By Allison Carty, JD, MBA

Director, Pinnacle Healthcare Consulting


Medicare Physician Fee Schedule Changes – What Now?


An Introduction…


As many in healthcare have been tracking, the Centers for Medicare & Medicaid Services (“CMS”) released the calendar year 2021 Medicare Physician Fee Schedule (“MPFS”) which contained key changes to evaluation and management (“E&M”) coding and documentation requirements.  These changes will have substantial compliance, coding and documentation, reimbursement, and compensation plan administration implications, including a notable impact on organizations that compensate physicians on a productivity model.  The question looms: how should organizations respond to the new rule?  How is your organization responding?


Preliminary Observations and Options


Based on the changes in the fee schedule, a few key observations are apparent:

Preliminary Observations and Options


Based on the changes in the fee schedule, a few key observations are apparent:


  • Physicians who are compensated on a per work relative value unit (“work RVU”) model may earn higher or lower compensation under the 2021 MPFS;
  • Specifically, physicians billing a notable amount of E&M codes on a work RVU model may meet their production threshold more quickly than in prior years;
  • Hospitals/employers may receive less reimbursement and thus greater losses unless changes are made to physician agreements (i.e., particularly with rising physician compensation); and,
  • Due to increased amounts of work RVUs under the new MPFS, physician compensation per work RVU may decrease if compensation remains similar to prior years.


Because of these dynamics, some hospitals are considering adjustments to their physician arrangements to mitigate losses resulting from an environment characterized by rising physician compensation (i.e., due to increased work RVUs under the new MPFS) versus less incremental reimbursement.  Specifically, some hospitals are considering adjustments to physician compensation terms including increases in work RVU production thresholds and/or decreases in compensation per work RVU conversion rates. These same entities might also consider alternative forms of compensation to support specialists through affiliation agreements.


In addition to these types of contractual changes, many hospitals and medical groups are in the process of determining a response for purposes of physician compensation plan administration.  For instance, many organizations are considering the following options for purposes of administering their contracts:


  • Retaining 2020 work RVU values;
  • Implementing 2021 work RVU values and absorbing the impact of the changes to reimbursement;
  • Implementing the 2021 work RVU values but adjusting the compensation per work RVU rate to offset the impact of the changes;
  • Moving away from a work RVU structure; or
  • Awaiting further legislation.


Furthermore, some entities plan to make any changes quickly whereas others have yet to enter the planning phase to address the updates.  While most organizations have yet to make a definitive plan for how they will move forward, many are working to quantify the size of the impact, evaluate alternatives, or are seeking recommendations from internal or outside resources (legal counsel/consultants).


How is Pinnacle Analyzing the Changes?


Impact Assessment

Pinnacle is currently working with several clients to assess the impact of the MPFS changes and to make recommendations for relevant physician compensation plans.  These analyses review the impact to both work RVUs and reimbursement based on the specialties and case mix of our individual clients.


A Note on Benchmark Data

In addition to the challenges inherent in the MPFS updates, these changes come on the heels of the COVID-19 pandemic, which is another factor that will undoubtedly have a material effect on benchmark data for physician compensation and production.  Using benchmark data without consideration of the impact of the MPFS changes may result in compensation that runs afoul of fair market value and/or commercial reasonableness requirements.


Industry Survey

Given the sweeping implications of the MPFS updates, Pinnacle is conducting a survey amongst our clients and contacts to determine how and when organizations plan to address these MPFS changes.  Results from the survey are still incoming; however, Pinnacle will publish an article which summarizes our findings and associated key takeaways.


What’s the Current Takeaway?


Think about what the MPFS changes mean for your physician contracts.  Pinnacle will continue to monitor regulatory updates and will publish our survey results in an upcoming article.  Please check back to review survey results and additional tools for assessing the impact to your organization.