The Centers for Medicare & Medicaid Services (CMS) operates within a budget neutral approach. This occurs at the same time the healthcare community continues to try and find balance between reducing administrative burdens, accurately recognizing and recording services provided, and upholding the highest quality care possible.

Over the last three years, there have been significant changes to the Physician Fee Schedule (PFS) including reductions in the Conversion Factor (CF), which is used for calculating reimbursement, as well as changes in the Work Relative Value Units (wRVU), which measures the “time and effort” by a provider in performing that code/procedure.

2021 Physician Fee Schedule Changes

CMS Proposed and Finalized Several Significant Changes:

• August of 2020, there was a proposed reduction in the CF of more than 10%.
• Following some deliberations and lobbying, in December of 2020, CMS issued their final rule which adjusted the reduction in the CF to approximately 3.5%, making it $34.83.
  • The reduction in the conversion factor resulted in a reduction in overall reimbursement for most hospitals and health systems.
• Additionally, there was an increase in the wRVU values for many of the Evaluation and Management (“E/M”) codes (CPTs 99201-99215), and several other changes including expanding telehealth services, etc.
  • Based on the budget neutrality requirements, the significant increase in the E/M wRVU values required a reduction elsewhere, hence the reduction in the CF.
  • Important to note, many providers have compensation models that are directly linked to their wRVU production. The increase in wRVU values of the E/M codes has a direct impact of these providers’ compensation in the upward direction causing an increase in provider salaries/compensation for the hospitals and health systems employing them.
• Most hospitals and health systems were impacted negatively by both changes.

2022 Physician Fee Schedule Changes

Proposed and Finalized Minor Changes:

• In December 2021, CMS adjusted the CF down about 0.82% to $34.61 which is what it has been for all of 2022.
• Minor changes were also made to selected wRVU values.

2023 Physician Fee Schedule Changes

The final rule for the 2023 PFS has another reduction of the CF of approximately 4.5% to $33.06.

• As is commonplace, there were changes to the wRVU values for many of the CPT codes as well. The E/M ranges (99221-99316) for inpatient, hospital, and nursing care had the most substantial changes.
• As a result, these changes will impact the total wRVUs for providers/specialties such as hospitalists, infectious disease, rehab, critical care, and others that provide services to patients in the hospital or facility.

Additionally, revisions have been made to the overall coding and documentation framework including new times for certain codes (where relevant), updated guidelines for determining levels of medical decision making, choice of time or medical decision making for selecting specific code levels (with some exceptions).

Weighting of RVU Components in 2023

There is and will continue to be discussion on adjusting the current weighting of the RVU components (Physician Work, Practice Expense, and Malpractice). The proposal is to increase the Practice Expense RVU and reduce both the Malpractice and Physician Work components, which would likely result in reduction of total reimbursement for specialists who perform services/procedures with higher wRVU values and an increase for those specialists with higher practice expenses including those performing x-rays, diagnostic testing, radiation therapy, etc. While this hasn’t been agreed upon, it is something to consider as we begin looking at compensation models, reimbursement, etc. over the next several years.

Other key points were detailed in the final ruling including behavioral health and who can provide such services as well as the extension of many telehealth services currently being provided.

These changes are set to take effect on January 1, 2023. This allows hospitals and health systems a couple of months to prepare for and calculate the projected impact on hospitals, health systems, and those who employ providers.

Contact Us

Over the last two years, Blue & Co. has helped clients analyze their billing data to determine the overall financial impact to the organization, considering both projected reimbursement as well as the changes in wRVUs, which could result in additional compensation paid to providers on a production-based model. We have been working with clients as small as ten providers up to several hundred employed providers.

If you need assistance, please contact your local Blue & Co. Advisor or a member of our Healthcare Valuation team below:

John Wortley
Senior Manager, Hospital/Physician Operations 
jwortley@blueandco.com | 502-992-2563

Dustin Brown, ASA-MTS, CVA
Manager, Business Valuation
dbrown@blueandco.com | 317-275-7432