What Is the Medicare Conversion Factor? | RVUs | MD&D #32

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If you follow physician reimbursement, or even if you chat with your colleagues, you will hear comments about the Medicare Conversion Factor (CF). “The conversion factor increased” (you probably rarely hear that) or the “conversion factor decreased” (that’s a more realistic phrase) are common subjects online and in person. Talking about the CF inevitably leads to other topics like Congress temporarily increasing the conversion factor, or budget neutrality. And of course, it also leads to a lot of frustration among providers.

The conversion factor is perhaps the most important number in the Medicare Physician Fee Schedule, that long list of all possible patient encounters that any doctor in the nation may have, and the assigned value attached to the encounters. Why? Because the CF helps translate the RVU value assigned to each of these interactions into dollars.

Regardless of you being paid a salary, productivity-based or a hybrid model, the CF affects your income.

What Is the Medicare Conversion Factor?

The CF is a dollar amount. It is the dollar amount used to convert RVUs (adjusted by geography) into Medicare payment. In its simplest form:

RVUs × Conversion Factor = Medicare Payment in $.

Of course, this is a simplification. In fact, Medicare looks at the three parts of an RVU (physician work, practice expenses, and malpractice costs), adjusts them based on where you practice, and then applies the CF.

But for the purpose of understanding the CF, however, think of it as the dollar multiplier at the end of the Physician Fee Schedule calculation. The conversion factor does not change based on the CPT code. The same CF is applied to all CPT codes. What changes is the RVU value assigned to each CPT code. So, a change in the CF affects payments in all thousands of physician services listed in the Physician Fee Schedule.

In 2026, in a historical change, two different values were assigned to a CF:

The majority of providers would fall in the second category unless they meet the participation thresholds required to achieve QP status. The difference exists because the annual adjustments set by law is now different for the two groups.

A qualifying APM participant gets a 0.75% increase in the CF, while most other clinicians get 0.25%. Going forward, there is no longer necessarily one number that applies to every encounter.

Why Does the Conversion Factor Change?

The CF does not change every year with inflation, but its value can be affected by several things, like:

This is one reason predicting what physicians will actually receive from Medicare can become complicated.

Few professions experience this kind of annual federal adjustment of the prices paid for their professional services. For example, I am not aware of any federal institution regulating how much an attorney can charge per hour.

Budget Neutrality and The Conversion Factor

Budget neutrality is one of the most important concepts affecting the CF. In simple terms there's a budget to allocate how much money physicians, institutions and different organizations will get for providing services. If the value of an RVU increases for a specific encounter in a specific specialty, projected Medicare spending may increase. This does not necessarily mean that the RVU for another encounter must decrease (although it is often the case). CMS can instead adjust the CF to maintain budget neutrality. Under budget-neutrality rules, changes in RVUs that are expected to alter annual spending by more than $20 million require an offsetting adjustment.

Therefore, the RVU for one specific encounter may go up while the CF goes down to maintain budget neutrality.

That is one of the strange realities of Medicare reimbursement. For 2026, for example, the final CFs incorporated not only payment increases set by law and a temporary 2.5% increase, but also an estimated 0.49% increase in the CF to maintain budget.

Congress and The Conversion Factor

Another reason the CF can be difficult to follow is that Congress can intervene. Sometimes CMS publishes a Physician Fee Schedule with a particular CF, and Congress subsequently passes legislation temporarily increasing Medicare physician payments. We have seen this happen repeatedly in recent years. For example, the 2026 conversion factors include a temporary 2.5% statutory increase that applied only to 2026.

Temporary is the important word. Unless Congress extends or replaces a temporary adjustment, it disappears. That can create what looks like a payment cut the following year even if Medicare does not actually create a reduction. In fact, CMS's proposed 2027 Physician Fee Schedule announced that the 2.5% temporary 2026 increase will expire. This is one reason discussions about Medicare physician payment happen every year.

Inflation and The Conversion Factor

Another important issue is that the CF should not be looked at only in dollars. Imagine that the conversion factor stays around the same dollar amount for many years, (which amazingly has happened, read below). At first glance, you might think, nothing changed.

But during those years: salaries increased, rent increased, supplies became more expensive, insurance increased, technology costs increased, and essentially every other expense involved in running a medical practice also increased. A dollar today does not have the same purchasing power as a dollar 20 years ago. Therefore, even if the nominal CF appears relatively stable, its real inflation-adjusted value, its purchasing value, can decrease substantially.

This is very important distinction when evaluating the long-term economics of Medicare physician reimbursement. Sadly, our current situation is dismal. The 2026 Medicare conversion factor is in fact lower in nominal dollars than it was in 1999: roughly $33 today compared with $34.73 in 1999. Twenty-seven years ago. And that is before accounting for inflation. 

That’s why looking at a single year's conversion factor does not tell the entire story.

Conversion Factor vs. Medicare Payment Update

These terms are sometimes used as if they mean the same thing, but they don’t. If Congress announces a particular percentage increase in physician payment, that does not necessarily mean the final CF will increase by exactly that percentage. The final number is also affected by budget-neutrality adjustments and other temporary provisions.

This is why it is important to look at the actual conversion factor published by CMS rather than only the headline describing a Medicare payment increase, or decrease.

 The Impact of the Conversion Factor

If the conversion factor decreases by 2% for example, the impact would be huge for the entire system, affecting not only medical professionals but entire organizations. For a physician seeing a few Medicare patients, that difference may seem relatively small. For a medical practice, health system, or specialty generating millions of dollars in Medicare revenue, small percentage changes become very significant.

That is one of the reasons so many professional organizations and doctors complain in Washington regularly about decisions affecting the CF.

The Conversion Factor sounds complicated, but the basic concept is simple. RVUs help establish the resources and effort to care for your patients. The Conversion Factor helps turn that value into dollars. The more complicated question is not what the conversion factor does. It is why the number keeps changing and specially decreasing.

1.  The Conversion Factor is the dollar multiplier to convert adjusted RVUs into payment.

2.  The Conversion Factor can change because of payment updates established by law, Congressional legislation, budget neutrality, and changes in the Physician Fee Schedule.

3.  Beginning in 2026, Medicare uses two different conversion factors for qualifying APM participants and other clinicians.

What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin."

Mark Twain.

Centers for Medicare and Medicaid Services

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