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CMS's 2023 Medicare Physician Fee Schedule: How Will it Affect Your Physician Compensation Plan?

In November, the Centers for Medicare and Medicaid Services (CMS) issued the finalized Medicare Physician Fee Schedule (MPFS) for 2023. With the release, CMS executes the second phase of its broader initiative to overhaul its coding and payment policies for evaluation and management (E&M) services. Two years ago, the agency significantly modified the current procedural terminology (CPT) for office visit E&Ms, which included changing the coding guidelines to allow providers to select either time or medical decision-making as the basis for a visit level. CMS also raised the reimbursement for most office visit services by increasing the work relative value units (wRVUs) assigned to the codes. Those updates were substantial, with wRVUs assigned to the most frequently used CPTs for established patient visits increased by 28% to 46%.

The 2023 MPFS makes similar revisions to the coding guidelines for E&Ms in other places of service, including hospital, emergency department (ED), home, and nursing facility visits. However, while CMS has assigned higher wRVUs for certain visits, it has decreased the wRVUs for others. The finalized wRVUs changes for the updated CPT groups are summarized below. Additionally, CMS created three new codes (G0316-G0318) for prolonged services in the inpatient, nursing facility, and home settings.

  • While wRVUs for initial hospital care and observation services either remained relatively neutral or saw a decrease, the values for most subsequent hospital care and discharge services increased materially (13% to 32%).

  • The majority of ED visit codes already received a wRVU increase in 2021, so for 2023, these remain consistent, other than the lowest level visit, which received a significant decrease.

  • Nursing facility E&Ms largely increased, with the majority by a significant amount (12% to 32%) and only the two lowest level codes seeing a decrease.

  • Home/residential visits saw a mix of increases and decreases to wRVUs.

CMS also implemented updates to the RVUs for direct practice expenses (PE) and malpractice expenses (MP), as well as revising the geographic practice cost indices (GPCIs) based on updated cost data.

Given these changes and the expiration of a 3% temporary funding increase that Congress passed for 2022, the 2023 final rule will lower the MPFS conversion factor from $34.6062 to $33.0607. The 4.5% reduction is required to maintain authorized reimbursement levels for Medicare. Any increased spending under the MPFS must be offset to fulfill the legislative mandate for annual budget neutrality required of CMS. In addition to the conversion factor reduction, a separate 4% cutback under statutory Pay-As-You-Go (PAYGO) rules is set to go into effect for Medicare payments starting January 1, 2023. Including both adjustments, MPFS payments to physicians for 2023 will decrease by 8.5%.

Historically, Congress has consistently intervened in years that Medicare reductions have loomed by authorizing additional funding—often at the 11th hour—to alleviate nearly all of the slated cuts. However, while significant scheduled decreases have been averted over the last two years, modest cutbacks have been allowed. In 2021, the cut to the conversion factor was decreased from 10.2% to 3.3%. While the 2022 conversion factor cut was reduced from 3.7% to just 0.8%, mid-2022 also brought the return of 2% sequestration reductions, which Congress had temporarily suspended at the onset of the pandemic.

Because the conversion factor is the rate that is paid per relative value unit (RVU) for all services provided under the MPFS, an 8.5% rate reduction will have implications for providers in all specialties. The revenue of individual organizations and providers in the coming year will be impacted by many factors, including the blend of services provided, payer mix, and structure of reimbursement contracts. The 2023 MPFS changes will cause significant net losses for many practices if Congress does not intervene. As in many years past, healthcare organizations are currently lobbying Congress for additional funding to prevent the scheduled cuts.

While providers wait for legislative action, they should begin evaluating the impact of the final rule's wRVU changes on their physician compensation plans. Many employed physicians receive compensation based on wRVU production. Earnings are often based on a ratio of compensation-per-wRVU, with the rate set using historical market benchmark data that reflects a prior year's wRVU values. While the overall impact of the changes to wRVUs in 2023 will not, on average, be as significant as those that occurred in 2021, the net effect could be considerable for individual physicians or groups, such as those who primarily provide nursing facility services. If physicians have a wRVU-based compensation plan, a simultaneous increase to E&M wRVUs and a decrease to the MPFS conversion factor compounds the financial loss. A group ends up paying out more in physician compensation at the same time they are collecting a lower rate of payment from payors for the same 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 2023 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 2023 MPFS.

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