CMS’ Arbitrary Practice Expense Allocation Diminishes Anesthesiologists’ RBRVS Payments in Facility Settings

January 2026

ASA Center for Anesthesiology and Perioperative Economics (CAPE)

Download Policy Brief: Practice Expense Reallocation (PDF)

Overview:

As part of the calendar year (CY) 2026 Physician Fee Schedule (PFS) final rule, the Centers for Medicare & Medicaid Services (CMS) finalized significant changes to the indirect practice expense (PE) payment methodology. CMS redistributed PE payments from facility to nonfacility settings in an attempt to better reflect the relative resources required to furnish services in facility versus nonfacility settings. The policy, which went into effect on January 1, 2026, will result in an overall 7% decrease in allowed charges for services performed in the facility setting and a 4% increase in allowed charges for services performed in the nonfacility setting.¹

Although anesthesia services (Current Procedural Terminology (CPT) code range 00100 – 01999) are excluded from the reallocation, over a third of anesthesiologists' Medicare allowed charges are associated with non-anesthesia codes (Resources-Based Relative Value Scale (RBRVS)) and are directly affected by this policy. CMS’ imprecise policy includes services performed in the facility setting that have no nonfacility counterpart and could accelerate the trend of hospital-physician consolidation.

Implications for Anesthesiologists:

This policy will impact anesthesiologists differently depending on if they primarily perform procedures in the nonfacility or the facility setting. Since anesthesia services are not included under this reallocation policy, only about 37% of anesthesiologists' Medicare allowed charges will be directly affected.^*

• Nonfacility
  • This policy will result in net increased payments for anesthesiologists specializing in pain medicine and anesthesiologists who primarily work in nonfacility settings.
• Facility
  • This policy will result in net decreased payments for anesthesiologists who practice in a facility setting and perform procedures that are paid under RBRVS.

The policy affects anesthesiologists’ compensation differently depending on their employment arrangement. Anesthesiologists who are employed by facilities may not experience immediate reductions to their compensation if they are paid according to a guaranteed salary model, but they may encounter downstream effects when a facility employer’s Medicare collections begin to decrease. Anesthesiologists who are not employed by facilities will see their payments affected more directly, which could result in anesthesiology practices requesting additional financial support from facilities or more frequent consolidation into direct employment models.

CMS’ Rationale:

• CMS wants to adjust payments to match physician employment trends.
  • CMS argues that cutting payments to services delivered in facility settings better reflects current trends in physician practice patterns. CMS believes that a growing number of physicians who practice in facility settings are now part of hospital-owned practices or are directly employed by their hospitals. CMS maintains that these physicians have lower overhead costs and therefore require lower indirect PE payments.¹ However, CMS makes no effort to apply the new methodology to only those that are employed by facilities and cuts payments even to physicians who furnish care in the facility setting but are not employed by those facilities.
• CMS wants to shift care to the nonfacility setting.
  • CMS argues that the current payment system contributes to “undesirable financial incentives toward higher-priced settings of care, like hospitals, and away from more efficient settings, like physician offices.” CMS further argues that such a scenario “could result in unnecessary costs for payers and beneficiaries, and obstacles to physicians and other professionals operating independent practices.”¹ Evidently, CMS hopes that reallocating payments from the facility to the nonfacility setting will encourage more physicians to deliver care in the nonfacility setting. However, in these cuts, CMS includes physician services that can only be delivered in the facility setting, and thus have no site-of-service shift opportunity.

Economic Analysis:

CMS’ policy may have the unintended consequence of increasing hospital-physician consolidation. Hospital-owned practices and direct hospital employment are both examples of hospital-physician consolidation.

