CMS's 2021 Medicare Physician Fee Schedule: Will it Disrupt Your Physician Compensation Plan?

Updates to Medicare’s primary payment system for physician services mean significant increases for some providers, and likely severe decreases for others. On December 1, 2020, the Centers for Medicare and Medicaid Services (CMS) finalized updates for the 2021 Medicare Physician Fee Schedule (MPFS). The final rule represents some of the most impactful revisions to the physician payment model in its history. CMS analysis projects some provider specialties will see increases to Medicare revenues of up to 16%, while others could suffer losses approaching 10%.

Among the sweeping changes, some of the most consequential involve the rework of coding and payment policies for evaluation and management (E&M) services. In addition to streamlining documentation requirements and modifying current procedural terminology (CPT) coding guidelines, CMS has awarded greater reimbursement value for E&M services by increasing the work relative value units (wRVUs) assigned to most office visits.

The finalized wRVU adjustments for 2021 office visit E&Ms are summarized below. Additionally, two new codes have been created for prolonged services (G2212) and complex visits (G2211).

Though wRVUs for most E&M codes will increase, any increase in spending under the MPFS must be offset to fulfill the legislative mandate for annual budget neutrality required of CMS. To maintain authorized reimbursements for 2021, CMS is lowering the MPFS conversion factor by $3.83, or 10.2%, to $32.4085. Because the conversion factor is the rate that is paid per relative value unit (RVU) for all services provided under the MPFS, this change will have broad implications for providers in all specialties.

As shown below, this adjustment represents an unusually marked decrease contrasted with annual rate changes from the prior decade.

Going forward in 2021, revenue of individual healthcare organizations will be impacted by many factors including the array of services provided, payer mix, and the structure of payer reimbursement contracts. The wRVU and conversion factor changes will cause significant net losses for many practices, particularly the more procedure-oriented specialties, such as surgical groups, while more visit-focused specialties generally expect to see increased revenues. Beyond the Medicare revenue considerations, commercial insurers commonly set reimbursement rates using current Medicare fees as a baseline value, so for many providers, effects of the 2021 changes will extend beyond the payments received for services rendered to Medicare patients.

Particularly burdensome during a time when many healthcare providers are still reeling from the strain of the COVID-19 pandemic, the new fee schedule remains widely contested. Provider groups and other healthcare organizations continue to lobby for congressional intervention to override the MPFS budget neutrality adjustment set to go into effect January 1, 2021.

Beyond the explicit revenue consequences, the existing structure of physicians' compensation agreements will have further repercussions on organizations' financial situations. Many employed physicians receive compensation based on wRVU production. Earnings are typically based on a ratio of compensation-per-wRVU, with the rate set using historical market benchmark data for comparable physicians. Once the relevance of historical benchmarks is altered by the new wRVU framework, assessing wRVUs for fair market value compensation will be more complicated. Given the increased wRVU values for 2021 E&Ms, average wRVUs generated per physician are expected to increase across the board, with physicians in primary care and other visit-heavy specialties seeing the highest gains. The simultaneous increase to E&M wRVUs and decrease to the MPFS conversion factor means the annual budgets of many groups will experience a double shock–paying out more in physician compensation (for the same volume of services offered in 2020), and, at the same time, collecting a lower rate of payment from payors for the same physician services.

At BuckheadFMV, we offer consulting services to help healthcare organizations find answers to questions regarding fair market value and commercial reasonableness. To determine the impact of the 2021 MFPS changes, it will be important to:

1. Understand budget exposure to these changes at the physician and organizational levels

2. Consider the new wRVUs while reviewing contracts, payment rates, and policies to ascertain any adjustments that may be required

3. Identify potential areas of risk for fair market value and commercial reasonableness compliance

Contact BuckheadFMV with questions about fair market value physician compensation in light of the 2021 MPFS.