Physicain Fee Schedule FAQs
What is the Centers for Medicare & Medicaid Services (CMS)?
Centers for Medicare & Medicaid Services (CMS) is the federal agency that administers the Medicare program and is responsible for the policies within the Medicare PFS. However, CMS also must operate under the requirements set by Congress under the law.
USPA and other aligned stakeholders are taking our message both to CMS and the Congress to advocate for permanent relief from the cuts that have been so devastating to office-based specialties for years.
What is the Medicare Physician Fee Schedule (PFS)?
The Medicare Physician Fee Schedule (PFS) is one of several annual Medicare reimbursement regulations. In general, the PFS regulation reimburses physicians, therapists, and other practitioners for the care they provide to Medicare patients under the Traditional Fee-For-Service Medicare program.
It’s important to note that while the PFS reimburses for all resources provided in the office-setting, it only reimburses for the “professional component” of a provider’s services if they are done in a hospital or ambulatory surgical center (ASC) setting. In the case of a hospital or ASC, the “technical component” (in other words, the high-technology equipment, supplies and other interventions that have been a hallmark of the U.S. healthcare system) are reimbursed through the hospital outpatient prospective payment system (HOPPS) and the ambulatory surgical center payment systems (ASCPPS), respectively.
These non-sensical reimbursement streams are one of many reasons why the so-called PFS budget-neutrality provision is a significant concern. When the PFS “budget-neutralizes” it does not do so for all professional and technical services in the PFS, HOPPS, and ASC settings. Rather, the PFS only budget-neutralizes for physician work and office-based technical resources, while leaving HOPPS and ASC reimbursement outside of PFS budget-neutrality effects. This dynamic contributes to the significant payment volatility within the PFS.
Included in PFS Budget Neutrality
• Office Professional Component
• Hospital Professional Component
• ASC Professional Component
• Office Technical Component
Not Included in PFS Budget Neutrality
• Hospital Technical Component
• ASC Technical Component
When is the Medicare Physician Fee regulation issued?
There are actually two regulations to keep on your radar. The first is the “proposed” PFS regulation, which is usually issued in the summer and proposes regulations for the following calendar year. The “final” PFS regulation is usually issued on or around November 1.
What is the cause of this year’s drastic cuts to office-based specialists?
In short, the cause is due to the so-called “budget-neutrality” provision in the PFS.
While some characterize the PFS “budget-neutrality” provision as a “sometimes you win, sometimes you lose” policy, in fact, over the last decade, cumulative PFS redistributions clearly have negatively impact certain providers. For example, cardiology, vascular surgery, radiation oncology, and radiology have endured cumulative cuts over the last decade in the PFS of 21%, 30%, 29%, and 39% respectively (1).
Other times, the PFS “budget-neutrality” provision is characterized as rebalancing the PFS away from higher-paid providers and towards lower paid providers. In fact, however, in the 2021 PFS, the lowest paid providers – physical therapists – received a 9% cut which was redistributed to other PFS providers making at least 171% more (2 and 3).
In fact, given the strong correlation between ongoing cuts and reimbursement volatility for PFS providers vis-à-vis the health system consolidation trend, we believe the best characterization of the so-called PFS “budget neutrality” provision is that it is a driver of PFS center closures and increased costs to the Medicare program.
It’s well past time for Congress to implement fundamental reform of the PFS for office-based specialists to ensure that wild swings in payments are a thing of the past.
1. Health Management Associates,
Significant Speciality Variation in Estimated Payment Changes Since 2006
2. Urban Institute and SullivanCotter, Analysis of Physician Compensation, January 2019.
3. Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Physical Therapists. 2021
How has MedPAC contributed to ongoing cuts to office-based specialists?
For years, the Medicare Payment and Advisory Commission (MedPAC) has suggested that the PFS is balanced away from primary care providers (1). To support these claims, MedPAC often cites the SullivanCotter Survey which shows physician compensation differentials. However, there are several flaws with the SullivanCotter Survey and MedPAC’s inferences from the survey, which include:
• MEDPAC PROMOTES TAKING FROM LOWER PAID PROVIDERS TO PAY HIGHER PAID PROVIDERS MORE. While the SullivanCotter Survey asserts that primary care physicians have the lowest median compensation, in fact, physical therapists are the lowest paid PFS provider and primary care physicians are paid 170% more (2 and 3).
o As a result, MedPAC’s strong promotion of the 2021 PFS policy to provide more funds to evaluation and management services in a budget neutral basis cut physical therapists by 9% to pay for providers who already were paid 170% more (4).
• MEDPAC USES PHYSICIAN COMPENSATION DIFFERENTIALS TO SUPPORT CUTTING HIGHER PAID PROVIDERS, BUT DOES NOT KNOW WHAT APPROPRIATE COMPENSATION DIFFERENTIALS SHOULD BE. While the SullivanCotter survey explicitly notes that there should be physician compensation differentials (5), MedPAC acknowledges that it does not know what appropriate physician compensation differentials are, nor does it think that such appropriate differentials are knowable.
• MEDPAC PROMOTES THE USE OF PFS NEUTRALITY TO ADDRESS ALLEGED IMBALANCES IN THE PFS, BUT ALSO ACKNOWLEDGES THAT SIGNIFICANT PHYSICIAN COMPENSATION OCCURS OUTSIDE OF THE PFS. Specialty differentials highlighted in the SullivanCotter survey assert that other providers are compensated more than primary care driven when measured by differentials in total cash compensation [TCC] (6).
o But the SullivanCotter report also notes that TCC includes significant payments that flow outside PFS RVUs, such as:
(1) facility based technical payments in the IPPS and OPPS fee schedules (which MedPAC acknowledges often are paid at higher rates than the office) and
(2) Part B drugs (which are not paid on the basis of RVUs).
o As a result, PFS budget-neutrality policy is not an appropriate means for addressing asserted TCC differentials.
