The 2026 State of the Revenue Cycle

A Comprehensive Guide for Practices and Laboratories

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A Letter from ADS Leadership

Healthcare is at a crossroads. For independent practices and laboratories, the coming year will be one of the most complex and consequential periods in recent memory. The pressures of rising costs, shrinking reimbursements, and relentless compliance mandates are compounded by structural challenges — from workforce shortages to the uneven adoption of artificial intelligence.

At ADS, we believe resilience is not achieved in isolation. It is built through strong partnerships that combine technology, expertise, and operational support. Our goal is to help practices and laboratories not only survive the turbulence of 2026 but thrive within it.

This report is our most comprehensive analysis yet: a forward-looking guide to reimbursement, compliance, and operational change. It blends data, regulatory updates, case examples, and prescriptive strategies into one framework for resilience.

Executive Summary


The 2026 billing and revenue cycle environment will be defined by six converging forces:

  1. Reimbursement Pressure

    • Medicare conversion factor cut of 2.83% in 2025, with further reductions likely.
    • Historical trend: Medicare physician payments declined 26% since 2012 after adjusting for inflation.

  2. Compliance and Documentation Burden

    • ICD-10-CM updates effective October 2024 require new levels of specificity in orthopedics, podiatry, and pain management.
    • MIPS 2025 rule changes increase thresholds, raise penalties, and integrate cost categories more directly into scoring.

  3. Policy Shifts

    • Expiration of key telehealth flexibilities in October 2025.
    • End of zero-dollar WCMSA reviews for workers’ compensation cases (July 2025).

  4. Laboratory Reimbursement Cuts

    • PAMA-driven rate reductions of up to 15% across 800 tests, effective January 2026.
    • Mandatory payer data submission due March 31, 2026.

  5. Prior Authorization Reform

    • Traditional Medicare launches the WISeR pilot in six states, requiring PA for 17 outpatient services.
    • Medicare Advantage plans must adhere to new timelines (7 days standard, 72 hours expedited) and transparency rules.

  6. Workforce and Technology Transformation

    • 71% of practices now use AI tools (MGMA), yet governance is weak.
    • Staffing shortages and burnout persist across coders, billers, and admin staff.

Bottom line: The next 24 months represent a tipping point. Practices and laboratories that fail to prepare will face revenue erosion, compliance penalties, and operational breakdowns. Those who invest in resilience — automation, compliance infrastructure, and staffing partnerships — can not only withstand the turbulence but emerge stronger.

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The 2025–2026 Market Dynamics

Rising Costs vs. Shrinking Reimbursement

  • Operating expenses rose 11.1% in 2025 (MGMA).
  • Staff wages climbed 13% due to workforce shortages.
  • Technology and compliance investments added an additional 8% burden.

At the same time, CMS implemented a 2.83% cut to the Medicare conversion factor in 2025. For many practices, this equated to six-figure losses in revenue.

Strategic implication: The gap between costs and reimbursement is not sustainable. Incremental efficiencies will not be enough. Practices must rethink workflows, adopt automation, and explore new staffing models.

ICD-10-CM Updates: Documentation as Revenue Risk


The FY2025 ICD-10-CM update (effective Oct 1, 2024) introduced new codes requiring greater clinical specificity.

Examples of Changes

  • Back & Spine: Discogenic low back pain; multifidus dysfunction.
  • Joints: Synovitis and tenosynovitis now require right/left laterality.
  • Podiatry: Expanded codes for hallux, plantar plate injuries, chronic ankle pain.

Case Vignette

A 12-provider orthopedic group failed to train clinicians on new documentation requirements. Within 60 days of the update, their denial rate for musculoskeletal claims rose 12%, resulting in $150,000 in lost revenue.

Recommendations

  • Conduct quarterly audits of documentation and coding.
  • Deploy AI-driven prompts that guide clinicians to capture required specificity at the point of care.
  • Train staff not only on what the new codes are, but on why specificity matters for reimbursement.
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Medicare Fee Schedule Cuts: The Squeeze Tightens


Historical Context

  • From 2012–2025, Medicare physician payments declined 26% after inflation (AMA).
  • CMS applied a 2.83% conversion factor cut in 2025.

2026 Outlook

Budget neutrality adjustments and “efficiency” cuts are expected to continue, likely resulting in another 1.5–2% cut in 2026.

