CMS's CY2027 Physician Fee Schedule: A 34% Cut to Pathology Payments
Short answer: CMS's CY2027 Physician Fee Schedule proposed rule (CMS-1848-P) would cut the Medicare conversion factor roughly 1.2–1.7% and revalue surgical pathology codes 88305 and 88307 downward. The College of American Pathologists says the combined effect would cut pathology’s allowed Medicare charges about 34%, from $1.178 billion to $777 million in 2027. Comments closed September 14; a final rule is expected in November.
What CMS is actually proposing
On July 14, 2026, CMS released the CY2027 Medicare Physician Fee Schedule proposed rule, file code CMS-1848-P, in the Federal Register. Two mechanisms inside it matter most for pathology and molecular diagnostics: a base-rate decline built into the conversion factor, and a targeted downward revaluation of two of the highest-volume codes in surgical pathology.
On the conversion factor: CY2026 carried a temporary 2.5% statutory increase enacted through the One Big Beautiful Bill Act, but that boost expires at the end of 2026. Even with a modest +0.53% budget-neutrality adjustment CMS proposes for work RVU changes on specific revalued services, both CY2027 conversion factors come in lower than this year’s. CMS proposes $33.17 for qualifying Alternative Payment Model (APM) participants, down $0.40 (−1.19%) from $33.57, and $32.84 for everyone else, down $0.56 (−1.68%) from $33.40. Firms tracking the rule, including Holland & Knight and MSN Healthcare Solutions, project this alone works out to roughly a 2.4% payment reduction for pathology as a specialty once combined with other proposed adjustments — before the code-specific changes below are even factored in.
Surgical pathology’s two biggest codes are under review
The bigger story for pathology groups and the molecular labs that work alongside them is CMS’s proposal to revalue CPT 88305 (surgical pathology, gross and microscopic examination, Level IV) and CPT 88307 (Level V). Both were nominated as potentially misvalued by the Maryland Health Care Commission, and CMS is soliciting comment on lowering their physician work values as part of the rule’s broader “Request for Revaluation of Physician Work Time Based on Empiric Data” section.
These aren’t niche codes. 88305 alone covers 63 distinct specimen types — everything from breast and prostate core biopsies to endometrial curettings — and 88307 covers 39 more, including prostatectomy and mastectomy specimens. CAP’s comment letter argues the analyses CMS is relying on don’t account for that diversity: a single average work-time estimate applied across dozens of specimen types with very different complexity, drawn in part from a 2016 Urban Institute study built on just 23 convenience-sample observations. For codes this high-volume, a small per-unit valuation change compounds into a large aggregate revenue swing across a pathology group’s entire Medicare book.
CAP's pushback: “We could not identify any justification”
CAP submitted its comment letter on September 14, 2026, the deadline for the PFS proposed rule. Its central objection isn’t just that the cuts are large — it’s that CAP says it could not identify any policy proposal, utilization assumption, or methodological change in CMS’s own materials that justifies reductions of this magnitude, and asked CMS to review its analysis for possible reporting or methodological errors before finalizing.
On the merits of the 88305/88307 revaluation specifically, CAP disputed reliance on a specimen-type analysis it says fails to reflect the actual diversity of what those codes cover, and singled out the small, decade-old Urban Institute sample as an inadequate basis for repricing two of the highest-volume codes pathologists bill. CAP’s letter also touched a related, separately-tracked proposal in the same rulemaking cycle to move certain algorithm-based laboratory analyses — CMS’s new “Software as a Medical Service” category — off the Clinical Laboratory Fee Schedule; CAP asked CMS to hold those on the CLFS pending a collaborative payment framework rather than forcing them to compete for constrained physician-fee-schedule dollars. We covered that SaMS proposal in depth in our earlier look at CMS's algorithm-billing reclassification, since it runs on a parallel but distinct track from the surgical pathology revaluation described here.
How this fits with CMS's other 2027 lab payment moves
This is the third distinct front in a genuinely unusual year for Medicare lab and pathology payment policy. The Clinical Laboratory Fee Schedule — the technical-component rate labs bill for running a test — is separately taking a PAMA-driven cut, with molecular pathology and genomic sequencing codes falling a preliminary 22–23% in the rates CMS published in September; we broke down those numbers here. Separately, the CY2027 OPPS and PFS rules both include CMS's proposal to reclassify roughly ten algorithm-only lab analyses as “Software as a Medical Service” and move them off the CLFS, which we covered in our SaMS explainer. The surgical pathology revaluation discussed in this article is a third, separate mechanism: it affects the professional-component fee schedule pathologists and pathology groups bill directly, distinct from both the CLFS technical-component rate and the OPPS reclassification question.