• Nontransferable Services
  • The policy implies that physicians in facility settings can easily transfer care to nonfacility settings if the economic incentives are adjusted. However, this is often not feasible. Many physicians provide services in facility settings that cannot be performed in nonfacility settings (e.g., critical care).
  • A significant transition of the affected services to the nonfacility setting is unlikely and unreasonable. For example, for anesthesiologists, transesophageal echocardiography and arterial catheterization or cannulation are 100% facility-based with no likelihood of transition to the nonfacility setting. The reduction in Medicare allowed charges for anesthesiologists for these two procedures would have reduced 2024 payments by more than $1 million. Most CPT® codes have very high percentages of allowed charges that are facility-based and are unlikely to be transitioned to nonfacility settings. An analysis by CAPE indicated 63% of the CPT Codes and about 34% of allowed charges applicable to anesthesiologists under this policy are likely nontransferable to the nonfacility setting.**

• Uneven Impacts
  • This policy places an uneven burden on physicians whose services are heavily concentrated in facility settings while benefiting physicians whose services are focused in nonfacility settings. For example, critical care, cardiac surgery, and orthopedic surgery are expected to see net losses from this policy, while immunology, nephrology, and dermatology are expected to see net benefits.¹
• Unintended Consequences
  • The policy overlooks the fact that many physicians providing services in the facility setting are not employed by those facilities. If payments are reduced for services delivered in the facility setting, it will be more challenging for physicians who are not employed by facilities and who provide services in the facility setting to cover the overhead costs necessary to maintain their practices. Almost half of all anesthesiologists are not employed by facilities, but the policy’s payment reductions in the facility setting could make these practices less sustainable.³ Because of this, the reduction in payments for nontransferable services in the facility setting will likely accelerate the trend towards hospital-owned practices and direct employment of physicians by hospitals.
  • According to MedPAC, increased hospital-physician consolidation leads to higher prices and total spending. MedPAC further notes that increased hospital-physician consolidation can put hospitals in a more dominant market position, allowing them to negotiate higher commercial prices.⁴ As a result, CMS’ policy could result in higher health care spending.

ASA’s Response:

• ASA supports Congressional action to stop this arbitrary cut to PE payments for physician services delivered in the facility setting.
• ASA urges CMS to remove codes from the policy that cannot be feasibly or safely performed in the nonfacility setting.
• ASA recommends that anesthesiologist practices discuss payment implications with their facilities and work towards mutually beneficial solutions.

* Anesthesiologist payments in 2026 will also be affected by other statutory and regulatory proposals.

** Estimates by ASA CAPE are based on the Centers for Medicare and Medicaid Services 2024 Physician/Supplier Procedure Summary (PSPS) File found at https://data.cms.gov/summary-statistics-on-use-and-payments/physiciansupplier-procedure-summary

References

1. Centers for Medicare & Medicaid Services. Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program. November 5, 2025. Accessed November 10, 2025. https://www.federalregister.gov/documents/2025/07/16/2025-13271/medicare-and-medicaid-programs-cy-2026-payment-policies-under-the-physician-fee-schedule-and-other

2. Centers for Medicare & Medicaid Services. CMS Manual System Pub 100-04 Medicare Claims Processing. October 6, 2017, Accessed September 11, 2025. https://www.cms.gov/regulations-and-guidance/guidance/transmittals/2017downloads/r3873cp.pdf

3. Kane C. Physician Practice Characteristics in 2024: Private Practices Account for Less Than Half of Physicians in Most Specialties. American Medical Association. Accessed September 11, 2025. Policy Research Perspectives | Physician Practice Characteristics in 2024: Private Practices Account for Less Than Half of Physicians in Most Specialties

4. MedPAC. Congressional Request on Health Care Provider Consolidation. March 2020. Accessed September 11, 2025. https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/reports/mar20_medpac_ch15_sec.pdf

Suggested Citation:
Center for Anesthesia Perioperative Economics. CMS’ Arbitrary Practice Expense Allocation Diminishes Anesthesiologists’ RBRVS Payments in Facility Settings. Schaumburg, IL: American Society of Anesthesiologists; January 2026.