Financial Modeling

  • Orthopedic group ($8M revenue, 40% Medicare):
    • 3% cut = $96K lost.
  • Regional lab ($20M revenue, 25% Medicare):
    • 3% cut = $150K lost.

Recommendations

  • Model revenue under best-, base-, and worst-case scenarios.
  • Proactively adjust staffing and expenses to account for potential shortfalls.
  • Use automation to offset labor costs and protect margins.

MIPS Evolution: Higher Stakes


Key Changes in 2025

  • Improvement Activities (IA) no longer weighted.
  • Cost category aligned with performance thresholds.
  • 195 Quality measures; 7 new, 66 updated.
  • Performance threshold: 75 points.
  • Penalties: up to 9% reductions.

Implications

Practices that fail to integrate MIPS into daily workflows face a “double penalty” — fee schedule cuts compounded by MIPS reductions.

Case Vignette

A multispecialty group scored 68 points in 2025. With no workflow changes, they project a 7% revenue reduction in 2026. On $10M revenue, that equals $700,000 lost.

Recommendations:

  • Embed MIPS measure capture into EHR and daily workflows.
  • Partner with RCM experts for ongoing monitoring, reporting, and scoring validation.
  • Treat MIPS compliance as a financial survival function, not an administrative task.

Telehealth & Workers’ Compensation


Telehealth Cliff

  • Certain pandemic flexibilities expire October 1, 2025.
  • In-home and audio-only visits may no longer be reimbursable.
  • Coverage varies significantly by payer, complicating workflows.

Workers’ Compensation Shifts

  • CMS ended zero-dollar WCMSA reviews in July 2025.
  • State reimbursement changes:
    • Connecticut (-6.1%)
    • West Virginia (-9.1%)
    • Florida (~-1%).

Implication

Providers face increased documentation requirements, variable payer policies, and greater risk of denied claims.

Recommendations:

PAMA 2026: A Defining Moment for Labs


Key Changes

  • Rate reductions: up to 15% cuts across ~800 lab tests.
  • Data collection: Labs must submit 2019 private payer data by March 31, 2026.
  • Rates set for 2027–2029 CLFS.
  • Legislative response: RESULTS Act seeks to stabilize payments, but outlook uncertain.

Case Vignette


A regional lab with $2.5M annual Medicare revenue faces a potential $375K loss from PAMA cuts. Without offsetting efficiencies, staff layoffs are likely.

Recommendations

  • Automate compliance reporting.
  • Model financial impact of multiple CLFS scenarios.
  • Engage with legislative advocacy around PAMA reform.

Prior Authorization Overhaul: WISeR & MA


WISeR Model (Traditional Medicare Pilot 2026–2031)

  • Purpose: Reduce fraud and overuse via AI-assisted PA.
  • Scope: 17 outpatient services, including facet injections, TAVR, spinal stimulators, wound grafts, and deep brain stimulation.
  • Process: AI screens; denials reviewed by licensed clinicians.
  • Geography: Pilot in AZ, NJ, OH, OK, TX, WA.

Medicare Advantage Reform (2026)

  • Timelines: 7 days for standard PA, 72 hours expedited.
  • Transparency: Plans must share PA outcomes with CMS.
  • Beneficiary protections: Must honor medical necessity; improved appeals process.

Implication

Both Medicare and MA are reshaping prior authorization. Practices in WISeR states will face additional administrative burdens and cash flow delays if unprepared.

Recommendations

  • Implement PA automation software.
  • Train staff in pilot states for increased scrutiny.
  • Use analytics to track PA outcomes and appeals success.

AI & Automation: Opportunity with Oversight


Current Landscape

  • 71% of practices use AI in some form (MGMA, 2025).
  • Use cases: denial prevention, eligibility, PA automation, coding prompts, patient engagement.

Risk

Without governance, AI adoption can introduce compliance risks and errors.

Recommendations

  • Establish governance frameworks for AI oversight.
  • Combine automation with human QA.
  • Prioritize high-ROI use cases tied to measurable revenue gains.

Staffing & Burnout: The Human Factor


Current State

  • Persistent coder shortages.
  • Rising turnover and training costs.
  • Clinical and administrative burnout.

Case Vignette

A nine-provider pain group lost two coders in 2025. Claims backlog reached 45 days in AR; monthly collections dropped 18%.

