2026 Medicare PT/OT Fee Schedule: What Changed and What It Means for Your Practice

If you look strictly at the headline conversion factor, Medicare PT/OT Fee Schedule reimbursement for physical and occupational therapy appears to have received a welcome boost for 2026.

However, the actual impact on your clinic's bottom line is more nuanced.

While the baseline conversion factor rose by over 3%, a new permanent 2.5% efficiency adjustment applied to non-time-based work Relative Value Units (RVUs) offsets those gains for certain services. Depending on your clinic's specific code mix, net revenue changes for 2026 range from a modest increase of +1.75% for treatment-heavy practices to a net decline of around -1% for evaluation-heavy clinics.

Here is a full breakdown of the 2026 Medicare Physician Fee Schedule (MPFS) changes, which codes are affected, where thresholds stand, and how to analyze your practice's financial performance.

The Dual Conversion Factor Split: APM vs. Non-APM

For the first time, the Centers for Medicare & Medicaid Services (CMS) finalized two distinct conversion factors under the Medicare Access and CHIP Reauthorization Act (MACRA) framework:

• Non-APM Conversion Factor ($33.40): Up from $32.35 in 2025, representing a 3.26% increase. The vast majority of solo, outpatient, and independent PT/OT practices fall into this non-qualifying category.

• APM-Qualifying Conversion Factor ($33.57): Up from $32.35 in 2025, reflecting a 3.77% increase. This higher rate applies exclusively to clinicians participating in Qualifying Advanced Alternative Payment Models (QPs).

While a 3.26% increase in the conversion factor provides a welcome bump for time-based treatment codes, it is important to understand that a significant portion of this update stems from a temporary 2.5% Congressional funding injection enacted for calendar year 2026. Because this legislative bump is not currently set to renew, baseline conversion rates face potential downward pressure heading into 2027 unless lawmakers step in again.

The 2.5% Efficiency Adjustment: Which Codes Are Touched?

The biggest structural policy change in the 2026 fee schedule is a permanent 2.5% "efficiency adjustment" applied directly to the work RVUs of non-time-based codes. CMS introduced this policy under the rationale that procedural and diagnostic services accrue efficiency gains over time.

However, the efficiency adjustment does not apply uniformly across all CPT codes:

Codes Subject to the 2.5% Reduction

The efficiency cut specifically targets non-time-based codes where reimbursement is tied to the service completed rather than continuous intra-service time.

• Initial Evaluation Codes: 97161 (Low complexity), 97162 (Moderate complexity), and 97163 (High complexity).

• Re-Evaluation Codes: 97164 (PT re-evaluation) and 97168 (OT re-evaluation).

• Untimed Modalities and Tests: Non-time-based procedural services and untimed diagnostic codes.

Codes Exempt from the Reduction

Continuous, time-based therapeutic procedures are explicitly exempt from the 2.5% work RVU cut. These codes receive the full benefit of the higher $33.40 conversion factor:

• 97110 (Therapeutic Exercise)

• 97112 (Neuromuscular Re-education)

• 97140 (Manual Therapy)

• 97530 (Therapeutic Activities)

• 97535 (Self-Care/Home Management)

Because treatment units remain intact while evaluations take a slight hit, practices with high patient retention and multi-unit treatment visits will see positive or net-neutral trends. Conversely, high-volume evaluation practices (such as acute triage or short-episode clinics) will feel the RVU reduction more acutely.

If your practice relies heavily on emerging care delivery models, optimizing your code mix is essential. Expanding into non-time-based digital management like Remote

Therapeutic Monitoring (RTM) codes or leveraging updated flexibilities in Medicare Telehealth rules can create additional revenue streams that help buffer core fee-schedule adjustments.

2026 KX Modifier and Medical Review Thresholds

CMS adjusted the annual financial limitations for therapy services to account for inflation, raising the threshold for 2026.

