Introduction: Grasping the CY 2026 Medicare Scene

The Centers for Medicare & Medicaid Services (CMS) has put forward major changes to the Medicare Physician Fee Schedule (PFS) for Calendar Year 2026. These updates will have a big impact on rehabilitation therapy practices. The changes are some of the most important in recent years. They affect many areas, from how much therapists get paid to what they need to report about the quality of their work.

This guide explains the main parts of the CY 2026 Medicare changes for rehabilitation therapists. It gives clear explanations and useful tips to help your practice handle these changes well. Whether you work in a private practice, hospital outpatient department, or somewhere else, you need to understand these updates to follow the rules and get paid the right amount.

TL;DR: 2026 Medicare Changes for Rehabilitation Therapists

• Medicare introduces a two-tier payment system with higher rates for APM participants ($33.59, +3.83%) versus non-participants ($33.42, +3.62%), creating financial incentives to join alternative payment models.
• Office-based therapy practices will likely benefit from revised practice expense methodology as CMS reduces facility-based indirect PE allocations to 50% of non-facility rates.
• Documentation requirements now demand more stringent evidence of medical necessity, functional improvement, and skilled therapy justification to avoid claim denials.
• Quality reporting maintains a 75-point performance threshold through 2028 with five new measures, including patient-reported outcomes that require early implementation of data collection processes.
• Permanent expansion of the Medicare Telehealth Services List includes certain therapy services, offering new opportunities for treating patients with mobility limitations or in rural areas.

Key Medicare Policy Changes 2026 Affecting Rehabilitation Therapy

The CY 2026 Medicare policy changes bring in several big changes to payment structures and methods that will affect rehabilitation therapists . You need to understand these changes to manage your practice and plan your finances.

Medicare Conversion Factor 2026: What Therapists Should Know

For the first time, CMS has an influence on a dual conversion factor system that sets providers apart based on their involvement in Alternative Payment Models (APMs):

• Qualifying APM Participants: $33.59 (a 3.83% increase from $32.35 in 2025)
• Non-Qualifying APM Participants: $33.42 (a 3.62% increase from $32.25 in 2025)

This change creates a money incentive to encourage rehabilitation therapists to take part in APMs, with a 0.17 gap between the two conversion factors. While this might look small, it shows a big policy shift toward care models based on value.

Also, the overall payment adjustment has:

• A 2.50% statutory increase for CY 2026
• A work RVU adjustment of about 0.55%

These changes mean most rehab therapists will get a small boost in their Medicare reimbursement rates. The exact impact will differ based on your practice's mix of services and setting.

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How will these new conversion factors impact your practice's bottom line? Use the calculator below to see the projected revenue change based on your current Medicare volume and APM participation status.

This calculator helps you estimate the financial impact of the new conversion factors on your specific practice. Enter your current Medicare volume, percentage of APM participation, and service mix to see personalized projections.

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Practice Expense Methodology Changes

One of the biggest shifts in the CY 2026 rule is the change to the Practice Expense (PE) method. This will affect how indirect costs are assigned:

• Facility Setting Adjustment: Indirect PE RVUs for services provided in facility settings will drop to 50% of the amount given for non-facility settings
• Site of Service Differentiation: Better recognition of the different overhead costs linked to various practice settings
• Office-Based Practice Recognition: More accurate accounting for the higher overhead costs often tied to office-based therapy practices

These changes mean that office-based practices might see higher payments compared to facility-based services. This change recognizes the higher overhead costs that independent practices face compared to services provided in hospital or institutional settings.

Medicare Rehabilitation Coverage Updates for 2026

The CY 2026 rule brings key changes to Medicare rehab coverage policies that therapists need to know and get ready for.

Documentation Requirements and KX Modifier Updates

Medicare has changed the documentation rules for rehab therapy services focusing on proving medical need:

• New KX modifier limits for therapy services
• Stricter rules for showing functional gains
• Clearer steps to prove the need for skilled therapy services

These shifts mean rehab therapists must change how they document to show medical need and track progress more . If they don't meet these new documentation rules, they might face claim denials or audits.

Therapy Cap and Exceptions Process

Although lawmakers ended the therapy cap for good in 2018, the CY 2026 rule keeps the KX modifier threshold process with a few changes:

• New yearly threshold amounts for physical therapy and speech-language pathology services together
• Different threshold for occupational therapy services
• Ongoing need for the KX modifier to show services above the threshold are needed

Rehab therapists should make sure their billing systems track these thresholds and that their records back up the medical need for services that go over them.

Medicare Telehealth Rules for Rehab Therapists

The growth of Medicare telehealth services gives rehab therapists new ways to help patients from afar. The CY 2026 rule has several key telehealth rules:

• Making certain therapy services a permanent part of the Medicare Telehealth Services List
• Streamlining the process to add new services to the telehealth list
• Improving virtual care options for therapy services

These changes give rehabilitation therapists more ways to deliver services to patients who can't move or live in rural areas. Remember, telehealth services still need proper paperwork and must meet all other coverage rules.

What You Need to Write Down for Virtual Care

When rehabilitation therapists provide telehealth services, they need to write down specific things:

• state that the service was virtual
• Check and confirm the patient's identity and where they are
• Write down that the patient agreed to telehealth services
• Checking if telehealth fits the specific service
• Thorough notes on exercises, tests, and how patients respond

These rules make sure telehealth matches the quality of face-to-face care while recognizing the special features of online treatment.

Getting a Grip on the CMS Final Rule for Rehab Therapy

The CY 2026 CMS final rule has many parts that matter to rehab therapy practices, beyond the payment changes we talked about earlier.

