Restoring balance: 2021 E/M changes and the elephant in the room for medical practices

With half the year behind us, the impacts of the Centers for Medicare & Medicaid Services (CMS) 2021 Physician Fee Schedule (PFS) final rule on work RVUs (wRVUs) and physician compensation are becoming clearer for healthcare providers.

Perhaps most stark is the imbalance between the changes in some RVU values in relation to how physician compensation changed. As Justin Chamblee, CPA, senior vice president, Coker Group, recently noted in his session at the 2021 Medical Practice Excellence: Pathways Conference, this change has been difficult for some physicians to understand.

“Even though for primary care physicians (PCPs), [CPT code] 99213 went up by roughly 30% in the wRVU value, the reimbursement didn’t change accordingly — realizing that their pay is not necessarily going to go up by 30% has been something that has been difficult for them to grasp,” Chamblee said.

Understanding the PFS changes

To understand the impacts, one should understand the mechanics of the changes in RVU values that were updated in the 2021 PFS final rule and the subsequent updates to Medicare spending via legislation at the start of the year.

This has happened before

For historical context, Chamblee pointed to January 2007 — when the third five-year review of the Resource-based Relative Value Scale (RBRVS) was completed — as a similar sea change in how Medicare reimbursement is set. “A number of the E/M wRVU values were increased and, as a means of achieving budget neutrality, the reimbursement rate (or the conversion factor) was decreased,” Chamblee said.

The significant difference between 2007 and 2021 is the uptick in physician employment in today’s healthcare industry. “Many more physicians are employed today by health systems than they were in 2007,” Chamblee said. With a higher percentage of employed physicians often compensated using wRVUs, “the ramifications in the industry are being felt much more significantly today than perhaps they did in 2007.”

The 2021 changes also had significant impact based on the delay in the release of the Physician Fee Schedule (PFS) final rule on Dec. 1, 2020, which “left many organizations [without] a formal plan as to what they’re going to do” in the coming year, as the final rule normally is released by Nov. 1 each year. This shorter time frame to prepare for the new rule also was compounded by other factors, such as the ongoing COVID-19 pandemic, which left many healthcare organizations working “to catch up with the changes” throughout the first half of 2021, Chamblee said.

Who calls the shots

The RVS Update Committee (RUC) establishes RVU values for new CPT codes, reviews existing code values every five years and provides RVU recommendations to CMS for setting the Medicare PFS. Its 32 members represent major national medical specialty societies.

Past complaints about the RUC’s composition has been an overrepresentation of specialty societies and underrepresentation of primary care. Viewed another way, Chamblee said, there is a perception of “an overrepresentation in recognition of procedural work, and perhaps an underrepresentation in recognition of cognitive work.” The 2021 changes — which were born from a CMS proposal in 2018 to collapse payment of office visits — are “a bit of a right-sizing” of the past concerns over specialty-dominant recommendations.

The RUC’s considerable influence on RVU values may change as value-based reimbursement chips away at the role of wRVUs in physician compensation, Chamblee noted, but there “will always be a need to measure what physicians are doing,” even as fee-for-service reimbursement ebbs.

Measuring the impacts

The increase in various non-monetary values in the 2021 PFS final rule for E/M office/outpatient visits had to meet the provisions of the Budget Neutrality Act, which limits the ability of CMS to increase Medicare reimbursement. Rather than reducing several other CPT code values, the 2021 conversion factor was reduced.

“In essence, we saw an increase in a number of non-monetary values, and then a decrease in monetary value to allow for budget neutrality to occur,” Chamblee said. The nearly 10% reduction in the conversion factor — from $36.09 in 2020 to $32.41 in 2021 — then was modified by the Consolidated Appropriations Act of 2021, which pumped $3 billion more into funding physician services, mitigating some of the effects of the conversion factor decrease. That stimulus effectively updated the 2021 conversion factor to $34.89, or about a 3.3% decrease from 2020.

Looking at some primary care and specialty care codes in the context of the changes, there were numerous improvements in reimbursement for primary care codes and decreases in some specialty codes with the adjustments to the RVU values in the PFS final rule and the stimulus’ impact on the conversion factor (Figure 1).



Chamblee noted that looking ahead to 2022, there is potential for net reductions in reimbursement across the board if a conversion factor similar to the original 2021 figure of $32.41 is in place, absent the boost from the recent stimulus (Table 1). For many of the E/M visit codes tied to seeing patients on a regular basis, the sizable increases in reimbursement — 28% to 30% for some codes — would drop by 9% to 10%.



On the non-E/M code side, wRVU values stayed flat or slightly decreased. Chamblee cautioned that by applying a similar reduction in the conversion factor absent the stimulus boost, the drop in reimbursement outpaces the decrease in wRVUs.

A broader look at specialties beyond those specific code examples offers another view of the impacts the stimulus bill had, per an American Medical Association analysis earlier this year (Table 2). As Chamblee pointed out, code mix and payer mix ultimately will determine how much these changes will continue to affect overall reimbursement for the remainder of 2021.



