Dear Administrator Oz,
Paragon Health Institute appreciates the opportunity to comment on the Centers for Medicare & Medicaid Services (CMS) proposed rule CMS-1832-P, RIN 0938-AV50 titled “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.” This rule advances fiscal responsibility and greater program integrity in Medicare.
Paragon is a non-profit health policy research institute committed to reforming government programs and restoring Americans’ control over their health care. We believe empowering patients, rather than increasing government control, is the key to lowering costs and improving health outcomes.
We commend CMS for multiple provisions that advance site neutral reforms, promote primary care, reduce market distortions, and promote the overall sustainability of Medicare. Given its size, Medicare has been the main source of distortionary effects on health care markets. Through its fee-for-service payment systems, it encourages excessive utilization of low-value services, leads to large-scale resource misallocation, and has led to greater consolidation in the market. This proposed physician fee schedule (PFS) rule takes helpful steps to address these inefficiencies while moving towards more patient-driven care. We encourage CMS to finalize the key provisions of the proposed rule with a few improvements that would make better use of taxpayer resources.
The Proposed Rule’s Positive Provisions
Practice Expense Update
We commend CMS for extending its push for site neutral reform in its proposed Outpatient Prospective Payment System (OPPS) rule to the PFS as well. The proposed rule’s recognition of the reality of independent physician practices’ higher costs compared to their hospital-employed colleagues is an important step towards reducing distortions and reducing incentives for consolidation fueled by arbitrage of government pricing. While hospital physicians have lower practice expenses because they are part of an overall hospital infrastructure, independent physicians must foot the bill themselves. In the absence of a market-based pricing mechanism, the inaccuracy of treating these two practices the same for purposes of government payments based on costs has provided additional incentive for consolidation at a time when other financial pressures have also contributed to many independent physicians selling their practices to larger health systems.
Efficiency Adjustment
CMS’s inclusion of a new efficiency adjustment to decrease payments for services where time spent with the patient is not a core component of the service could be a helpful step toward mitigating a distortion that steers resources towards specialists at the expense of general practitioners. Adding an efficiency adjustment based on empirical research on physician time de-emphasizes AMA surveys with a bias towards specialists (as a result of the mechanics and relative frequency of the surveys) and low-sample-sizes while ensuring that payment rates reflect real-time changes in medical practice.
However, as CMS acknowledges, it is possible that this additional calculation may have distortionary effects of its own. To prevent or curb such effects, we urge that CMS instead look to market sources, including examining what doctors who do not accept Medicare payment charge, for guidance.
Skin substitutes
Spending on skin substitutes in Medicare has exploded over the last five years. Between 2019 and 2024, annual Part B spending increased from $256 million to over $10 billion – nearly 4,000 percent. This has occurred directly because of a non-market-based payment mechanism that allows manufacturers to set their own Medicare rate for periods of time.
We commend CMS on its proposed overhaul of the skin substitute payment system. Paying at a flat rate, and reducing spending by 90 percent, targets systemic waste directly caused by government payment distortions. It also curbs rate gaming and further encourages efficient use of products, rather than excessive utilization that is often not medically necessary or appropriate care.
Ways to Improve the Rule
Telehealth
We urge CMS to exercise caution as it evaluates its telehealth service approval process. Telehealth is an important mechanism to increase access to care that may be particularly beneficial for some practices like behavioral health.
However, CMS’s proposals to remove the “provisional” versus “permanent” distinction of services, end the frequency limitations on how often physicians may bill for a given telehealth service, and allow all physicians (except teaching physicians in non-rural settings) to provide virtual supervision for certain services each deserve greater study and are not yet ready to be finalized. These proposals would remove useful cautionary measures that prevent waste, fraud, and abuse in telehealth. The removal of frequency limitations is of particular concern, as the limitations themselves may be the reason for the relatively lower utilization to date than might have been the case that is cited as a basis for removing them. Given that traditional Medicare’s fee-for-service structure, lack of capitation, and open network inherently incentivizes greater utilization of services, CMS ought to undertake additional analyses of specific and longer-term data as a next step or consider an appropriate CMMI model.
Our concern with these each of these proposals stems from our research, which found mixed evidence of the benefit of telehealth coverage in traditional Medicare. While proponents had hoped that telehealth would replace current utilization and decrease costs, the evidence indicates it instead increased overall utilization and raised costs without improving quality, though more research should be done.
Medicare beneficiaries have broad access to telehealth via Medicare Advantage, where the capitated payments serve as guardrails against excessive utilization and costs. We suggest that CMS remain cautious and make changes like the ones proposed for telehealth in traditional Medicare only when there is overwhelming evidence for savings and/or clinical benefit and that there are sufficient guardrails in place.
Chronic Illness and Behavioral Health Needs
CMS is proposing to create add-on payments for behavioral health services in primary care, as well as expand current policies for separate payment to physicians for certain digital mental health devices to include the treatment of attention deficit hyperactivity disorder (ADHD).
CMS should try to minimize traditional Medicare’s disincentives to coordinate behavioral health care. We agree with CMS that this is a particular problem with respect to non-pharmaceutical treatments for patients. However, given that separate payment can invite unnecessary utilization, we urge that CMS remain cautious and proceed with decisions like this only when there is a clear evidence base demonstrating that this change would not result in unnecessary utilization. We also believe it is important that CMS ensure, through explicit language, that such a policy does not result, now or in the future, in Medicare paying for phones, which some digital mental health tools require in order to use.
Conclusion
Overall, we strongly support this proposed rule. While there are some areas, particularly around telehealth payments, that necessitate further study or caution before finalization, on the whole it makes strides in rebalancing physician payments towards a more market-based approach. In particular, the proposal’s site-neutrality and skin substitute provisions will lead to higher quality care, reduce consolidation, and curb waste, fraud, and abuse. This proposed rule is a promising start for the advancement of market-based reforms in this administration.
Thank you for considering our views on this important matter.