• MEDPAC POLICIES HAVE BEEN DRIVING SIGNIFICANT CUTS TO OFFICE-BASED SPECIALISTS, BUT ITS OWN DATA DOES NOT INCLUDE SUFFICIENT INFORMATION FROM OFFICE-BASED SPECIALISTS. Independent physician practices are not even a significant source of SullivanCotter Survey data, which is extremely problematic given that the survey is being used by MedPAC to support ongoing cuts to office-based specialists.
1. MedPAC, Rebalancing Medicare’s physician fee schedule toward ambulatory evaluation and management services, June 2018.
2. Urban Institute and SullivanCotter, Analysis of Physician Compensation, January 2019. The report states that primary care provider compensation is $241,687 on average.
3. Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook , Physical Therapists. The report states that physical therapist compensation is $89,440
4. MedPAC Comment to the 2021 PFS Final Rule (available here: http://www.medpac.gov/docs/default-source/comment-letters/10022020_partb_proposedrule2021_medpac_cms1734_comment_v2_sec.pdf?sfvrsn=0 )
5. Urban Institute and SullivanCotter, Analysis of Physician Compensation, January 2019.
6. Total cash compensation includes base salary, incentive compensation, and other cash compensation ( e.g. honoraria, longevity bonuses, retention bonuses, profit sharing, sign on bonuses, long term incentive payments).
How does PFS budget-neutrality drive health system consolidation?
While President Biden’s Executive Order on Promoting Competition in the American Economy makes it clear that this Administration is concerned with health system consolidation, the 2022 PFS Proposed Rule serves to undercut this initiative. According to the American Medical Association, the share of physicians working for a hospital increased from 29.0 percent in 2012 to 39.8 percent in 2020 (1). The ongoing pandemic also has accelerated these trends with hospitals and corporate entities acquiring 20,900 additional physician practices over the last two years (2). Given that the reimbursement for all specialists is, on average, more than $100,000 in a vertically integrated health system than in a physician office, the incentive is clear for beleaguered PFS providers who may no longer be able to sustain cuts in the 2022 PFS Proposed Rule to simply close their centers and continue the migration to large health systems (3).
1. American Medical Association, Recent Changes in Physician Practice Arrangements: Private Practice Dropped to Less Than 50 Percent of Physicians in 2020, Carol K. Kane, PhD, June 2021
2. Avalere, Hospitals and Corporations Own Nearly Half of U.S. Physician Practices: Covid-19 Accelerated Ownership Trend, June 2021
3. Post, Brady PhD et al., Hospital physician integration and Medicare’s site-based outpatient payments, Health Serv Res. 2021;56:7 15
How does PFS budget-neutrality drive health inequities?
While the 2021 PFS budget-neutrality effect was due to the CMS policy of putting more money into evaluation and management (E/M) services, the main driver of provider cuts in the 2022 PFS Proposed Rule relates to budget-neutrality effects of a CMS proposal to update clinical labor data. Like last year’s E/M proposal, on its face, updating clinical labor data in the CMS database makes sense. However, because of aforementioned PFS “budget-neutrality,” the incorporation of new clinical labor data actually results in massive cuts of up to 20% to critical services in the PFS (1). These impacts also will have profoundly negative effects on health equity. So while the President’s FY 2022 Budget contained many worthy provisions aimed at addressing health inequity, the 2022 PFS Proposed Rule actually threatens to undermine these initiatives in areas throughout the PFS as exemplified with several examples in the table below.
1. It is worth noting another area ripe for reform is the PFS “impact table,” which does not disaggregate specialty impact by site-of-service nor include the 3.75% cut to the conversion factor, thereby masking the true impact of the PFS on office-based specialists in the 2022 PFS Proposed Rule.
2. Vascular and Endovascular Surgery, Advanced Chronic Venous Insufficiency: Does Race Matter?, 26 December 2016
3. Racial/Ethnic Disparities Associated With Initial Hemodialysis Access. JAMA Surg.2015 Jun;150(6):529-36. doi: 10.1001/jamasurg.2015.0287
4. Cure, Cancer Sees Color: Investigating Racial Disparities in Cancer Care, Katherine Malmo, 16 February 2021
5. Dartmouth Atlas, Variation in the Care of Surgical Conditions: Diabetes and Peripheral Arterial Disease, 2014
6. J. A.Mustapha, Explaining Racial Disparities in Amputation Rates for the Treatment of Peripheral Artery Disease (PAD) Using Decomposition Methods, J. Racial and Ethnic Health Disparities (2017) 4:784–795
7. University of Michigan, Understanding Racial Disparities for Women with Uterine Fibroids, Beata Mostafavi, 12 August 2020
What does PFS budget-neutrality mean for the COVID-19 Pandemic?
In a health crisis such as the COVID-19 Pandemic, it’s critical that hospitals focus on our sickest pandemic patients.
However, many other issues such as cancer, dialysis vascular access for ESRD patients, cardiac patients with symptoms, the need for physical therapy, etc. still must be addressed.
Office-based care provides a critical site-of-service outside of the hospital to deal with non-COVID cases so hospitals can focus on a resurging pandemic.
Reducing access to office-based care during a pandemic is a key second-order negative outcome that isn’t considered by indiscriminate cuts of 10% to the “conversion factor” (2021 PFS) and 24% to the “direct adjustment factor” (2022 PFS).
Both the 2021 PFS conversion factor cut and the 2022 PFS direct adjustment factor cut cause dramatic reductions in reimbursement to office-based specialists.