Budget neutrality multiplier and adjusted conversion factor after a revaluation of relative value units

When relative value units are revised, the conversion factor is scaled so that the projected volume of services, priced at the new units, costs the same as before. The multiplier is the ratio of total weighted units before to after the change, so a cut to some services' units raises the factor and with it the fee of every service whose units were not cut. Two services are written out so that the calculator can run; SUMPRODUCT in Excel takes any number. This is the article's simplified version: CMS estimates the adjustment from prior-year utilisation and handles several adjustments in sequence.

Signature

BN = (q_A * R_A_old + q_B * R_B_old) / (q_A * R_A_new + q_B * R_B_new); CF_adj = CF_old * BN
Inputs
InputsDefinitionUnit
q_ANumber of times service A is expected to be billed in the yearservices per year
R_A_oldGeographically adjusted relative value units of service A before the changerelative value units
q_BNumber of times service B is expected to be billed in the yearservices per year
R_B_oldGeographically adjusted relative value units of service B before the changerelative value units
R_A_newGeographically adjusted relative value units of service A after the changerelative value units
R_B_newGeographically adjusted relative value units of service B after the changerelative value units
CF_oldConversion factor that would apply without the revaluationUS dollars per relative value unit
Output
BNRatio of total weighted relative value units before the revaluation to after itmultiplier
CF_adjConversion factor scaled so that projected spending is unchangedUS dollars per relative value unit

Function

Medicare physician fee schedule payment from relative value units and the conversion factor

Turns the relative value units of a service, adjusted for local practice costs, into a dollar payment by multiplying by the conversion factor, and updates the factor each year by a chain of statutory and budget neutrality adjustments. Relative values set the ratios between services; the conversion factor sets the money level of all of them. Notation follows the Conversion Factor article, with its 2026 factors from the CMS final rule.

Computational function

  • Computational function: budget-neutral conversion factor and fee changes for a schedule of services

    Recomputes a whole schedule after a revaluation: the budget neutrality multiplier, the adjusted conversion factor, every service's fee before and after, its percentage change and the spending check. The inputs differ from the formula's: vectors of volumes and of old and new relative value units for any number of services, rather than two named services.

    Inputs and outputs: q: Vector of projected volumes. Unit: services per year.; R_old, R_new: Vectors of relative value units before and after the revaluation, in the same order. Unit: relative value units.; cf_old: Conversion factor before the adjustment. Unit: US dollars per relative value unit.; bn, cf_new: Multiplier and adjusted factor. Unit: multiplier, US dollars per relative value unit.; fee_old, fee_new, pct_change: Fee of each service before and after, and its change. Unit: US dollars per service, per cent.; spend_old, spend_new: Projected spending before and after. Unit: US dollars per year.

    Assumption: Volumes are fixed and the whole adjustment passes through the conversion factor, as in HE-FM-CVF-003; CMS's own estimate uses prior-year utilisation and several sequential adjustments.

    Worked example (Two services, article example): With volumes of 600 and 400, units of 2.00 and 4.00 cut to 2.00 and 3.95, and a factor of 33.00, the multiplier is 1.007194, the factor 33.2374, service A's fee rises from 66.00 to 66.47 dollars (plus 0.72 per cent) and service B's falls from 132.00 to 131.29 (minus 0.54 per cent), and spending stays at 92,400 dollars, as in the article (percentage changes computed here for illustration). q = [600, 400]; R_old = [2.00, 4.00]; R_new = [2.00, 3.95]; cf_old = 33; cf_new = 33.2374; fee_new = [66.47, 131.29]

    Worked example (Three services at the 2026 default factor): Volumes of 1,000, 300 and 50 with units of 1.50, 4.00 and 10.00, the last two cut by 2.5 per cent, give a multiplier of 1.013460 and a factor of 33.8505; the uncut service's fee rises 1.35 per cent to 50.78 dollars and the two cut services' fees fall 1.19 per cent (computed here for illustration). q = [1000, 300, 50]; R_old = [1.50, 4.00, 10.00]; R_new = [1.50, 3.90, 9.75]; cf_old = 33.4009; cf_new = 33.8505

    Excel: With the ranges Volumes, OldRVUs and NewRVUs and the cells OldCF, BNMult and AdjCF of HE-FM-CVF-003, =OldRVUs*OldCF and =NewRVUs*AdjCF spill the fees before and after into OldFees and NewFees, and =100*(NewFees/OldFees-1) spills the percentage changes.

