On November 4, CMS finalized the 2027 Medicare Physician Fee Schedule, and it takes effect January 1. The headline number is a 2.31 percent cut to the dollar amount Medicare uses to pay for most physician services. For dermatology, the American Academy of Dermatology Association (AADA) estimates the real impact is closer to 6 percent on average.
That gap is the story. A 2 percent cut is an annoyance. A 6 percent cut on your Medicare revenue, and on every plan whose rates follow Medicare, is the kind of number that changes hiring, scheduling, and contract decisions.
This post covers what changed and why dermatology takes more of it than the headline suggests, a free calculator to estimate the cost to your own practice, and the levers we're looking at to make up the difference.
What changed, in plain English
Medicare pays for each service by multiplying a point value for that service by a dollar amount called the conversion factor. Three changes in the final rule matter most for dermatology.
The dollar amount dropped. The conversion factor goes from $33.40 to $32.63 for most physicians, a 2.31 percent cut. Physicians in qualifying alternative payment models go from $33.57 to $32.95, or 1.83 percent. The AADA says most dermatologists fall in the first group. According to CMS's fact sheet, most of the decrease comes from a one-year 2.5 percent increase, passed in 2026 legislation, running out. That makes it less a brand new cut than a temporary raise ending.
The overhead formula changed. Every service's payment includes a share of what it costs to run a practice, called practice expense. CMS is phasing out an adjustment called the Indirect Practice Cost Index over two years and adding a stabilizer to soften the shift. In plain terms, overhead gets divided across services differently, so some services lose more than others. The AADA warns that some could drop by more than 5 percent.
Same-day visits and procedures pay less. When a separately identifiable office visit and a minor procedure with no global period (called a 0-day global) happen on the same day, Medicare now pays the higher-paid service in full and the other at 80 percent. CMS proposed 50 percent in July and applied the policy more widely. The final version is milder, and it dropped procedures with 10-day and 90-day global periods. It still matters in dermatology because a visit that turns into a procedure is common, and the AADA flagged early skin cancer diagnosis and treatment as at risk.
Add those together and the AADA estimates about a 6 percent reduction in Medicare payments for dermatologists. That is an average across the specialty. Your number depends on your mix of services, and a practice with a different mix than the average can land well away from it.
Whether paying for value instead of production is the right direction is a debate we're leaving alone here. Our interest is more practical. A rule like this is described in big terms, and then it lands on a practice's bottom line in very specific ones. This is written for the dermatology practices that have to absorb it, and we want to help you see the financial weight of it in real terms.
We're not telling anyone they have to see more patients. We're showing what the math looks like if you treat this as a purely financial exercise: what the cut costs, how many added visits it would take to make it up, and what you could do on the operations side to run leaner instead. The calculator below is where we put numbers on the first two.
Medicare fee cut calculator: estimate the cost to your practice
We're publishing a very simplified version of the more complex calculator we built for the practices we help, just to give you a general sense of how big the hit could be. Enter your yearly revenue from Medicare and from plans that pay based on Medicare, and what a patient visit is worth to you. It shows how many more visits you would need to make up a 6 percent cut, by year, month, week, and working day, for the whole practice and per provider.
Which of your revenue is exposed
Not every dollar reprices the same way. It helps to sort your revenue into three groups.
Original Medicare. This is the direct hit. The new rates apply to your claims starting January 1.
Plans paid as a percentage of Medicare. Many Medicare Advantage plans, TRICARE, and commercial contracts are written as a percentage of the Medicare fee schedule. If your contract says 110 percent of Medicare, that 110 percent is now applied to a lower number. Whether it moves automatically depends on the contract language, including which year's schedule the contract points to.
Plans on their own fee schedules. Nothing changes automatically here. The risk is at renewal, when a payer points to the Medicare cut as a reason to hold your rates flat or lower them.
The calculator covers the first two groups. If a large share of your revenue is in the third group, the contract review matters as much as the math.
What practices can do about it
Cutting staff, replacing roles with offshore workers or with AI, and asking provider teams to take on more volume for the same pay are some of the hardest conversations a practice leader will ever have. They are humbling, and they are frustrating, because the people affected are colleagues who showed up and did the work. Nobody enjoys these conversations. But when a practice does the same amount of work it did last year, gets paid meaningfully less for it, and watches its overhead keep climbing, the math eventually forces their hand. We understand how delicate these decisions are, and they deserve to be made with care and with the numbers in front of you. What follows is how we're thinking about it.
Start with costs you control in the back office. Eligibility, referrals, and prior authorization work is repetitive and measurable, which makes it a natural place to cut cost. Many practices are moving it to virtual assistants (VAs), remote staff based outside the U.S., and then adding AI on top. We covered how to price that work in our post on pricing eligibility work. One caution: if you cut staff in these areas and denials rise or authorizations slow down, you can lose more revenue than you saved, so track both.
Look at clinical support staffing. AI scribes are improving. A scribe license runs roughly $500 a month, while a medical assistant at about $22 an hour with benefits costs around $46,000 a year. If a provider team can safely go from three MAs to two with a scribe, that is roughly $40,000 a year saved per team. That is before setup, training, and a slower first few months, and it depends on providers actually using the tool.
Add visits where you have capacity. This is what the calculator shows. It only works where the schedule has room and the demand exists, and cutting support staff in the same clinic can pull against it. Reducing no-shows and same-day cancellations gets you part of the way, because a visit you already have on the schedule costs nothing to attract.
Read your contracts before you need them. Find out which contracts are tied to Medicare, which fee schedule year they reference, and when the others renew. Going into a renewal knowing your numbers is a different conversation than going in cold.
In our own modeling for the practice we help run, no single lever covered the estimated hit. It took several together, and the result depended on assumptions we haven't proven yet, including vendor pricing, how much output VAs can match, how well scribes get adopted, and one-time transition costs. We'll share what actually happens once we have it. We've done a more detailed version of this analysis for practices we work with, and we built this calculator to give any practice a starting point. We're happy to help practices work through how to put these levers into place, along with other less obvious ways to offset the cut.
Want help working out what the 2027 fee schedule actually costs your practice and which levers fit?