• KX Modifier Threshold: $2,480 for physical therapy and speech-language pathology combined, and a separate $2,480 for occupational therapy. This is a $70 increase over the 2025 limit of $2,410.

• Targeted Medical Review Threshold: Remains frozen at $3,000 through 2028.

[Cumulative Patient Claims in 2026]
 ├── $0 to $2,480: Standard Medicare Part B Billing
 ├── $2,481 to $3,000: Mandatory KX Modifier (Attesting Medical Necessity)
 └── $3,001+: Subject to Targeted Medical Review (Audits by MACs)

What Happens When a Patient Crosses $2,480?

The KX modifier threshold is not a hard cap on therapy services. Once a beneficiary's incurred expenses reach $2,480 in a calendar year, you can continue treating and submitting claims as long as you append the KX modifier to every eligible line item.

By attaching the KX modifier, you attest that the services remain medically necessary and that your clinical documentation explicitly justifies skilled care. If a patient reaches $3,001, claims are not automatically denied, but they enter the pool for potential manual chart review by your regional Medicare Administrative Contractor (MAC).

2025 vs. 2026 Fee Schedule Comparison

What to Check in Your Practice Numbers: A Action Checklist

To safeguard your reimbursement and ensure your billing stays compliant, run through these action steps:

1. Calculate Your Practice Code Ratio: Review your last 6 months of claims. Determine what percentage of your total billed units are evaluations (97161 to 97164) versus time-based treatment units (97110, 97140, 97112). This reveals whether the net 2026 impact is positive or negative for your clinic.

2. Update Fee Schedules in Your EMR: Ensure your billing system uses the updated $33.40 conversion factor for non-QP providers so your patient responsibility and secondary payer estimates remain accurate.

3. Automate KX Threshold Alerts: Set up automated reporting in your practice management software to alert clinicians when a patient hits $2,300 in Medicare spend, giving your team lead time to verify documentation before crossing $2,480.

4. Audit Evaluation Documentation: Because evaluation codes face reduced work RVUs, make sure your initial evaluations thoroughly document clinical complexity to support proper code selection.

5. Review Commercial Contracts: Commercial payers frequently adopt Medicare RVU changes in their fee schedules. Monitor whether private insurers attempt to adopt the 2.5% efficiency cut without passing along the conversion factor increase.

If you need tailored guidance evaluating these fee changes, auditing your CPT utilization, or adjusting your revenue cycle management, explore our services: Billing Oversight and Reimbursement options to help keep your practice profitable.

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Frequently Asked Questions

What is the 2026 Medicare conversion factor for physical therapy?

For most independent and group practices (Non-APM participants), the 2026 Medicare conversion factor is $33.40, up from $32.35 in 2025. Clinics participating in Qualifying Advanced Alternative Payment Models receive a rate of $33.57.

Does the 2026 efficiency adjustment affect treatment codes or just evaluations?

The 2.5% efficiency adjustment applies only to non-time-based services, such as physical and occupational therapy evaluation codes (97161–97164, 97168) and untimed procedural codes. Time-based treatment codes (such as 97110, 97140, and 97112) are exempt from this work RVU reduction.

What is the KX modifier threshold for 2026, and what happens if I go over it?

The 2026 KX modifier threshold is $2,480 for PT and SLP combined, and a separate $2,480 for OT. Crossing $2,480 does not cap payment; rather, you must append the KX modifier to subsequent claims to certify that services remain medically necessary.

Will PT/OT Medicare rates change again in 2027?

Yes. The 2026 conversion factor increase included a temporary 2.5% Congressional funding bump that expires at the end of CY 2026. Unless Congress passes additional statutory funding relief, baseline rates face a potential decrease in 2027.

Do commercial payers follow Medicare's fee schedule for PT and OT services?

Many commercial plans base their fee schedules on Medicare's RVUs, though they may not adopt changes immediately or in full. It is critical to monitor commercial contracts to ensure private payers do not implement Medicare's 2.5% RVU efficiency cuts while ignoring the conversion factor increase.