Article: Revisiting the Medicare 2021 Physician Fee Schedule Changes

Posted on October 13, 2021

What Did They REALLY Mean For Your Practice?

In 2021, the healthcare industry was abuzz with the significant changes CMS made to their Physician Fee Schedule. There were the typical additions and deletions of approved CPT codes, and due to the COVID-19 pandemic, the list of approved telehealth services expanded. But far and away, the most significant impact was felt with the modifications to the calculation of Work RVUs for outpatient E&M Codes.

RVU values for some of the highest volume codes increased substantially. However, to maintain budget neutrality, the RVU conversion factor utilized to determine the approved payments to providers for services rendered was decreased at a proportional level. These changes had a significant impact, not only on practices with high Medicare and Medicaid patient panels but also practices that rely heavily on the CMS RVU calculations for anything ranging from provider productivity reporting and benchmarking to utilizing RVUs to determine physician compensation.

Initially, the extreme nature of the RVU modifications led to some out-of-the-ordinary spikes in a handful of commonly trended financial and productivity metrics. For example, Medicare reimbursement increased dramatically for Primary Care and select office-based specialties, and many surgical specialties saw modest increases due to the increase in Practice Expense calculations. However, practices that rely heavily on RVUs for budgeting, analysis, and compensation were left scrambling.

Finance teams and analysts needed to quickly adjust to the new expected trends based on the CMS changes. Many practices were forced to alter RVU-based compensation packages for their providers, while others began utilizing dual RVU calculation tables for benchmarking, productivity reporting, and budgeting.

As 2021 winds down, we’re now seeing that most practices have gotten a grasp of how the modifications affected their practices, at least at a high level. However, the next challenge is just beginning; it’s time for practices to assess if commercial payers are keeping up with the CMS changes, and if so, to what extent.

Constant vigilance is a critical component in relationships between practices and payers. Practice contracting and reimbursement teams always need to be aware of key indicators reflecting how each payer is performing. Practices must also keep in mind that the changes to the CMS RVU valuations throw yet another level of complexity into the mix.

Critical questions practices should be considering today include:

  • How do each payer’s rates compare to other commercial payers?
  • How do each payer’s rates compare to Medicare?
  • Are payers paying in compliance with contracted rates?
  • Are there operational issues (denials, slow-payment, etc.) that are reducing reimbursement?
  • How do changes to rates compare across each division and specialty in the practice?

To begin analyzing payer contracts, practices may want to start by taking a look at outpatient E&M Codes. The CMS changes to the 2021 Physician Fee Schedule increased reimbursement for outpatient E&M codes by 10%-25% or more. These are codes that, in 2020, may have been reimbursed by commercial payers at 150%-160% of Medicare rates – however, in 2021, they may have dropped to 110%-115%. And some payers that may have been reimbursing these higher volume codes at lower rates may now actually be paying less than Medicare rates. Maintaining fair market value for outpatient services is something that practice contracting teams will want to be aware of for upcoming rate negotiations.

In addition to the changes in outpatient E&M codes, the Practice Expense component of the Total RVU calculation was also modified. This impacts many surgical procedures as well as visit codes. If payer contracts were based upon TRVU conversion factors, the new valuation of the TRVU components could have conceivably reduced those conversion factors across the board. This is an important factor for future negotiations when payers may propose conversion factors against 2020 (or earlier) RVU values versus 2021 RVU calculations.

The impact of reimbursement on telemedicine visits will also need to be understood by the payer relations team and contracting staff. CMS has dramatically expanded the number of services approved for full reimbursement utilizing telehealth for patient contact. Many commercial payers are following suit in this arena. However, some of the codes approved for telehealth visits vary from payer to payer – and even with individual payers from state to state.

The need for reimbursement teams to identify individual payer patterns in denials or reduced payments for telehealth services is two-fold. Reimbursement teams need to be able to educate providers internally as to what is and is not approved, and they need to work with payer relations teams to understand why specific policies differ from those of CMS and other commercial payers.

As payer contracting moves forward with changes implemented at a national level, it is more important than ever for contracting and reimbursement teams to have contract analysis information at their fingertips. Understanding how the new rates impact each specialty – and in some cases, each provider – is key.

When contract terms come up for renegotiation, practices need to make sure they have the same information as the payers going into the negotiation. Practices need to be able to model the proposed terms to understand how the new rates will compare – not only to the old contracts but to current contracts of comparable commercial payers.

Once the new rates are implemented, practices need the ability to confirm that payers are reimbursing accurately and in accordance with the new rates. Even if contracting is an outsourced function of the practice, administrators and executives should apply the same vigilance to the vendor contract as they do the payer contract to ensure they are benefitting from these critical business relationships. By maintaining this level of analysis, communication, and distribution of data to all levels of the organization, practices are setting themselves up to navigate through the current challenging times in healthcare and positively prepare themselves for future changes.

Written by Scott Everitt, VP of Healthcare Solutions at Practical Data Solutions

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