Recommendations

  • Adopt hybrid staffing models (internal + outsourced RCM).
  • Use outsourcing to handle repetitive tasks like charge entry and denials.
  • Reinvest savings into retention and clinical support.

Comparative Specialty Impact

 

Specialty

Top 2026 Risk

Recommended Focus

Orthopedics

ICD-10 documentation; WISeR PA

Coding audits; PA automation

Pain Management

WISeR scrutiny of injections/stimulators

Denial prevention; workflow redesign

Podiatry

ICD-10 detail expansion

Real-time AI prompts

Laboratories

PAMA cuts; reporting

Automated compliance; scenario modeling

Primary Care

MIPS thresholds; shrinking reimbursement

Workflow-integrated MIPS capture

 

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Scenario Planning

Best Case

  • Stable fee schedule
  • Moderate PAMA cuts (10%)
  • Smooth PA adoption

Impact: -3% margin

 
 

Base Case

  • 3% Medicare cut
  • Full 15% PAMA cut
  • High PA burden

Impact: -6% margin

 
 

Worst Case

  • 4% Medicare cut
  • 15% PAMA cut
  • Severe PA delays in WISeR states

Impact: -10% margin

 

 

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Recommended 2025–2026 Roadmap

 

The coming 24 months will not be business as usual. They represent a compressed window of change in which reimbursement cuts, compliance deadlines, prior authorization reforms, and workforce pressures collide. Practices and laboratories that react piecemeal will find themselves constantly behind; those that plan deliberately will be positioned to weather the turbulence.

The key is to translate policy shifts into a clear sequence of operational actions — knowing what to do, and when to do it. That is why we’ve built a quarter-by-quarter roadmap: a practical guide to help you anticipate deadlines, prioritize investments, and align your teams with the realities of 2026 and 2027.

Q4 2025

This quarter is about foundation-setting: auditing ICD-10 documentation, training staff on MIPS 2026 requirements, and beginning to redesign prior authorization workflows before reforms go live.

  • Audit ICD-10 documentation
  • Train staff on MIPS 2026 rules
  • Redesign PA workflows

Q1 2026

The first quarter of 2026 should focus on early execution — piloting denial prevention AI, implementing new Medicare Advantage prior authorization rules, and modeling the financial impact of PAMA-driven reimbursement cuts.

  • Launch denial prevention AI pilot
  • Implement MA PA compliance rules
  • Model PAMA financial impacts

Q2 2026

By spring, attention must shift to compliance deadlines and pilot launches: submitting PAMA private payer data, preparing teams in WISeR pilot states, and conducting a comprehensive cybersecurity risk assessment.

  • Submit PAMA private payer data
  • Train WISeR state teams
  • Conduct cybersecurity risk assessment

Q3 2026

Mid-year is the time to evaluate and adjust: track PA turnaround times, recalibrate staffing models to address delays, and benchmark performance against resilience frameworks to course-correct before year-end.

  • Evaluate PA turnaround times
  • Adjust staffing models based on delays
  • Benchmark performance against resilience framework

The ADS Resilience Framework



Resilience doesn’t come from reacting to each new regulation or reimbursement cut as it arrives. It comes from having a structured, repeatable framework that ties technology, compliance, staffing, and financial strategy together. At ADS, we’ve developed a five-part Resilience Framework designed specifically for practices and laboratories facing the 2026–2027 landscape.

This framework goes beyond tools — it’s about aligning operations with the realities of today while preparing for tomorrow, so your organization can thrive no matter what changes lie ahead.


  1. Automate denial prevention and eligibility checks
  2. Integrate compliance-ready workflows for ICD-10, MIPS, PAMA, and PA
  3. Deliver specialty-specific RCM solutions
  4. Augment staff with outsourcing to relieve burnout

The 2026–2027 period represents a pivotal moment. Reimbursement, compliance, and workforce pressures will converge to test the resilience of every independent practice and laboratory.

Resilience is possible — but it requires preparation, foresight, and partnership. ADS stands ready to help organizations thrive through turbulence with automation, compliance expertise, and operational support.

