The CY 2027 Medicare Fee Schedule Proposed Rule for Therapy

CMS published its proposed CY 2027 Physician Fee Schedule rule on July 16, 2026, and the figure most therapy practices will feel first is the conversion factor. CMS estimates the nonqualifying APM conversion factor, the rate that applies to nearly every therapist in private practice, at $32.8409 for CY2027, per the proposed rule, down from the current $33.4009.

The other number to watch is the KX modifier threshold, proposed to rise to $2,540 for PT and SLP services combined and $2,540 for OT services, up from $2,480 in CY2026. Both figures, along with the efficiency adjustment exemption and the telehealth provisions, are proposed, not final. CMS is accepting comments on the docket through September 14, 2026, and this guide translates the actual rule text, not trade-press summaries, for PT/OT/SLP practices deciding whether to act before the final rule publishes.

Current as of August 2026.

The proposed conversion factor: $32.84 for most therapy practices

Medicare does not price services in dollars directly. Every CPT code is assigned relative value units (RVUs), a unitless measure of the resources a service takes across three components (clinician work, practice expense, and malpractice cost), adjusted for geographic cost variation. The conversion factor is the dollar multiplier that turns those units into a payment rate, per the fee schedule mechanics described in the proposed rule:

Allowed amount = total RVUs x conversion factor

As an illustration (not CMS figures): a service totaling 2.0 RVUs pays 2.0 x $33.4009 = $66.80 under the current nonqualifying factor, and 2.0 x $32.8409 = $65.68 under the proposed one. Because every code runs through the same multiplier, a conversion factor change moves the entire fee schedule by the same percentage at once, which is why it is the first number practices look for in each year’s rule.

Since CY2026, Medicare has run two separate conversion factors under section 1848(d)(1)(A) of the Act: one for qualifying APM (QP) participants and one for everyone else, called the nonqualifying APM conversion factor, as described in 91 FR 43842. Most therapists in private practice are not QPs, so the nonqualifying figure is the one that matters for most readers.

CMS explains the drop as a base-year effect: the CY2026 conversion factors included a statutory 2.5 percent payment increase that applied only to services furnished during calendar year 2026. To calculate CY2027, CMS starts from the CY2026 factors with that 2.5 percent increase removed, then applies a 0.53 percent budget neutrality adjustment required under section 1848(c)(2)(B)(ii)(II) of the Act, then applies the CY2027 update specified under section 1848(d)(20) of the Act (0.75 percent for QP, 0.25 percent for nonqualifying). The expiring 2.5 percent is the largest of the three moving parts, which is why the net result is a decrease even though two of the three adjustments are positive.

As simple arithmetic (illustration only, not a CMS figure): $33.4009 minus $32.8409 is a decrease of $0.56, or about 1.7 percent. Applied to $100 of allowed charges at the proposed nonqualifying rate, that is roughly $98.32 instead of $100.00, before any other adjustment. Practices billing PTA or OTA services on top of this rate still apply the separate CQ/CO 85 percent reduction, and any 8-minute rule unit counts feed into the same allowed-amount math, so the conversion factor change compounds with those existing reductions rather than replacing them.

The KX modifier threshold rises to $2,540

CMS proposes the CY2027 KX modifier threshold amounts by multiplying the CY2026 threshold of $2,480 by a proposed 2.5 percent increase in the Medicare Economic Index (MEI), then rounding to the nearest $10, which produces $2,540 for physical therapy and speech-language pathology services combined and $2,540 for occupational therapy services, per the proposed rule.

The targeted medical review threshold stays at $3,000 through CY2027; CMS states it will begin annually updating the MR threshold by the MEI percentage increase starting with CY2028, per section 1833(g)(7)(B) of the Act. These are not final numbers. CMS proposes to update the MEI increase for CY2027 using historical data through the second quarter of 2026, and will set the final MEI percentage and the final CY2027 KX threshold amounts in the CY2027 final rule, meaning $2,540 could still move before January 1, 2027.

The accrual math behind both thresholds does not change: CMS tracks each beneficiary’s incurred therapy expenses toward the KX modifier and MR thresholds by applying the PFS rate for each “always therapy” service, less any applicable multiple procedure payment reduction, and critical access hospital therapy accrues at PFS rates on the same basis. A lower conversion factor and a higher threshold work in opposite directions on that running total: the same volume of services now accrues slightly slower toward a target that is itself slightly higher.

The efficiency adjustment mostly spares therapy codes

CMS finalized an efficiency adjustment of 2.5 percent in the CY2026 rule, applied to the intraservice portion of physician time and work RVUs, and finalized a policy to apply that adjustment on a 3-year cycle rather than annually, per the proposed rule. When CMS finalized the CY2026 efficiency adjustment, it also exempted additional codes from it: specifically, time-based codes, services on the CMS telehealth list, and new codes.

That exemption matters for therapy specifically because many of the highest-volume PT, OT, and SLP CPT codes are time-based. The CY2027 proposed rule does not introduce a new efficiency adjustment; the next application follows the 3-year cycle already finalized. The exemption’s scope is limited to the three categories named above, so any code that is not time-based, not on the telehealth list, and not newly created does not fall under it by definition. The rule does not state that any specific untimed therapy code, including evaluation codes, was adjusted or excluded on any other basis; practices billing untimed codes should read the exemption language directly rather than assume it does or does not apply to a given code.

Telehealth: quiet year in the fee schedule, loud year in Congress

CMS states it did not receive any requests to add or remove services from the Medicare Telehealth Services List for CY2027, per the proposed rule. The one telehealth-adjacent number in the rule is administrative: the proposed CY2027 payment amount for HCPCS code Q3014, the telehealth originating site facility fee, is $32.65.

The bigger telehealth story for PT, OT, and SLP practices is not in this rule at all. As covered in our Medicare telehealth guide, the statutory authority allowing PTs, OTs, and SLPs to bill Medicare telehealth currently runs through December 31, 2027, under P.L. 119-75. That deadline, not anything in the CY2027 fee schedule, is the date practices offering telehealth should be tracking.

How to comment before September 14

The proposed rule published July 16, 2026, and CMS’s comment period runs through September 14, 2026, per the proposed rule. Comments go through docket CMS-1848-P at regulations.gov, reachable from the comment link on the Federal Register page for the rule. CMS typically finalizes the annual fee schedule rule in November, with the final policies taking effect January 1, 2027.

Nothing in this rule is final. The conversion factors, both KX thresholds, and the MR threshold indexing start date can all still move in the final rule, particularly the KX thresholds, which CMS has already flagged for revision once more current MEI data comes in. Practices that want a seat at the table should comment before September 14. Everyone else should model the proposed numbers now, so there is no scramble once the final rule confirms or changes them in November.

A conversion factor cut is a rate change; a KX threshold is a running total that has to be tracked per beneficiary across the calendar year, which is a much easier number to lose track of in a spreadsheet than in software. PrismEHR tracks accrued therapy expenses against the KX modifier threshold as claims are documented, so a practice sees how close a patient is to the cap before the claim goes out, not after. See how it fits physical therapy practices, and if the final CY2027 rule changes these numbers in November, that is a configuration update, not a spreadsheet rebuild.