We are witnessing unprecedented times in the healthcare compliance environment. 2020 saw several new legislative and external factors that will impact physician-hospital employment in 2021 and beyond. These include the 2021 Medicare Physician Fee Schedule (2021 MPFS), the COVID-19 pandemic, and the year-end stimulus package known as the Consolidated Appropriations Act, 2021 (the Act).
Also of note during 2020 was the long-awaited release of the final rules amending the Stark Law (Stark) and the Anti-Kickback Statute (AKS). While this article will not address the changes in detail, watch for future communication on this topic from our team. A short discussion of the final rule changes can be found in our earlier resource, Healthcare Industry Changes: A Confluence of Events.
As we sit here with what one can only hope is a light at the end of the pandemic-tunnel, let’s first take a moment to reflect on just how much the past year upended the healthcare environment. We witnessed the global pandemic testing our healthcare system’s patient capacity, supply chain, staffing and telemedicine infrastructure. Local governments’ shelter in-place orders and federal stockpile personal protective equipment (PPE) shortages forced systems to delay or altogether cancel elective procedures. Patients, fearing the pandemic, refrained from seeking routine and non-emergent medical care. The normal and customary efforts of providers were shifted in an effort to combat the pandemic.
2021 Medicare Physician Fee Schedule (2021 MPFS)
As expected, the changes to the 2021 MPFS became final on Dec. 2, 2020. Included in final rule, among other things, were updates to work RVU (wRVU) weightings, a reduction to the Medicare conversion factor and changes to coding and documentation requirements for Evaluation and Management (E&M) codes.
Consolidated Appropriations Act, 2021 (the Act)
The end of 2020 also saw the Act signed into law Dec. 27, 2020. The Act is a $2.3 trillion spending bill that includes $900 billion in stimulus relief for the COVID-19 pandemic. This legislation includes substantive changes to numerous programs affecting the healthcare industry. The Act temporarily waived Medicare’s budget neutrality requirement and stipulated a 3.75% one-time, across-the-board increase to MPFS Payments for calendar year 2021.
The combination of the COVID-19 pandemic response, 2021 MPFS, and the Act will have a material impact on market data sources, the economics of employing physicians and, productivity-based compensation plans.
Impact on Market Data Sources
The varying response to the pandemic across localities and health systems will likely have a material impact on frequently-referenced market data sources. The impact of COVID will begin to be reflected in the market survey data published in 2021; we expect the impact to be amplified in surveys published in 2022 and after as a result of the conversion factor and wRVU weight changes found in the 2021 MPFS.
It is not uncommon to see physician-hospital employment arrangements that tie compensation per wRVU or wRVU productivity thresholds to specific data points published in market surveys. We expect that these arrangements will become inherently riskier given the uncertainties around the published market data. Benchmarking 2021 work efforts to market wRVU productivity levels will become problematic. Changes in wRVU weights will limit the comparability to historical data. Similarly, 2020 market productivity data will be impacted by shutdowns and slowdowns caused by COVID-19. Furthermore, some arrangements call for the calculation of wRVU productivity using the then-current MPFS. These scenarios present significant risk to physician-hospital employment arrangements and their compliance with Fair Market Value (FMV) and Commercial Reasonableness (CR).
Adding to the aforementioned issues with the market data, CMS acknowledged in its changes to the Stark Law that while survey data is a useful starting point in determining the FMV of physician services, it may not be appropriate in all circumstances. While valuators have long known this to be true, it is the first time CMS has officially made the same acknowledgement.
Impact on Productivity-Based Compensation Plans
In order to keep changes to the MPFS budget neutral, changes are generally made to either RVU weightings or the Medicare conversion factor. In practice, this typically results in one or more specialties/provider groups coming out ahead, while others come out behind. The 2021 MPFS attained budget neutrality by decreasing the conversion factor by 10.6%, from $36.09 to $32.41. The passage of the Act revised the 2021 MPFS conversion factor to $34.89, softening the blow of Medicare reimbursement cuts. The Act revision resulted in a less substantial decrease from the 2020 conversion factor of only 3.3%.
The impact on productivity-based compensation plans will be dependent on specialty and physician compensation levels. Physicians that rely heavily on Evaluation and Management (E&M) codes, largely primary care and medical specialties, will have an opportunity for higher wRVUs, and therefore higher compensation, without any change in work effort. The table below, originally published in our article, A Double Whammy for Physician-Hospital Employment, shows the weight increases among established patient visit codes (CPT codes 99212-99215).
Virtual visit codes 99441-99443 have been updated to mirror the weights of in-person visits, resulting in increases of 156-180%.
Presumably, employed physicians on productivity-based compensation plans will receive more compensation for performing these E&M codes. The impact on hospitals is not as simple. To illustrate this point, the tables below present the changes in reimbursement, compensation, and margin available to cover overhead for each of the established patient visit codes 99212-99215.
Assuming a physician compensation rate of $50 per wRVU and 3,500 visits per year, we expect that increased weights and revised Medicare conversion factor will largely offset higher physician compensation levels as related to E&M codes. As shown in this first scenario, the hospital’s reimbursement increase would fund the increase in physician compensation.
However, if we change our physician compensation assumptionto $57 per wRVU, the impact to the hospital starts to become more material. Thereimbursement increase is no longer sufficient to cover physician compensationincreases and the hospital would take a hit equal to about $10,500 per full-timeequivalent (FTE).
Physicians who spend less time performing E&M codes and more time on procedures will likely not see the same impact to their compensation levels. The 2021 MPFS weights for procedure codes were largely unaffected but will be reimbursed at the new $34.89 conversion factor, resulting in a shortfall to hospitals.
It remains to be seen whether or not the one-time increase to the conversion factor will remain in place into 2022. If you read our previous article, A Double Whammy for Physician-Hospital Employment, you may note that the table above has changed significantly. The table below, as originally published, presents the impact on hospital margin using the proposed 2021 MPFS conversion factor of $32.41 (prior to the CAA increase). Assuming that the 3.75% increase expires and wRVU weights are unchanged, hospitals could expect to see margin erosion of 37-65% in 2022, or an impact of over $24,000 per physician.
- Avoid provider compensation arrangements with elements tied to specific market survey data points;
- Calculate production-based compensation amounts based on 2020 wRVU weights to maintain comparability and limit impact on compensation;
- Discuss with legal counsel and valuation experts strategies to help navigate these unprecedented times and develop new strategies to recruit and retain top talent while mitigating organization risk; and
- Start an open and transparent dialogue with provider staff about these issues and plans to address them.
CBIZ continues to assess the impact of the Act and other recent legislation on the healthcare landscape and will be providing additional information in the near future. In the meantime, please reach out with any questions.
For assistance as you navigate these changes and the resulting impact on you organization, contact the CBIZ Healthcare Consulting Team:
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