The MIPS Penalty: What It Costs, Who Gets It, and How to Avoid It

MIPS is often described as a pay-for-performance program, which implies the upside and downside are comparable. They are not. In the 2026 payment year, a perfect score of 100 earned a positive adjustment of 1.05 percent, the smallest in the program’s history, while a failing score carried the full statutory 9 percent penalty. The program pays a little for excellence and charges a lot for failure. Understanding the MIPS penalty, precisely, is understanding MIPS.

How the MIPS Penalty Works

Your final MIPS score, 0 to 100, is compared to the performance threshold, which is 75 points through the 2028 performance year. Score below it and a negative payment adjustment applies two years later: 2026 performance sets the adjustment on claims with dates of service from January 1 through December 31, 2028.

Four mechanics decide what a penalty costs, and most practices have only heard of the first:

• It applies claim by claim, all year. The adjustment factor attaches to every Medicare Part B covered professional service you bill during the payment year. There is no cap, no settlement, no year-end reconciliation. It compounds with your volume.
• It hits the Medicare paid amount, not the allowed amount. The reduction applies to what Medicare actually pays you, and it does not change the patient’s coinsurance or deductible. Patients pay the same; you receive less.
• It follows the clinician. The adjustment attaches to the TIN/NPI performance history, which is why acquiring practices increasingly ask about MIPS scores in diligence.
• It shows up on the remittance. Adjusted claims carry MIPS-specific claim adjustment reason codes on the Remittance Advice, which is where many practices discover a penalty they did not know they had earned two years earlier.

The Score-to-Penalty Math

Penalties scale linearly below the threshold, with a cliff at the bottom:

The cliff matters. A score of 18.75, which is one quarter of the threshold, or anything below it, draws the full 9 percent. That is where non-reporters land, which is why doing nothing is the single most expensive strategy in MIPS.

What the Full Penalty Costs, by Revenue

Figures approximate exposure on paid amounts for covered professional services. Two things make the real number worse than the table. First, the penalty repeats: a practice that ignores MIPS in 2026 and 2027 pays it in 2028 and again in 2029. Second, it arrives against fee schedule economics that are already tightening, as we covered in our CY2027 proposed rule analysis. A 9 percent reduction layered on flat or declining conversion factors is not a rounding error; for many practices it is the margin.

Why the Bonus Doesn’t Offset the Risk

MIPS is budget-neutral by statute: positive adjustments are funded by the penalties collected, scaled so the two sides balance. When most clinicians clear the threshold, and in the 2024 performance year the mean final score was 82.7, the penalty pool is small and the bonuses shrink with it. Hence 1.05 percent at the top.

The strategic conclusion follows directly: MIPS is played for the floor, not the ceiling. On $2 million of Medicare revenue, the difference between a 75 and a 100 was worth about $21,000 in the 2026 payment year. The difference between a 75 and an 18 was worth $180,000. Spend your effort accordingly.

Who Actually Gets Penalized

The penalty concentrates in predictable places. The largest group is eligible clinicians who submit nothing, score at or near the floor, and take the full 9 percent; every year, some of them are practices that never realized they were MIPS eligible in the first place. Small practices are hit hardest. In the 2024 payment year, 27 percent of them received a penalty, a rate that has less to do with clinical quality than with fewer administrative staff, less measure-selection analysis, and thinner data infrastructure. The flexibilities CMS offers small practices are real, but they only help the practices that use them.

Then there are the partial failures, which sting more because effort was spent. Measures submitted below the 75 percent data completeness standard or the 20-case minimum earn little or nothing; incomplete data is the quiet version of not reporting. Cost drags down practices that reported everything else well, since it is 30 percent of the score, calculated entirely from claims, and most never look at it until the feedback report arrives with the damage already done. Our Cost category analytics exist because this is the most common preventable failure we see.

And some practices simply miss the window. It closes March 31, 2027, at 8 p.m. ET, categories not submitted score zero, and the deadline guide has the full calendar.

How to Avoid the MIPS Penalty for 2026

Seven moves, in order of urgency as of mid-2026:

1. Confirm you are actually eligible, at every TIN/NPI combination, using the QPP Participation Status Tool. Then confirm again when final eligibility posts in December.
2. Report, even if imperfectly. The distance between submitting nothing and submitting a competent quality set is the difference between -9 percent and, for most practices, safety. Small practices get a 3-point floor on any measure with at least one case and 6 bonus quality points for submitting at all.
3. Check your quality math now. Six measures, full-year data, 75 percent completeness across all payers, scored against 2026 benchmarks that reset in January. A measure that scored well last year can quietly underperform this year at the same clinical performance.
4. Know your reweighting. Small practices get Promoting Interoperability reweighted automatically, shifting the score to Quality 40 percent, Cost 30, Improvement Activities 30. If PI is reweighted for other reasons, Quality typically carries 55 percent. Either way, the categories you still control get heavier.
5. Start Improvement Activities by October 3. Two activities, or one with small practice or rural status, run for 90 continuous days and documented. Fifteen free-feeling points that a surprising number of penalized practices simply never claimed.
6. File exceptions before December 31 if 2026 went wrong. The Extreme and Uncontrollable Circumstances exception reweights categories for practices hit by disasters, including cyberattacks. It cannot be filed retroactively once the year closes.
7. Count the bonus points that exist. The complex patient bonus, applied automatically from your patient mix, can add up to 10 points to a final score, and for practices near the threshold, bonus points are often the difference between clearing 75 and writing the check.

A registry changes the odds on most of this list, but only if it does more than transmit. The version of MIPS reporting we run prices every measure decision in points and dollars before you commit it and validates the data before CMS sees it; the full approach is here.

Already Facing a Penalty?

If your remittances this year show a negative adjustment, that traces to your 2024 score, and the window to contest it has closed: targeted review for the 2026 payment year ended November 14, 2025, and adjustments are final once the review window passes. Going forward, the targeted review window closes 30 days after CMS releases payment adjustment information, under 42 CFR 414.1385(a)(2). The practical response to a live penalty is making sure the 2026 performance year, the one you can still influence, does not produce another one in 2028. That work is cheapest right now. Bring us your QPP feedback report and we will show you exactly where the score broke.

MIPS Penalty FAQs