It’s mid-October, which means that the Centers for Medicare & Medicaid Services (CMS) is close to releasing the final calendar year (CY) 2024 Medicare payment regulations. CMS is expected to issue the CY 2024 Physician Fee Schedule (PFS) final reg and the Outpatient Prospective Payment System (OPPS) final reg by November 1, 2023—60 days prior to the start of the calendar year.
Once the PFS final reg drops, everyone will immediately check the size of PFS conversion factor (CF) cut. The CF is the factor that translates relative value units (RVUs), the building blocks of codes, into a dollar amount. In the proposed reg, CMS proposed a 2024 CF of $32.7476, representing a 3.36% reduction from the 2023 CF of $33.8872. CMS also proposed a 2024 anesthesia CF of $20.4370, representing a 3.26% reduction from the 2023 anesthesia CF of $21.1249. Physicians have expressed concerns that the final CF will be close to the proposed one. In their view, a cut of more than 3%, especially when inflation (as measured through the Medicare Economic Index) is estimated to be 4.5%, could make it difficult for some physician practices to cover overhead costs (e.g., staff, supplies and equipment) and remain financially viable.
One of the largest components of the proposed PFS CF reduction was a 2.17% “budget neutrality” cut. The budget neutrality requirement has been a major issue since its creation by the Omnibus Budget Reconciliation Act in 1989. Under the requirement, CMS must ensure that overall PFS spending does not increase because of updates to RVUs if those updates increase spending by more than $20 million annually. That $20 million figure has not been updated since the 1989 law passed. Since most of CMS’s annual changes to RVUs would result in spending changes of $20 million or more, CMS often must make a downward adjustment to the CF to account for budget neutrality. Physician advocates have argued for changes to the budget neutrality requirement, including an increase in the $20 million threshold.
In the proposed reg, CMS proposed a major policy that represents 90% of the 2.17% budget neutrality cut (i.e., a negative impact of roughly 2%): the introduction of a new add-on code for complexity, G2211. The primary policy goals for G2211 are to increase payments to primary care physicians and others, and to reimburse them more appropriately for the care they provide to highly complex patients. CMS assumed in the proposed reg that G2211 would be reported with 38% of all office and outpatient evaluation and management visits claims. Since office and outpatient evaluation and management codes represent almost 20% of all PFS spending, a 38% utilization assumption forced CMS to make a very large budget neutrality adjustment. In fact, we at McDermottPlus estimated that G2211 would be responsible for more than $1 billion in additional PFS spending in CY 2024, based on CMS’s utilization assumptions.
Thus, we are watching for two major things when it comes to budget neutrality in the CY 2024 PFS final reg:
- Does CMS finalize the G2211 code?
- If so, what utilization assumption does CMS finalize?
During the public comment period, stakeholders were split on whether CMS should finalize the code. However, most believed that CMS overestimated how often the code would be billed and that if CMS were to finalize the code, it should significantly reduce this utilization assumption. Among other arguments, commenters noted that the 38% utilization assumption is significantly higher than the actual utilization of other similar codes, such as chronic care management (found on 2.3% of total claims) and transitional care management services (found on 9.3% of eligible claims).
If CMS does finalize G2211, CMS’ ultimate decision about how often the code will be billed has a significant, long-term impact on Medicare spending. Even if CMS overestimates utilization, there will be no way for the agency to correct the mistake and undo the corresponding cut to the PFS CF for CY 2024. CMS also can’t give the money back to clinicians through higher future CF updates to make up the difference. So, although CMS’s utilization assumption for G2211 will represent the agency’s best guess, the effect of this guess on PFS payments will be permanent and consequential beyond CY 2024 (because future CFs will be based on the lower 2024 CF).
The American Medical Association (AMA) and other stakeholders have been advocating to Congress that the budget neutrality requirement needs a makeover, based on their belief the rule is unfair and results in permanent reductions to Medicare payments. Recently, the Republican Doctors Caucus in the US House of Representatives released draft legislation that would make the following changes related to budget neutrality:
- Increase the $20 million budget neutrality threshold to $53 million in 2025. The $53 million threshold would then be updated by an inflationary factor—the Medicare Economic Index—every fifth year starting in 2030. There would be no adjustment for 2024.
- Require CMS, starting in 2025, to compare estimated utilization to actual utilization for RVU adjustments in limited circumstances. CMS would conduct this analysis by September 1 of the year after the adjustments were made. If CMS determined that it overestimated or underestimated utilization, it would be required to adjust its estimated PFS expenditures for services for the following year to reconcile the difference, and the adjustment would not be subject to the budget neutrality requirements. For example, if CMS overestimated or underestimated utilization for calendar year 2025, CMS would conduct an analysis no later than September 1, 2026, and make any necessary adjustments to the 2027 PFS spending estimates.
The legislation would also require CMS to update the prices and rates for each of the direct cost inputs that contribute to the practice expense RVUs every five years. Beginning in 2025, the legislation also would limit any increase or decrease to the PFS CF to 2.5%. This 2.5% limit would effectively cap the impact that the budget neutrality requirement could have on the CF.
So far, this legislation remains in draft form, and it’s unclear whether it will be introduced as-is or with changes. Plus, even if it is introduced, the chances the legislation passes and becomes law is unknown. However, for argument’s sake, let’s look at what would happen if the legislation became law as it is currently drafted:
- An increase in the budget neutrality threshold from $20 million to $53 million in 2025 might not make a measurable difference. As I noted earlier, the G2211 code alone is estimated to increase PFS spending by more than $1 billion (with a b!) Other major changes to PFS code values would likely easily surpass a $53 million threshold as well. Thus, even with a $53 million threshold, CMS likely would have to apply a negative adjustment to the PFS CF in most cases. Increasing the threshold more significantly or repealing the budget neutrality requirement altogether would reduce the likelihood that CMS would be forced to make a downward adjustment. However, doing so could be extremely expensive, as major policies such as G2211 would add millions, if not billions, in spending to the PFS each year.
- The budget neutrality corrections policy would likely be welcome to stakeholders, as it would allow CMS to correct its utilization assumption mistakes in future years. The policy would apply in limited circumstances to codes for which CMS must estimate utilization in order to determine the total expenditures (and thus budget neutrality impact) that the codes would add to PFS spending. Therefore, this corrections policy would help address, going forward, an issue similar to the one related to G2211 about which stakeholders are currently expressing concerns.
It is important to mention that the legislation wouldn’t solve every problem facing the PFS. This legislation doesn’t address the request made by the AMA and others for an inflationary update to physician payments that is tied to the Medicare Economic Index. Physician advocates argue that having more stable updates to physician payments could help ensure that physicians can continue providing services to Medicare beneficiaries across the country, especially in rural and underserved areas.
We shall see what happens with this legislation and physician payment reform more generally in the weeks and months ahead. In fact, the Energy and Commerce Health Subcommittee is holding a hearing today, October 19, 2023, that will discuss this very topic. In the meantime, as legislative options are discussed, all eyes will be on the CY 2024 PFS final reg once its released. Rest assured, our team at McDermottPlus will be here to cover all the significant policies in this major reg. We’ll also deploy our data analytic capabilities to evaluate how G2211 (if finalized) will affect physician spending in specific geographic regions. Let me know if you are interested in hearing more about such an analysis.
Until next week, this is Jeffrey saying, enjoy reading regs with your eggs!
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