2026 Medicare Physician Fee Schedule: What Dermatology Practices Need to Know

The 2026 rule took effect January 1, 2026. This guide explains what changed, why dermatology felt it differently from other specialties, which code families were affected, and what to check in your own numbers before 2027 begins.

What this guide covers:

• The key numbers at a glance

• How Medicare calculates dermatology payment

• The five 2026 changes that matter for dermatology

• Impact by code family

• How different dermatology practices fared

• Office vs facility payment

• Ripple effects on Medicare Advantage and commercial contracts

• What to do now

• Looking ahead to 2027

• FAQs

Updated October 2026. The 2027 look-ahead will be updated when CMS publishes the final CY 2027 rule.

The Key Numbers at a Glance

Sources: CMS CY 2026 final rule fact sheet, AAMC summary, King & Spalding summary.

How Medicare Calculates Dermatology Payment

Every service on the Medicare Physician Fee Schedule is paid with the same formula:

Payment = [(Work RVU × Work GPCI) + (Practice Expense RVU × PE GPCI) + (Malpractice RVU × MP GPCI)] × Conversion Factor

Each code also has two practice expense values: non-facility (performed in your office, where you pay for staff and supplies) and facility (performed in a hospital or ASC, where the facility bills for those costs).

Illustrative example only: a hypothetical service worth 2.00 total RVUs, at a GPCI of 1.0, paid 2.00 × $32.3465 = $64.69 in 2025 and 2.00 × $33.4009 = $66.80 in 2026, a 3.26% increase. But if that service is a procedure whose work RVUs were cut by the 2.5% efficiency adjustment, its total RVUs fell slightly too, so the real increase was smaller. For a facility-based service, the practice expense cut could erase the gain entirely.

That's why the conversion factor alone never tells the whole story. RVU changes, site of service and same-day billing rules can move payment much more than the headline number.

The Five 2026 Changes That Matter for Dermatology

CMS finalized the CY 2026 rule (CMS-1832-F) on October 31, 2025. Five policies shaped dermatology payment.

1. A higher conversion factor, partly temporary

The conversion factor rose to $33.4009 for most practices. It combines a 0.25% statutory update, a 0.49% budget neutrality adjustment, and a one-year 2.5% increase added by Congress. That last piece applies to 2026 only, which is why the 2027 conversion factor is expected to fall.

For the first time, Medicare also uses two conversion factors: a slightly higher one ($33.5675) for clinicians who qualify through an advanced alternative payment model (APM), and the standard one for everyone else. Most dermatology practices use the standard rate.

2. The efficiency adjustment

CMS cut work RVUs and intraservice time by 2.5% for services that aren't time-based (King & Spalding summary). CMS's reasoning is that procedures get faster as techniques and technology improve. The 2.5% equals five years of the Medicare Economic Index productivity adjustment, and CMS plans to apply it again periodically.

For dermatology this matters because:

• Almost every dermatology procedure, including biopsies, destructions, shave removals, excisions, repairs and Mohs, is non-time-based, so all of them took the cut.

• Office E/M visits are time- or MDM-based and were exempt.

• The cut reduces the work RVU itself, so it carries into every future year until CMS revalues the code.

3. Site-of-service practice expense changes

CMS reduced the work-based portion of indirect practice expense for services billed in facility settings (hospital outpatient departments and ASCs) to half the amount allowed in office settings. The logic: hospital-employed physicians no longer carry most office overhead.

• Office-based dermatology generally held steady or gained slightly, since money shifted toward non-facility payment.

• Hospital-employed and facility-based dermatologists saw lower physician payments for the same codes. Before the rule was final, the AADA estimated about a quarter of dermatologists work in settings exposed to this cut.

4. Skin substitutes move to a flat rate

Starting January 1, 2026, most skin substitutes are paid as incident-to supplies at a single national rate instead of product-specific ASP-based prices. The final rule set about $127.28 per square centimeter, later corrected to $127.14 per sq cm. Biologics licensed under Section 351 of the Public Health Service Act stay on ASP-based payment.

Dermatology practices that treat chronic wounds or use skin substitutes after Mohs or excisions should confirm their 2026 payments reflect the new rate and that the application procedure codes are billed correctly.

5. Prior authorization for skin substitutes in some states

CMS's new WISeR model added mandatory prior authorization for certain services, including skin substitutes, in select states starting in 2026. Check whether your state is included before applying covered products to Medicare patients.

The net effect

In 2026, a higher conversion factor masked code-level cuts. An office-based medical dermatology practice likely came out ahead. A procedure-heavy or facility-based practice may have seen flat or lower Medicare payments despite the headline increase.

2026 Impact by Code Family

In 2026, every code got the conversion factor increase. What decided the net result was whether the code took the efficiency cut and where it was performed.

In a facility setting, the same procedure codes also took the indirect practice expense cut, which could turn a modest gain into a loss.