👉 Schedule your 2026 Readiness Assessment

👉 Explore ADSRCM and MedicsCloud Suite

 

 

Appendix A:
Key Stats

  • 11.1% increase in operating costs (MGMA, 2025)
  • 2.83% Medicare fee cut (CMS, 2025)
  • 71% of practices use AI tools (MGMA, 2025)
  • Up to 15% lab test cuts under PAMA 2026 (CMS)
  • MIPS penalties: up to 9% payment reduction (CMS)
  • Zero-dollar WCMSA reviews ended July 2025 (CMS/Reuters)
  • WISeR prior auth pilot launches Jan 2026 (CMMI)

 

Appendix B:
Timeline

  • Oct 1, 2025: Telehealth flexibilities expire
  • Jan 1, 2026: PAMA cuts take effect; WISeR pilot launches
  • Mar 31, 2026: Lab payer data submission due
  • 2027: Prior Auth API metrics reporting; expanded MIPS cost weighting

 

References

Centers for Medicare & Medicaid Services (CMS). (2025, July). WISeR Model Overview. Retrieved from https://www.cms.gov/priorities/innovation/innovation-models/wiser

Centers for Medicare & Medicaid Services (CMS). (2025, July). Wasteful and Inappropriate Service Reduction (WISeR) Model: Request for Applications. Retrieved from https://www.cms.gov/files/document/wiser-model-rfa.pdf

Centers for Medicare & Medicaid Services (CMS). (2025, July 22). CMS Launches New Model to Target Wasteful, Inappropriate Services in Original Medicare. CMS Newsroom. Retrieved from https://www.cms.gov/newsroom/press-releases/cms-launches-new-model-target-wasteful-inappropriate-services-original-medicare

MGMA. (2025, June). Medical practice operating costs are still rising in 2025 — here’s how to control them. Medical Group Management Association. Retrieved from https://www.mgma.com/mgma-stat/medical-practice-operating-costs-are-still-rising-in-2025-heres-how-to-control-them

MGMA. (2025, May). Drug supplies, IT expenses are fastest-growing costs for medical practices outside of staffing. MGMA Stat. Retrieved from https://www.mgma.com/mgma-stat/drug-supplies-it-expenses-are-fastest-growing-costs-for-medical-practices-outside-of-staffing

Physicians Practice. (2025, February). 2025’s medical practice challenges: Prior authorizations, a staffing squeeze and rising costs. Retrieved from https://www.physicianspractice.com/view/2025-s-medical-practice-challenges-prior-authorizations-a-staffing-squeeze-and-rising-costs

Becker’s Hospital Review. (2025, July). CMS to add prior authorization for traditional Medicare services. Becker’s Finance. Retrieved from https://www.beckershospitalreview.com/finance/cms-to-add-prior-authorization-for-traditional-medicare-services

Kiplinger. (2025, August). Prior Authorization Coming to Traditional Medicare Starting in 2026. Kiplinger Retirement. Retrieved from https://www.kiplinger.com/retirement/medicare/prior-authorization-coming-to-traditional-medicare

Essential Hospitals. (2025, July). CMS to Test Prior Authorization Model for Traditional Medicare. Retrieved from https://essentialhospitals.org/cms-to-test-prior-authorization-model-for-traditional-medicare

Georgetown University, Center on Health Insurance Reforms. (2025, August). New CMS WISeR Model Revives Concerns of Prior Authorization and Artificial Intelligence. Medicare Policy Blog. Retrieved from https://medicare.chir.georgetown.edu/new-cms-wiser-model-revives-concerns-of-prior-authorization-and-artificial-intelligence

Dentons Health Law. (2025, July). CMS Announces Prior Authorization Innovation Model in Traditional Medicare. Retrieved from https://www.dentonshealthlaw.com/cms-announces-prior-authorization-innovation-model-in-traditional-medicare

Jones Day. (2025, August). Coming January 2026: CMS Launches AI Program to Screen Prior Authorization Requests for Treatments. Retrieved from https://www.jonesday.com/en/insights/2025/08/coming-january-2026-cms-launches-ai-program-to-screen-prior-authorization-requests-for-treatments

Mondaq. (2025, July). CMS Unveils New Prior Authorization ‘WISeR’ Model for Electrical Nerve Stimulators, Skin and Tissue Substitutes, and Knee Arthroscopy. Retrieved from https://www.mondaq.com/unitedstates/healthcare/1646872/cms-unveils-new-prior-authorization-wiser-model-for-electrical-nerve-stimulators-skin-and-tissue-substitutes-and-knee-arthroscopy

 

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