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August 13, 2020

A Double Whammy for Physician-Hospital Employment

Physician-Hospital

The Centers for Medicare and Medicaid Services (CMS) recently announced the CY 2021 Physician Fee Schedule (PFS) Proposed Rule. Included in the expected changes to the current rule, among other things, are updates to work RVU (wRVU) weights, a reduction to the Medicare conversion factor and changes to coding and documentation requirements for Evaluation and Management (E&M) codes. While there are many updates of note, this article will focus on proposed changes to E&M codes, the impact of the conversion factor on reimbursement, and the repercussions for physician-hospital employment.

CMS is required to keep changes to the PFS budget neutral. Budget neutrality is often accomplished by increasing the weights of some codes while decreasing the weights of others. For 2021, CMS is proposing weight changes to fewer codes with the proposed changes focused on a material overhaul of E&M codes. E&M codes comprise the codes used most frequently by primary care providers, but are also commonly utilized by most physicians, especially those practicing within medical specialties. In the 2021 proposed rule, the offset to maintain budget neutrality is a decrease in the Medicare conversion factor.

While these changes are specific to Medicare, many commercial payors set their reimbursement rates relative to the PFS. Therefore, it is reasonable to expect similar reimbursement changes in the commercial payor market at some point in the future.

For 2021, CMS is proposing a 30-45% increase in the wRVU values of CPT codes 99212-99215 (established patient visit codes):

CPT Codes

Virtual visit codes 99441-99443 are being updated to the same weights as in-person visits, an increase of 156-180%.

Virtual Visit Codes

Similarly, new patient visit codes 99203-99205 are being increased by between 7-13%.

To offset these increases, CMS is proposing a 10.6% decrease to the Medicare conversion factor (reimbursement rate) from $36.0896 to $32.2605. The conversion factor decrease would apply to all specialties and to all CPT codes.

With the wRVU weights of most codes remaining unchanged, the impact to hospitals for those specific codes would be a 10.6% decrease in reimbursement. However, employed physicians on a productivity-based compensation plan will presumably receive more compensation for performing these codes (based on increased E&M wRVU), while hospitals will receive less reimbursement to cover that cost, thereby taking a hit to their bottom line.

The proposed changes also come with E&M coding and documentation changes. There seems to be an expectation by CMS for a shift to lower-level coding, but the actual impact is difficult to estimate. Reduced coding levels may be offset by higher wRVU weights, with some analyses estimating an increase in WRVUs nearly 90% of the time. However, in order to illustrate the potential impact of reduced coding, we examined the following hypothetical:

Under the current rules, a physician codes a particular visit a 99214. The resulting Medicare reimbursement would be $110.43. Under the proposed rules, the physician would code that same visit one level lower, or a 99213, with resulting Medicare reimbursement of $86.78. If we assume the physician is on a productivity-based compensation plan, with a compensation conversion factor of $50 per wRVU, the physician’s compensation would be reduced from $75 to $65 for the same visit. Looking at it from the hospital’s perspective, the amount of reimbursement they have left to cover overhead is reduced from $35.43 to $21.78. Under this scenario, both the hospital and the physician are negatively impacted.

Another likely scenario is that physicians, whether due a lack of coding education, to avoid a hit to their compensation, or simply documentation supporting the same CPT code, may not reduce their coding patterns and instead continue to code at historical levels. This scenario would play out as follows:

The same physician above makes no changes to his coding pattern under the new rule and continues to bill a 99214. Under the current rule, the employing hospital receives Medicare reimbursement of $110.43. Under the proposed rules, the hospital would receive $122.91. Again assuming the physician is on a productivity-based compensation plan, with a compensation conversion factor of $50 per wRVU, the physician’s compensation would be increased from $75 to $96 for the same visit. Looking at it from the hospital’s perspective, the amount of reimbursement they have left to cover overhead is reduced from $35.43 to $26.91. Under this scenario, the physician benefits while the hospital is negatively impacted.

To further illustrate this point, the table below presents the changes in reimbursement, compensation and margin available to cover overhead for each of the established patient visit codes 99212-99215:

Patient Visit Codes

If we take the above hypothetical a step further and assume that the average primary care physician has about 3,500 encounters a year, hospitals can expect to collect $48,000 more per physician FTE, but pay increased compensation of nearly $73,000, resulting in hit of nearly $25,000 per primary care FTE. When you consider larger groups, this loss could quickly become material, especially considering most hospitals are already incurring losses on these practices.

Other specialties may see material impacts as well. For example, the average interventional cardiologist has approximately $640,000 in professional collections. A 10.6% reduction in reimbursement would translate to nearly $68,000 per cardiologist FTE. The E&M impact on cardiologist compensation, hospital reimbursement, and margin left for overhead would play out similarly to the primary care example above.  However, interventional cardiologists produce a large volume of wRVUs that are not E&M codes and many of those weights will remain unchanged. It is reasonable to conclude that $50,000 or more of the reduction in reimbursement would fall to the hospital’s bottom line.

While the exact impact is impossible to quantify, we can reasonably conclude that hospitals will likely see a negative impact on their bottom line as a result of the proposed changes. How can hospitals attempt to mitigate, or at least minimize, the potential impact of these changes?

  • Educate physicians on the proposed coding and documentation rules
  • Estimate budget impact, considering changes to both hospital reimbursement and physician compensation
  • Consider if changes need to be made
  • Consult with legal, valuation and compliance experts as needed

If you need assistance navigating the many variables inherent in a budgetary analysis, or in considering how to keep your incentives aligned relative to your compensation plans, we would be happy to help. Please reach out to Kevin Walker at kwalker@cbiz.com or 816.945.5598 for more information.


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CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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