The exact change for each code depends on its RVU mix. Compare your top codes' 2025 and 2026 rates for your locality in the CMS Physician Fee Schedule Look-Up Tool.

If you want these rate changes applied to your claims, see our dermatology coding services.

How Different Dermatology Practices Fared in 2026

The volume effect

Small per-code changes add up in dermatology because a handful of codes are billed in very high volume. A practice billing thousands of biopsies and destructions a year can see a meaningful swing in annual Medicare revenue from a change of a few dollars per code. That's why tracking your top codes by volume and by dollars matters more than the headline conversion factor.

Office vs Facility: Why Site of Service Matters More Now

Most dermatology happens in the office, where the practice pays for staff, supplies and equipment and bills the higher non-facility rate. When the same service is performed in a hospital outpatient department or ambulatory surgery center, the physician bills the lower facility rate and the facility bills separately.

Since 2026, the gap is wider. CMS reduced the work-based portion of indirect practice expense for facility services to half of the office amount, on the theory that hospitals now carry many of those overhead costs.

Practical check: confirm that the place-of-service code on each claim matches where the service actually happened. POS 11 (office) pays the non-facility rate; POS 22 (hospital outpatient) and POS 24 (ASC) pay the facility rate. A wrong POS code either underpays you or creates an overpayment you'll have to refund.

Ripple Effects: Medicare Advantage, Commercial Contracts and Medicaid

The Medicare fee schedule sets the price floor for much of the market, so its changes rarely stay inside traditional Medicare.

• Medicare Advantage. Many MA contracts pay a percentage of the current Medicare fee schedule, so the 2026 increase, and the 2026 code-level cuts, flowed through automatically on January 1, 2026.

• Commercial contracts. Contracts written as "X% of Medicare" track the fee schedule. Check whether yours reference the current year's schedule or a fixed base year. A fixed base year means you didn't get the 2026 increase.

• Payment policies. Several commercial payers already reduce payment for E/M visits billed with modifier 25 or apply multiple-procedure reductions. Review each payer's current policy, since these often change mid-year.

• Medicaid. State Medicaid fee schedules are set separately, but many benchmark to Medicare. Check whether your state updated its rates for 2026.

Action: pull your top five payer contracts and note, for each, the fee schedule reference year, any modifier 25 or multiple-procedure language, and the renegotiation or termination window.

What Dermatology Practices Should Do Now

Review your 2026 results

• Compare paid vs expected. For your top 15 codes, compare what Medicare actually paid in 2026 with the 2026 fee schedule for your locality. Underpayments usually point to an outdated fee schedule in your system or a wrong place-of-service code.

• Rank your codes by volume and dollars. For most dermatology practices, E/M visits, biopsies, destructions and Mohs dominate. These are where small rate changes matter most.

• Compare 2026 with 2025. Look at Medicare allowed dollars per visit and per procedure for the same months in both years. This shows your real net effect, not the headline 3.26%.

• Split by place of service to see office and facility results separately.

Tighten documentation and coding

• Audit modifier 25 use. The E/M must address a problem beyond the decision to perform the procedure. It's a long-standing audit target and a likely focus of future payment policy. See our modifier 25 guide.

• Check biopsy and destruction coding. Confirm the right biopsy method code (tangential, punch, incisional) and correct units for 17000/17003/17004.

• Capture G2211 where it applies. It's an add-on for E/M visits that are part of ongoing care for a serious or complex condition, which fits much of medical dermatology.

• Review skin substitute billing against the 2026 flat rate and any WISeR prior authorization rules in your state.

Check your contracts

• Confirm commercial and MA rates match contract terms, especially contracts tied to a percentage of the current Medicare fee schedule.

• Note renegotiation windows for your top payers, since the 2027 conversion factor is expected to fall.

If your review turns up underpayments or denials, our dermatology denial management and appeals services can work them.

Prepare for 2027

• Read the final CY 2027 rule when it's published and load the new fee schedule before January 1.

• Model 2027 revenue using your 2026 volumes, so a fee schedule change doesn't surprise you in the first quarter.

Looking Ahead to 2027

The 2026 gains are partly temporary. In the CY 2027 proposed rule, released July 14, 2026, CMS proposed:

• A lower conversion factor: $32.8409 for most practices (−1.68%), mainly because the one-year 2.5% boost expires (CMS fact sheet).

• A same-day payment cut: when an E/M visit with modifier 25 is billed on the same day as a procedure with a 0-, 10- or 90-day global, the highest-valued service would be paid in full and every other service that day at 50%. A Milliman analysis for the AADA estimates this would reduce dermatology's fee schedule payments by about 7%, the largest dollar impact of any specialty.

• Expanded phototherapy coverage: 96920-96922 beyond psoriasis to other inflammatory and autoimmune skin diseases.

These are proposals. The final rule is expected in early November 2026 and takes effect January 1, 2027.