    R: bn_schedule <- function(q, R_old, R_new, cf_old) { bn <- sum(q*R_old)/sum(q*R_new); cf_new <- cf_old*bn; f0 <- R_old*cf_old; f1 <- R_new*cf_new; list(bn = bn, cf_new = cf_new, fees = data.frame(fee_old = f0, fee_new = f1, pct_change = 100*(f1/f0-1)), spend_old = sum(q*f0), spend_new = sum(q*f1)) } Base R only; bn_schedule(c(600, 400), c(2.00, 4.00), c(2.00, 3.95), 33.00) returns the first example, services in input order.

    Python: def bn_schedule(q, R_old, R_new, cf_old): bn = sum(a*b for a, b in zip(q, R_old))/sum(a*b for a, b in zip(q, R_new)); cf_new = cf_old*bn; f0 = [x*cf_old for x in R_old]; f1 = [x*cf_new for x in R_new]; return {"bn": bn, "cf_new": cf_new, "fee_old": f0, "fee_new": f1, "pct_change": [100*(b/a-1) for a, b in zip(f0, f1)], "spend_old": sum(n*f for n, f in zip(q, f0)), "spend_new": sum(n*f for n, f in zip(q, f1))} Returns the same values as the R function, in input order.

    Test (Spending unchanged after the revaluation): SUMPRODUCT of volumes and new fees equals SUMPRODUCT of volumes and old fees. Expected result: TRUE. FALSE shows the new fees priced at the old factor, 91,740 dollars instead of 92,400. Excel check: =ABS(SUMPRODUCT(Volumes,NewFees)-SUMPRODUCT(Volumes,OldFees))<1E-6*SUMPRODUCT(Volumes,OldFees)

    Common error (Reporting only the factor change): A 0.72 per cent rise in the factor hides a fall in the fees of the revalued services; reporting the fee change for each service shows who gains and who loses.

    Source: Code of Federal Regulations, Title 42, Part 414, sections 414.20 (Formula for computing fee schedule amounts), 414.26 (Determining the GAF) and 414.28 (Conversion factors). eCFR version of 1 September 2026 (full text read). 414.28(b); Centers for Medicare & Medicaid Services. CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies. Final rule CMS-1832-F. Federal Register. 2025;90:49266 (5 November 2025) (full text read). Page 49960 (20 million dollar limit, CY 2024 utilisation).

    bn = sum(q * R_old) / sum(q * R_new); cf_new = cf_old * bn; fee_old = R_old * cf_old; fee_new = R_new * cf_new

Try this function

Implementations

  • Excel

    Budget neutrality multiplier and adjusted factor from named ranges

    With projected volumes, old units and new units in ranges named Volumes, OldRVUs and NewRVUs, in the same service order, and the starting factor named OldCF, the formulas return the multiplier and the adjusted factor, held in BNMult and AdjCF.

    =SUMPRODUCT(Volumes,OldRVUs)/SUMPRODUCT(Volumes,NewRVUs); =OldCF*BNMult

Assumptions

  • Projected volumes held fixed in the budget neutrality calculation

    The same volumes price both schedules, so any change in billing behaviour after the revaluation is outside the calculation; CMS uses prior-year utilisation for the same purpose.

  • Adjustment made only above the 20 million dollar limit

    The statute allows relative value changes to move Part B spending by up to 20 million dollars a year; beyond that CMS restores neutrality through the conversion factor, which the formula does in full.

