Signature
Fee = (W * GPCI_W + PE * GPCI_PE + MP * GPCI_MP) * CF
| Inputs | Definition | Unit |
|---|---|---|
W | Relative value units for physician work for the service | relative value units |
GPCI_W | Index of local physician work effort against the national average, reflecting one quarter of the difference | index, national average 1 |
PE | Relative value units for practice expense, facility or non-facility as the setting requires | relative value units |
GPCI_PE | Index of local practice costs against the national average, subject to statutory floors | index, national average 1 |
MP | Relative value units for malpractice expense | relative value units |
GPCI_MP | Index of local malpractice costs against the national average | index, national average 1 |
CF | Dollar amount per geographically adjusted relative value unit for the year and payment group | US dollars per relative value unit |
Fee | Payment for one service in one payment locality for a participating supplier | US dollars per service |
|---|
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.
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Implementations
Excel
Fee schedule amount and geographic adjustment factor from named cells
With WorkRVU, PERVU, MPRVU, WorkGPCI, PEGPCI, MPGPCI and ConvFactor named, the first formula returns the fee schedule amount in the component form, held in FeeAmount, and the second the regulation's geographic adjustment factor as the sum of each component's share of the total relative value times its index, held in GeoAdjFactor.
=(WorkRVU*WorkGPCI+PERVU*PEGPCI+MPRVU*MPGPCI)*ConvFactor; =WorkRVU/(WorkRVU+PERVU+MPRVU)*WorkGPCI+PERVU/(WorkRVU+PERVU+MPRVU)*PEGPCI+MPRVU/(WorkRVU+PERVU+MPRVU)*MPGPCI
Assumptions
Same year for relative values, indices and conversion factor
All inputs come from the same calendar year's final rule, because the factor is set under budget neutrality for that year's relative values (HE-FM-CVF-003).
Participating supplier and services outside anaesthesia
The amount is for a participating supplier; a non-participating supplier receives 95 per cent. Anaesthesia services use separate conversion factors (20.5998 and 20.4976 for 2026) and are not priced this way.
Published indices used as given
The indices already include the statutory one-quarter work adjustment and any floors, so the analyst applies the published values without further adjustment.
Worked examples
Service A at national average indices with the 2026 default factor
With 1.00 work, 1.20 practice expense and 0.10 malpractice units, 2.30 in total, and every index at 1.00, the fee is 2.30 times 33.4009, or 76.82 dollars, as in the article.
W = 1; PE = 1.2; MP = 0.1; GPCI_W = 1; GPCI_PE = 1; GPCI_MP = 1; CF = 33.4009; Fee = 76.82
Service A in a locality with indices of 1.02, 1.15 and 0.80
The adjusted total is 1.02 plus 1.38 plus 0.08, or 2.48 units, and the fee 2.48 times 33.4009, or 82.83 dollars, about 7.8 per cent above the national amount; the weighted GAF is 2.48 / 2.30, or 1.0783, as in the article.
W = 1; PE = 1.2; MP = 0.1; GPCI_W = 1.02; GPCI_PE = 1.15; GPCI_MP = 0.8; CF = 33.4009; Fee = 82.83
Service A in the same locality at the qualifying participant factor
At the 2026 factor for qualifying participants in advanced alternative payment models, 33.5675, the same 2.48 units pay 83.25 dollars (computed here for illustration).
W = 1; PE = 1.2; MP = 0.1; GPCI_W = 1.02; GPCI_PE = 1.15; GPCI_MP = 0.8; CF = 33.5675; Fee = 83.25
Common errors
Averaging the three indices without weights
Applying the simple mean of 1.02, 1.15 and 0.80 (0.99) to Service A's 2.30 units gives 76.05 dollars instead of 82.83 (computed here for illustration), because practice expense, the component with the highest index, carries more than half of the service's units.
Applying the qualifying participant factor to every service
The 2026 rule sets 33.5675 for qualifying participants and 33.4009 for everyone else, and CMS generally views the non-qualifying factor as the default because many practitioners do not qualify; using the higher factor overstates most payments by about 0.5 per cent (computed here for illustration).
Pricing anaesthesia with the general conversion factor
Anaesthesia services have their own 2026 factors, 20.5998 and 20.4976, with anaesthesia-specific adjustments, so the general factor does not apply to them.
Sources
Fee schedule formula and geographic adjustment factor in 42 CFR Part 414
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). 414.20(a): the fee schedule amount for a participating supplier is the product of the RVUs for the service, the GAF for the fee schedule area and the CF; 414.20(b): a nonparticipating supplier receives 95 per cent of that amount. 414.26(a): the work index reflects one-fourth of the difference between local and national work effort, the practice expense and malpractice indices relative costs against the national average; 414.26(d): the GAF is the sum of the work, practice expense and malpractice adjustment factors, each the product of the component's proportion of the total relative value and its index.
Default conversion factor and anaesthesia factors in the CY 2026 final rule
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 49506: many practitioners would not qualify as QPs, so CMS would generally view the non-QP conversion factor as the default conversion factor. Page 49961: the CY 2026 anaesthesia qualifying APM CF is 20.5998 and the nonqualifying APM CF 20.4976, reflecting the same overall PFS adjustments with anaesthesia-specific PE and MP adjustments.
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