A lab or health system billing across all three fee schedules — CLFS for the test itself, PFS for the professional interpretation, and potentially OPPS for algorithm-derived add-on analyses — could see all three move against it in the same rulemaking cycle, for three unrelated methodological reasons.
What labs and RCM teams should do before November
Nothing has changed yet for claims submitted today. The comment period is closed, but CMS has not published a final rule, and the volume and specificity of opposition — CAP's letter chief among it — gives CMS real reasons to revise the 88305/88307 proposal before finalizing. Even so, treat this as a live planning item rather than background noise:
Model your 2027 professional-component revenue against both scenarios. If your organization bills 88305 or 88307 directly, or contracts with a pathology group that does, run your projected Medicare volume against both the proposed lower valuation and the current CY2026 valuation, so budget planning isn't built on an assumption that either extreme is certain.
Separate this from your CLFS and SaMS exposure. A single molecular or anatomic pathology operation could be affected by the surgical pathology revaluation, the CLFS rate cuts, and the SaMS reclassification simultaneously, but they move on different regulatory tracks and different final-rule timelines. Track each independently rather than assuming one final rule resolves all three.
Watch for the final rule in November. CMS routinely narrows or drops proposals after significant, specific pushback like CAP's. Set a reminder to check the final CY2027 PFS rule against this proposed valuation before locking 2027 payer contracts or budgets that reference Medicare professional-component rates as a benchmark.
Loop in your pathology and billing partners now. If your lab depends on an affiliated or contracted pathology group for surgical pathology interpretation, confirm how they're modeling the proposed revaluation and whether it changes your shared billing or service arrangements for 2027.
Frequently asked questions
What is the CY2027 Physician Fee Schedule proposed rule?
It's CMS's annual proposed update to Medicare Part B physician payment (file code CMS-1848-P), released July 14, 2026. For CY2027 it proposes lower conversion factors than CY2026 and a downward revaluation of surgical pathology codes 88305 and 88307. Comments closed September 14, 2026; a final rule is expected around November.
Why are CPT codes 88305 and 88307 specifically at risk?
The Maryland Health Care Commission nominated both as potentially misvalued. CMS is considering lower physician work values based on empiric time-based data. CAP argues the underlying analysis doesn't account for the wide range of specimen types (63 for 88305, 39 for 88307) these codes cover.
How much would pathology payments actually fall?
CAP's own modeling of the combined conversion-factor decline and code revaluation estimates pathology's allowed Medicare charges would fall about 34% overall, from $1.178 billion to $777 million in 2027, with independent laboratories seeing roughly a 31% decline.
Is this rule final, or could it still change?
It's still proposed. The comment period closed September 14, 2026, but CMS has not issued a final rule. CMS can revise, narrow, or drop proposals in response to comments like CAP's before publishing a final rule, typically expected around November 2026 for a January 1, 2027 effective date.
How is this different from the CY2027 CLFS rate cuts?
The CLFS cuts affect the technical-component rate labs bill for running a test, and are driven by PAMA private-payor reporting, not this rule. The PFS changes described here affect the professional-component fee pathologists bill for interpretation, and stem from the conversion factor and a code-specific revaluation — a separate mechanism moving on its own timeline.
This article summarizes proposed federal rulemaking as of September 2026 for general information for laboratory, pathology, and revenue-cycle audiences. It is not billing, legal, coding, or medical advice. The rule discussed is proposed, not final; verify current status directly against CMS.gov and the Federal Register, and consult qualified reimbursement or healthcare counsel before making billing, coding, staffing, or contracting decisions based on this rulemaking.
Sources: CMS, Federal Register, “Medicare and Medicaid Programs; CY 2027 Payment Policies Under the Physician Fee Schedule” (July 16, 2026); CMS, “Calendar Year (CY) 2027 Medicare Physician Fee Schedule Proposed Rule” fact sheet; College of American Pathologists, “CAP Opposes Proposed 2027 Medicare Payment Changes For Pathology Services” (cap.org, Sept. 2026); CLP Magazine, “CAP Opposes Proposed 2027 Medicare Payment Changes for Pathology Services” (Sept. 15, 2026); Holland & Knight, “CMS Issues CY 2027 Medicare Physician Fee Schedule Proposed Rule” (July 2026); MSN Healthcare Solutions, “2027 Proposed Medicare Physician Fee Schedule: Implications for Pathology.” For related coverage, see our guides to the CY2027 CLFS preliminary rates and the CMS Software as a Medical Service rule, or visit the ScreenMyGene homepage for more coding and coverage resources.