Worked examples

  • Two-service schedule with a 2.5 per cent cut to service B's work units

    Service A has 2.00 units and 600 claims; service B's 4.00 units fall to 3.95 over 400 claims. Total units fall from 2,800 to 2,780, the multiplier is 1.007194 and the factor rises from 33.00 to 33.2374, as in the article.

    q_A = 600; q_B = 400; R_A_old = 2; R_A_new = 2; R_B_old = 4; R_B_new = 3.95; CF_old = 33; BN = 1.007194; CF_adj = 33.2374

  • Two-service fee schedule with service B's units raised to 4.05

    An increase pulls the factor down: total units rise to 2,820, the multiplier is 0.992908 and the factor falls to 32.7660 (computed here for illustration).

    q_A = 600; q_B = 400; R_A_old = 2; R_A_new = 2; R_B_old = 4; R_B_new = 4.05; CF_old = 33; BN = 0.992908; CF_adj = 32.766

  • Same schedule with service B's units raised to 4.05

    An increase pulls the factor down: total units rise to 2,820, the multiplier is 0.992908 and the factor falls to 32.7660 (computed here for illustration).

    q_A = 600; q_B = 400; R_A_old = 2; R_A_new = 2; R_B_old = 4; R_B_new = 4.05; CF_old = 33; BN = 0.992908; CF_adj = 32.766

Common errors

  • Reading a higher conversion factor as a rise in every fee

    After the cut, service A's fee rises from 66.00 to 66.47 dollars but service B's falls from 132.00 to 131.29, because its own units fell by more than the factor rose; budget neutrality redistributes payment rather than adding to it.

  • Pairing one year's relative values with another year's factor

    Each year's factor is set for that year's relative values; combining 2025 units with the 2026 factor double counts or misses the budget neutrality adjustment.

  • Overlooking the 2026 efficiency adjustment behind the budget neutrality increase

    For 2026 CMS cut the work units of non-time-based services by 2.5 per cent, exempting time-based services such as evaluation and management visits, and an estimated 0.49 per cent adjustment for finalised changes in work units for some services raised the factor, so exempt services gained without any change in their own units.

Sources

  • Budget neutrality limit and its application through the conversion factor

    Code of Federal Regulations, Title 42, Part 414, sections 414.20 (Formula for computing fee schedule amounts), 414.26 (Determining the GAF) and 414.28 (Conversion factors). eCFR version of 1 September 2026 (full text read). 414.28(b): beginning 1 January 1996 the CF for each calendar year may be further adjusted so that adjustments to the fee schedule do not cause total expenditures to differ by more than 20 million dollars from the amount that would have been spent without them.

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  • Utilisation basis of the CY 2026 budget neutrality estimate

    Centers for Medicare & Medicaid Services. CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies. Final rule CMS-1832-F. Federal Register. 2025;90:49266 (5 November 2025) (full text read). Page 49960: increases or decreases in RVUs may not cause Part B expenditures for the year to differ by more than 20 million dollars from what they would have been without the changes; if the threshold is exceeded CMS makes adjustments to preserve budget neutrality; the estimates compare CY 2025 and CY 2026 payment rates using CY 2024 Medicare utilisation.

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  • Efficiency adjustment and the 0.49 per cent adjustment in the CY 2026 fact sheet

    Centers for Medicare & Medicaid Services. Calendar Year (CY) 2026 Medicare Physician Fee Schedule Final Rule (CMS-1832-F). Fact sheet; 2025 (full text read). Efficiency Adjustment: an efficiency adjustment to the work RVUs of non-time-based services, applied to all codes except time-based codes such as evaluation and management services, with a final value of minus 2.5 per cent for CY 2026; Rate Setting and Conversion Factor: an estimated +0.49 per cent adjustment necessary to account for finalised changes in work RVUs for some services.

    View source →

Canonical Identity

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