2021 Physician Fee Schedule Changes and the Impact to wRVU Physician Compensation Agreements
2021 brought many updates to the Medicare Physician Fee Schedule, notably the increase to the work relative value units (wRVU) of most office based new and established patient evaluation and management services (E/M), including current procedural terminology codes (CPT) 99202-99205 and 99211-99215. The table below summarizes the changes in E/M wRVUs for 2021.
|Code||wRVU 2020||wRVU 2021||Variance|
As stated in the 2020 Physician Fee Schedule Final Rule, “E/M visits comprise approximately 40% of allowed charges for PFS services and office/outpatient E/M visits comprise approximately 20% of allowed charges for PFS services.” As such, these codes and their work value and reimbursement are important for providers to familiarize and analyze within their organizations.
Accompanying the change in wRVUs came an adjustment in the Medicare conversion factor to maintain budget neutrality, required by law, of the Medicare Physician Fee Schedule (MPFS). The conversion factor is the multiplier established each year by the Centers for Medicare & Medicaid Services (CMS), which converts the value in RVUs to a dollar amount. The 2021 Medicare conversion factor, following a last minute revision relative to the Consolidated Appropriations Act, 2021, was finalized at $34.89. This represents a 3.3% decrease from the 2020 conversion factor. All payable codes in the MPFS are impacted by this decline in the conversion factor.
Hospitals and health systems that employ physicians under wRVU compensation arrangements should consider analyzing the financial impact of these changes. One way to measure this impact is by evaluating code utilization for 2020 and comparing the wRVUs and collections associated with those codes anticipated in 2021. Depending on the volume of E/M services reported for a particular provider or group, the hospital may discover that physician wRVU base thresholds could be met sooner than prior years. This phenomenon will be most evident in specialties and provider types who perform a high volume of office/outpatient E/M services. Hospitals should anticipate receiving increased Medicare reimbursement for the E/M services. However, as the employer, they will be paying more physician compensation for the same amount of work. Strain on hospital margins may occur, the result of contractual compensation exceeding the actual reimbursement per wRVU. Said another way, physician compensation arrangements based on a fixed dollar amount per wRVU may result in the hospital paying more in physician salaries in 2021 than anticipated or budgeted.
Let’s explore this concept with a hypothetical example: If the hospital employs a physician using a base threshold of 5,000 wRVUs, and pays the physician $50.00 per wRVU for the first 5,000 wRVUs, the wRVU benchmark and base salary of $250,000 may be attained easier and earlier in the calendar year, due to the increase in the wRVUs of the E/M service codes. If the compensation formula includes incentive payments for wRVUs beyond the base threshold, as many do, the hospital may ultimately pay bonus payments in higher dollar amounts than in previous years. While Medicare collections should increase for the office based E/M service codes, the additional amount collected may not be enough to offset the compensation obligations under wRVU productivity based physician contracts.
The BNN Healthcare Advisory Group can assist your organization with analyzing anticipated wRVU volume changes and collections in 2021, along with the change in physicians’ compensation under a compensation formula. Our team of seasoned revenue cycle professionals will work with you to strategize solutions and mitigate potential financial impacts.
FOR MORE INFORMATION, PLEASE CONTACT THE FOLLOWING MEMBERS OF OUR HEALTHCARE ADVISORY GROUP:
Eric Wetherell, CPA: Principal and Healthcare Advisory Group Lead
Dianne Rodrigue, PA, MHP, CHC, CCDS, CPC: Senior Manager
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.