Chamblee encouraged practice leaders to be mindful of potential Medicare payment decreases for 2022 compared to these 2021 levels, absent an intervention similar to the stimulus bill that boosted payments.

The impact on physician compensation

A predicament for practice leaders looking to future years will be trying to reconcile survey data that points to stable, rising compensation amid a stagnant or decreasing level of reimbursement, at least from an RVU standpoint and trends with the Medicare conversion factor, Chamblee said.

Depending on a given specialty and market variable, practice leaders need to understand the extent 2021 survey data used for setting physician compensation was impacted by the effects of the COVID-19 pandemic throughout most of 2020, with wRVUs inconsistent with historical levels. “If you think about it from a total cash compensation (TCC) per RVU standpoint, it’s going to reflect a higher rate per RVU,” Chamblee said.

In some cases, 2021 survey data for establishing compensation arrangements might not be as useful as 2020 survey data — based on pre-pandemic data from 2019 — for establishing what would be a more normal value for RVUs “as a foundation,” Chamblee said, and then use future-year survey data to understand where the market has moved.

Chamblee illustrated this concern with data from 2020 and the new 2021 wRVU values with an example from family medicine (Figure 3). “If we take the 2021 wRVU values and apply those carte blanche to existing compensation models, what we would see is compensation would increase at a greater percentage than collections,” Chamblee said. “For many organizations [that] would be untenable, and it may raise compliance questions” specific to fair market value.



Practice leaders will want to try to ensure compensation more closely reflects changes in collections “so that they’re moving in tandem,” Chamblee noted. In the example of orthopedic surgery (Figure 4), compensation remains relatively flat on account of the wRVU value remaining stable, yet — because of the reduced Medicare conversion factor — reimbursement drops.



“The question for organizations will be, if compensation is flat yet revenue is decreasing, can we afford to keep compensation at the same level? And is it still compliant from a fair market value standpoint to keep compensation at the same level?” Chamblee asked, suggesting that modifications to a compensation model’s variables may be necessary to align these changes.

Making the adjustments

When it comes to a process for making that type of adjustment in the framework of TCC, Chamblee offered an example for a PCP with a TCC of $250,000 and a TCC per wRVU of $56.02 (see Table 3).



With the 2021 PFS change, RVUs increased by 18%. To reach that same level of compensation, the PCP would only need a TCC-per-wRVU of $47.47. Another way to consider that same doctor’s compensation, Chamblee noted, would be to look back at the intent of CMS’ changes and carry through an increase in compensation tied to the boost in RVUs.

In that scenario, a TCC-per-wRVU of $52.22 matches the RVU increase as well as a 10% boost in TCC. “In essence, you need a lower conversion factor to achieve a higher level of compensation,” Chamblee said, because of the dynamics of wRVU values rising at a higher rate than the change in reimbursement.

Proceed with caution

Chamblee suggested practice leaders carefully conduct impact assessments on the ongoing effects of the 2021 PFS changes regarding wRVUs and total revenue. For many practices that move forward with compensation gains outstripping revenue gains, it may quickly cause issues with financial viability.

But organizations that opt to hit “pause” on future survey data and use 2020 as a baseline for the next year may give themselves breathing room to determine a long-term strategy and what a post-pandemic normal might look like.

In another example, Chamblee pointed to a PCP experiencing increases in both wRVUs and collections, with an expected wRVU increase of nearly 19%, yet collections expected to rise by 4.9%. “Their plan was to not change their historical wRVU rates, meaning that the compensation values and their historical model they were going to leave intact and just start to apply the 2021 fee schedule,” Chamblee said.

The problem with that approach, he noted, is “you can’t take compensation based on 2021 values and compare it to 2020 survey data, because it’s apples and oranges.” Instead, Chamblee pointed to using the 2020 survey data and rolling forward the wRVUs and the change in collections to create adjusted survey data that can benchmark what their proposed compensation arrangement would look like with the 2021 wRVU values and their old rates for RVUs (Table 4).



“We’ve got to make adjustments to reflect the changes that likely would occur to survey data to allow for an apples-to-apples comparison,” Chamblee said. Chamblee also recommends that practice leaders review how physician contract language defines which wRVU values you’re going to use to determine if the medical group has discretion on which fee schedule to use.

In the past, many contracts would specifically state that wRVUs would be based on the CMS fee schedule in place on the applicable date of service. A more-flexible approach would be updating that language so that:
wRVUs will initially be based on the 2020 schedule published by the Centers for Medicare and Medicaid Services (CMS), and, subject to the discretion of [Medical Group name], may be adjusted each [date here] during the term of this Agreement to be based on the immediately preceding year’s schedule published by CMS.

Doing the work now to understand the divergence between compensation and revenue based on the 2021 changes will enable practices to appropriately assess if and how physician compensation will need to evolve to maintain financial viability as providers continue to navigate out of the pandemic.

“I think we can all agree that the Medicare PFS is undergoing some pretty significant changes, and this — coupled with the impacts of COVID-19 — has created a pretty bumpy road over the past six to 12 months,” Chamblee said.