How Should Health Systems Handle Annual Changes to the Medicare Physician Fee Schedule?
The Medicare Physician Fee Schedule (MPFS) is updated every year, but hospitals and health systems don’t always act on the changes. Even if it feels like something that can wait, it’s important to review these changes annually because they directly impact physician compensation and benchmarking.
At Ludi, I frequently connect with clients about MPFS updates. Here’s a guide that I put together to help organizations establish a regular review process.
What needs to happen before an annual MPFS analysis begins?
Before you can move forward with an annual MPFS review, you need to establish a process. The easiest way to do that is to assign the responsibility to your physician compensation committee and incorporate it into their annual activity calendar. When you do that, define who will perform the analysis and what the scope will be.
I recommend a multidisciplinary approach, so make sure your committee includes:
- Physician compensation experts
- Coding experts
- Finance professionals
- Clinical and operational leaders
MPFS changes affect several aspects of your operations, so it’s important to get each of these departments’ perspectives.
When should the annual MPFS analysis happen?
Your annual MPFS analysis needs to happen before January 1st, so you and your team can fully understand the impact of any code changes. CMS typically releases the final MPFS version in late October or early November, which means you only have eight to ten weeks to get everything done.
Most organizations don’t have the resources to realistically implement changes before the new year. However, if you can complete the full analysis by then, you’ll better understand the impact of the new schedule and be able to decide whether it makes sense to update it or wait.
Allocating the necessary resources can help make transitioning to a new MPFS easier. I recommend asking two questions, in particular:
Is the MPFS review on your compensation committee’s December agenda, so it can be discussed before the start of the new year?
Do you have the right people available on staff in November to begin an MPFS review?
Answering these two questions honestly can help everyone stay on track and prevent the January 1st deadline from getting away from you.
Do you have to adopt the new fee schedule each year?
An annual MPFS review is mandatory, but you don’t necessarily have to adopt the new fee schedule for calculating work RVUs. Even so, you do need to account for any codes that have changed.
CMS adds, revises, and retires codes each year, so you must add the new codes and remove the deleted ones regardless of whether you adopt the updated values. If you don’t, you may have physicians performing and billing for services that aren’t in the fee schedule you rely on, which leaves no other way to recognize their work.
Your annual MPFS review is also a good time to check any unlisted codes. Unlisted codes are procedures that don’t appear on the MPFS but that your organization has chosen to give work RVU credit for, either as a service in kind or some other form of attribution. Revisit these codes each year to confirm they still make sense.
Why does the MPFS matter if you don’t pay physicians on work RVUs?
Even if you don’t pay physicians using work RVUs, an annual MPFS review is necessary, because you probably use those values for benchmarking and performance management.
Here are two main areas where MPFS analysis matters, regardless of how you pay your team:
1. A disconnect between MPFS and survey data.
If the fee schedule version you use to pay your providers doesn’t match the version used for survey data, benchmarking comparisons are no longer apples to apples, so you may need to adjust for the difference.
2. Productivity analysis.
Fee schedule changes can affect the results of a productivity analysis, especially if it’s run across multiple periods. Without an annual MPFS review, productivity results may appear to have changed, when they haven’t. Your team needs to be able to normalize, or at least account for that, before you come to any conclusions about how your physician’s output has changed over time.
How do you measure the impact of a new fee schedule?
The best way to measure the impact of a new Medicare Physician Fee Schedule is to run a code utilization impact analysis. This exercise analyzes how changes to Medicare billing codes and their work RVU values will affect your physicians and clinicians.
Before running the analysis, confirm exactly how your team calculates work RVUs. Specifically, determine:
Which dates your team uses (post date versus service date)
Whether you’re counting the rendering or billing provider
How you handle advanced practice providers (APPs) and split or shared visits
Whether modifiers are being applied correctly
What your process is for refunds and adjustments
Getting clear answers to each of these questions will make transitioning to a new MPFS easier and reduce the risk of common challenges, such as calculation errors.
From there, follow these steps:
1. First, identify each code change within the new MPFS. Then, weigh those changes by how often your organization uses them based on volume over the last 6-12 months.
2. Next, calculate work RVU variances at three levels: across your entire organization, by specialty and location, and by individual physician.
3. Finally, set a materiality threshold to determine how the new fee schedule will affect physician pay and billing. Many organizations start with a threshold of 5%, while some organizations use 2% or 4%. The exact number isn’t as important as establishing one, because it tells you which physicians and specialties will be most impacted by fee schedule changes.
How do you communicate MPFS changes to physicians?
Before announcing any MPFS changes to your care team, determine which physicians, clinicians, and specialties will be affected. Once you have that information, you can develop a communication plan, even if you don’t intend to change anyone’s compensation in the near future.
Your communication plan needs to be transparent and direct. Whenever possible, use data to show your physicians what’s changing and how those changes will affect their pay. Remind them that MPFS changes are dictated by CMS, not your organization, and that you’re taking action to address them. Be proactive and engage your team members early in the process. Hearing about a pay change from leadership before it happens typically goes over better than discovering it on a paycheck after the fact.
If transitioning to a new fee schedule lowers a physician’s or clinicians’ compensation, you may not always be able to make them whole, and that’s okay. But you do need to be honest about it. In this type of situation, explain the entire economic picture. MPFS changes sometimes affect reimbursement and other financial aspects of an organization, even more than they affect wRVUs.
Do physician and clinician contracts need to change?
Whether or not your physician and clinician contracts need to change depends on whether your current provider agreements obligate you to adopt a new fee schedule each year. Some do and some don’t, so contract review should be part of your annual analysis.
I encourage hospitals and health systems to use standardized contract language across the entire organization whenever possible, but terms vary among agreements and agreement types. For example, a professional services agreement (PSA) or an arrangement with community physicians may include different language than a standard employment agreement. Each type of contact needs its own review as a result.
If your analysis uncovers a significant payment change for a particular specialty or subspecialty, it’s important to complete a compensation review. This helps confirm that your benchmarks and per work RVU rates still pay providers the way you intended.
What’s the first step?
Updating your organization’s fee schedule can feel overwhelming, but the right structure makes all the difference. If you incorporate an MPFS review into your compensation committee’s annual agenda and assign who owns what, you’ll begin each new year knowing exactly what changed and which physicians will experience the greatest impact.
The hardest part is getting started, so start small. Pull your data, confirm which fee schedule version each of your contracts and compensation models is tied to, and build from there.
To make the first step easier, we’ve put together a downloadable MPFS review checklist that covers everything, from wRVU configuration questions to code analysis and contract review. It’s an effective starting point that you can share with your comp committee.
We can also assist you with more technical aspects of the review, including your compensation calculations and benchmarking. The Ludi Platform handles the technical side of physician comp and we’d love to show you what it can do. Request a demo today by clicking here.