Mixing in Mental Health Care

The rule stresses adding mental health services to primary care, which affects rehab therapists:

• New optional extra codes for advanced primary care management
• More help for all-around care approaches
• Bringing together physical and mental health services

Rehabilitation therapists especially those treating patients with chronic pain or neurological conditions now have chances to tackle the mental side of physical therapy through combined care approaches.

Quality Payment Program Changes

The Quality Payment Program (QPP) keeps changing, and several updates affect rehabilitation therapists:

• Performance threshold stays at 75 points until 2028
• Five new quality measures added, including three high-priority and patient-reported outcome measures
• Tweaks to cost and improvement activity categories

These updates mean that rehabilitation therapists in MIPS need to check their quality measure choices and reporting methods to hit the performance target.

Medicare Therapy Reimbursement Changes in 2026

The CY 2026 Medicare changes will have an impact on the finances of rehabilitation therapy practices. This impact won't be the same for all practices. It depends on many things.

Medicare Reimbursement for Rehabilitation Services: New Rates and Adjustments

The table below shows the main payment rate changes for CY 2026:

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These changes show a small but important rise in money paid for rehab therapy services. But how it affects your practice depends on what services you offer where you work, and if you're part of an APM.

How Practice Settings Are Affected

The new way of calculating practice expenses will affect different work settings in different ways:

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To get ready for these changes, rehab therapy practices should take a close look at what services they offer and where they work. This will help them figure out how their money situation might change.

Medicare Quality Measures for Rehabilitation: New Rules

Quality reporting plays a key role in Medicare participation, with several big changes for rehab therapists in the CY 2026 rule.

New and Changed Quality Measures

The CY 2026 rule brings in several new quality measures that matter to rehab therapy:

• More focus on outcomes reported by patients
• New ways to assess functional improvement
• More measures to coordinate and communicate care

Rehab therapists should look at these new measures and figure out which ones fit best with their practice and the patients they see. Starting to use these measures can help make the switch easier and might boost performance scores.

Reporting Rules and Due Dates

The quality reporting rules have some important due dates and details:

• Data collection period: January 1 - December 31, 2026
• Submission deadline: March 31, 2027
• Each measure has minimum case volume requirements
• Data must meet completeness requirements

Rehabilitation therapists should make sure their practice management systems capture the needed data throughout the year. If they don't meet these reporting requirements, they could face payment penalties.

How Medicare Changes Will Affect Rehabilitation Therapists' Finances: A Breakdown

The Medicare changes coming in 2026 will have different effects on the finances of rehabilitation therapy practices. To get ready, therapists should do a thorough money check.

Ways to Estimate Future Income

To figure out how these changes might affect your practice's income:

1. Look at the Medicare services you offer by CPT code and where you provide them
2. Use the new conversion factors based on whether you're in an APM
3. Change your numbers to account for the new practice expense rules based on where you work
4. Include quality payment adjustments based on how you've done in the past
5. Guess how much you'll use telehealth if you plan to do more of it

This analysis has an influence on providing a clearer picture of how the CY 2026 changes will affect your specific practice.

Cost Management Considerations

To address these changes, rehabilitation therapists should also check their cost structures:

• Check documentation systems to make sure they support the enhanced requirements
• Look at staffing needs to collect and report quality data
• Think about investing in telehealth infrastructure if it fits your patient population
• Look over participation in APMs to see if the higher conversion factor justifies any related costs

Taking action on cost management can help balance out any negative revenue impacts and set up your practice to succeed under the new payment structure.

Timeline to Implement CY 2026 Medicare Changes

Knowing the implementation timeline is key to plan and comply with regulations.

This timeline gives rehabilitation therapists about five months to get ready to put the final rule into action after it's published. Because the changes are so big, it's crucial to start getting ready .

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Rehabilitation Therapy Medicare Updates: Documentation Requirements

The CY 2026 rule brings in several key changes to documentation requirements for rehabilitation therapy services.

Medical Necessity Documentation

CMS has made the requirements for documenting medical necessity stronger:

• More detailed guidelines to show the need for skilled therapy
• Stricter requirements to document functional improvement
• Clearer standards to justify ongoing therapy services

These changes mean that rehabilitation therapists will need to be more exact and thorough in their paperwork. They'll have to show why services are necessary and how they're making patients' function better.

Service Delivery Recording

The documentation of service delivery also has stricter requirements:

• More thorough recording of specific treatments given
• Better documentation of time used for each part of service
• Stricter rules to document how patients respond to treatment

These updates match CMS's ongoing work to make sure Medicare pays for needed and reasonable services, and that those services are provided as charged.

Conclusion: Getting Your Practice Ready to Succeed

The Medicare changes for CY 2026 mark big shifts in how rehab therapy services are valued, paid, and reported. While these changes bring challenges, they also create chances for practices that adjust well.

To get ready for these changes:

1. Take a deep dive into your finances to see how the new payment rates and methods will affect your practice
2. Check and improve your record-keeping systems to make sure they back up the stricter requirements
3. Look over your quality reporting steps to ensure you can hit the new targets and meet the requirements
4. Think about joining APMs to figure out if the higher conversion factor is worth any related costs
5. Look into ways to expand telehealth if it's a good fit for your patients

By taking action now, rehabilitation therapists can set up their practices to thrive under Medicare's new system. These big changes also show that Medicare still values how rehab therapy helps patients get better and cuts down on overall healthcare spending.

To stay informed and get help, think about joining professional groups for your type of therapy. These groups often give detailed advice and stand up for therapists as these changes come into effect.