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Implementation of Evaluation and Management (“E/M”) Service Payment Creates Uncertainty for Medicare Professional Services Payment and Policy

The Centers for Medicare & Medicaid Services (“CMS”) continued its multiyear efforts to reform E/M coding and payment in the Calendar Year 2021 Medicare Physician Fee Schedule (“MPFS”) Proposed Rule (the “Proposed Rule”). If finalized, the Proposed Rule would implement payment increases for evaluation and management services effective January 1, 2021, using the recommended valuations of the American Medical Association’s Relative Value Scale Update Committee (“RUC”). CMS originally adopted the RUC’s valuations in the CY 2020 rulemaking cycle but chose not to implement them until January 1, 2021, and if implemented the new valuations would create significant fluctuations in how physician fee schedule payments are distributed across medical specialties due to statutory budget neutrality requirements. This has created uncertainty and calls for both legislative and regulatory action by the practitioner community. A summary of the Agency’s proposed action as well as its potential consequences follows.

E/M services represent approximately 40% of the billed charges paid under the physician fee schedule and are generally used to describe office visits between a practitioner and a patient. Practitioners select the appropriate E/M code based on the setting of care, the patient’s status as a new or established patient, and the complexity of the service. Currently, CMS pays for five levels of hospital outpatient and office-based E/M services with the reimbursement for each E/M service increasing as the complexity of the services increases from Level One to Level Five.

CMS originally revisited the documentation requirements and payment for E/M services in response to concerns from the provider community about the complexity and administrative burden in selecting and appropriately documenting E/M services. These efforts were undertaken as part of CMS’ Patients over Paperwork Initiative, and
in 2019 CMS proposed reforming E/M payment and documentation in a manner that would retain five levels of E/M services but only provide two levels of payment. Under that plan, the Agency would pay for Level One services at a single rate, and would pay a blended rate for all services provided in Level Two through Level Five. This proposal
would have enabled professionals that routinely bill for high-level E/M services to obtain payment for those services while only meeting the documentation standards for a Level Two visit. We originally wrote about these efforts in our February 2019 issue of Reimbursement Quarterly. Ultimately, CMS abandoned this approach in response to significant opposition and an aggressive public commenting and lobbying effort from the provider community.

In the 2020 rulemaking cycle, CMS again revisited reforms for E/M payment and documentation requirements and adopted revised code definitions and valuations for E/M services developed by the AMA’s CPT Editorial Panel and the RUC, respectively. CMS chose to implement the revised code set and valuations for E/M services effective January 1, 2021. For 2021, CMS has eliminated Level One E/M payments for new patients, while retaining Level One through Level Five visits for established patients. Unlike the 2019 proposal, there are no blended rates for E/M services and each E/M visit complexity level will have a unique payment amount. CMS also reformed the documentation requirements for demonstrating the medical necessity of each E/M service by permitting practitioners to use either time-based standard or the AMA’s revised medical decision making criteria. Further, the revised E/M coding descriptors also depart from previous E/M documentation standards by only requiring a history and exam to be performed when medically appropriate.

Most critically, in adopting the AMA’s approach, CMS also adopted the RUC recommendations for the valuation of E/M services. The concept of valuation is critical to payment levels under the physician fee schedule, both individually and in the aggregate. Each service paid under the fee schedule is assigned a specific number of relative value units (“RVUs”) across three categories that represent the relative costs to provide the service. The categories are practice expense, physician work, and malpractice expense. The total number of RVUs across all three categories are  summed and multiplied by a Conversion Factor, calculated by CMS each year based on statutory requirements,
to determine a national unadjusted payment level for the service. By way of example, if a service is assigned 10 total RVUs and the Conversion Factor is $30.00, Medicare’s national payment rate for the service would be $300.00.

The Social Security Act requires the physician fee schedule be administered in a manner that is “budget neutral.” Because the valuations for E/M services increase significantly under the 2021 proposal, CMS proposed decreasing the Conversion Factor in order to maintain budget neutrality. The conversion factor for 2020 was $36.09, and in 2021, CMS proposed it to be $32.26 — a 10.61% decline. This creates a 10.61% payment cut for each service where the assigned RVUs remained the same from 2020 to 2021.

As a result, the 2021 Proposed Rule would significantly decrease overall payments for practitioners whose specialties rely on procedures rather than E/M services to generate the majority of their revenues.

Each year, CMS projects the aggregate impact each of its proposed policies will have on fee schedule payments for each individual specialty. Those modeled forecasts are published in Table 90 of the Proposed Rule1 and reflect that the reductions for specialties that derive a significant portion of their revenue from procedures are in some cases quite significant. For instance, according to the Table 90 the specialties of radiology, orthopedic surgery, cardiac surgery and  radiation oncology are projected to see overall declines of 11%, 5%, 9%, and 6%, respectively. This is contrasted by the predicted increases for specialties with a high proportion of E/M services. Family practice, endocrinology and pediatrics are projected to see increases of 13%, 17%, and 6% to their aggregate payments under the fee schedule, respectively.

These significantly predicted changes have set off intense lobbying efforts at a time of great political uncertainty. Many specialty societies are asking CMS to exercise its administrative authority under the COVID-19 Public Health Emergency to waive the statutory budget neutrality requirement for 2021. If successful, this would allow practitioners to avoid significant cuts brought about by the application of the reduction in the proposed Conversion Factor for 2021. Comments on the Proposed Rule were due on October 5, 2020, but it remains to be seen whether CMS believes it has this authority or is willing to exercise it.

In the event CMS does not exercise its administrative authority, efforts to convince Congress to intervene are likely to intensify. Congress is familiar with intervening in adjusting the physician fee schedule methodology to avoid large reductions in practitioner payment, as it routinely passed legislation to avert cuts related to the application of the Sustainable Growth Rate (“SGR”) until the enactment of the Medicare Access and CHIP Reauthorization Act in 2015. As practitioners move forward in addressing the COVID-19 Public Health Emergency and the financial effects it has had on their practice, the looming changes as a result of the Proposed Rule may have far-reaching effects if left unaddressed by the Administration or Congress.

1 85 Fed. Reg. 50375 (August 17, 2020).

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 296



About this Author

Michael Flood, Polsinelli Law Firm, Health Care Attorney

Michael Flood takes a results-oriented approach to serving his clients’ legislative, regulatory, and policy needs. He is a proactive advocate for his clients on matters involving the U.S. Congress, the Centers for Medicare and Medicaid Services, and the Food and Drug Administration. Michael assists a broad range of clients including provider associations, patient advocacy groups, and device manufacturers on issues including reimbursement, compliance, and general health reform.