
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Turning the Rule Into a Real Action Plan
Rather than relying on national averages or headline percentages, the more useful approach for inpatient groups is reviewing their highest-volume codes directly against their local Medicare Administrative Contractor’s fee schedule. That typically means examining initial and subsequent inpatient and observation care codes, SNF evaluation and management services, and discharge and critical care codes, since these represent the bulk of revenue for most hospitalist and SNF-focused groups.
Equally important is mapping out your site-of-service distribution. Practices delivering care almost entirely within facility settings have fewer levers available to offset the practice expense redistribution through non-facility billing, which makes understanding your specific exposure a priority rather than an afterthought.
Why Vigilance Matters More Than Ever This Year
The mpfs 2026 final rule doesn’t announce its impact loudly. It shows up gradually, in remittances that trend slightly below projection, in denials that take longer to resolve, and in monthly totals that don’t quite match what the budget assumed. None of that signals failure on its own. It signals a need for closer monitoring than usual.
Groups that review their code-mix exposure now, reconcile documentation against actual place-of-service coding, and track performance quarterly rather than assuming last year’s patterns hold will be far better positioned to catch and correct any gaps before they compound across the full fiscal year.
