Adapting FMV Physician Compensation to CMS MPFS Changes

On November 2, 2023 the Centers for Medicare & Medicaid Services (“CMS”) issued the 2024 Medicare Physician Fee Schedule (“MPFS”) Final Rule which included a 3.37 percent decrease in the MPFS conversion factor from $33.8872 to $32.7442. The Final Rule also indicated the expiration of the 1.0 GPCI floor on December 31, 2023. However, on March 9, 2024, President Joe Biden enacted the Consolidated Appropriations Act, 2024 (“CAA-24”), which raised the MPFS conversion factor from $32.7442 to $33.2875 for claims dated between March 9, 2024, and December 31, 2024. Notably, this adjustment wasn’t retroactive, meaning claims dated between January 1, 2024, and March 8, 2024, would be processed based on the pre-law conversion factor of $32.7442.  In addition, the CAA-24 extended the 1.0 GPCI floor through December 31, 2024.

It is crucial for healthcare entities, that have contractual arrangements with physicians, to remain current with changes to the MPFS, as these alterations can unexpectedly affect fair market value (“FMV”) compensation for physicians. This became even more evident with the release of the 2021 Final Rule by CMS, which revamped the work relative value units for evaluation and management codes, while decreasing WRVUs for certain other services. Although not explicitly stated by CMS, this change has been seen by many as an attempt to realign reimbursement with the complexity and intensity of patient encounters, particularly in primary care and other specialties where E&M services are commonly provided. Consequently, hospitals and health systems nationwide found themselves rushing to adapt their compensation structures, especially those based on WRVUs, to prevent E&M-intensive specialties from receiving excessive compensation for services. While the current changes to the MPFS are a result of maintaining budget neutrality and likely will not have the level of impact as the 2021 MPFS changes did, it is still important to consider how any change could impact FMV arrangements with physicians.  Changes made by CMS to the MPFS can have an impact on fair market value (FMV) compensation for physicians in several ways:

  1. Direct Impact on Reimbursement Rates: Changes to the MPFS, such as adjustments to the conversion factor or RVUs assigned to specific services, directly affect the reimbursement rates that physicians receive for services provided to Medicare beneficiaries. When reimbursement rates change, it can influence physician compensation arrangements, particularly in healthcare organizations where physician compensation is tied directly to productivity or revenue generated from services.
  2. Indirect Influence on Commercial Payers: While the MPFS specifically applies to Medicare reimbursement, it often serves as a benchmark for commercial payers when setting their own reimbursement rates. Therefore, changes to the MPFS can indirectly influence reimbursement rates from commercial payers as well. This can impact the revenue streams of healthcare organizations and subsequently influence physician compensation arrangements.
  3. Alignment with Market Trends: Changes to the MPFS may reflect broader trends in healthcare delivery and payment reform. For example, CMS may introduce new payment codes or adjust reimbursement rates to incentivize certain types of services or care delivery models. These changes can influence the market demand for specific specialties or services, which may in turn impact compensation arrangements for physicians.
  4. Adjustments for Geographic Variations: CMS applies Geographic Practice Cost Indices (GPCIs) to adjust reimbursement rates based on geographic location. Changes to these indices can affect reimbursement rates differently across regions, which may influence compensation arrangements in areas where the cost of living or practice expenses vary significantly.
  5. Consideration of Quality and Value-Based Payment Initiatives: CMS has been increasingly incorporating quality and value-based payment initiatives into the MPFS, such as the Quality Payment Program. Changes to the MPFS related to these initiatives, such as adjustments to performance-based payment incentives or penalties, can impact physician compensation arrangements as organizations seek to align physician incentives with quality and value-based metrics.

Overall, changes to the Medicare Physician Fee Schedule by CMS can have significant implications for physician compensation arrangements, both directly through adjustments to reimbursement rates and indirectly through their influence on market dynamics and payment trends in healthcare. Organizations must continually assess and adjust physician compensation structures to ensure compliance with regulatory requirements and market conditions.

If you have any questions or would like more information regarding fair market value, Stark Law and Anti-kickback statute compliance, or recent changes in the Medicare Physician Fee Schedule please contact Rud Blumentritt or Chad Watford.

Author: Chad Watford, CVA

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