Something Old, Something New: The Proposed Medicare Physician Fee Schedule Rule

July 24, 2018

Mixing innovative change with standing policy, the proposed physician fee schedule rule for CY 2019 highlights a Medicare payment system in transition. Clinicians and groups focused solely on driving volume without devoting comparable efforts to promoting quality, efficiency, and interoperability may be leaving significant revenue on the table.

Slated for publication on July 27, the Centers for Medicare & Medicaid Services (CMS) proposed rule for the Medicare physician fee schedule (PFS) and other Medicare Part B payment policies for calendar year 2019 (Rule) comes in at 1,473 pages and weighs a hefty 10 pounds. Representative of a payment system in transition, the massive Rule proposes to fuse standing policy with a number of impactful changes.

Noting in a recent letter to doctors that “President Trump has made it clear that he wants all agencies to cut the red tape, and CMS is no exception,” CMS Administrator Seema Verma touted the Rule’s proposal to streamline documentation and coding guidelines for evaluation and management (E/M) visits. To that end, the proposal is anticipated to result in significant payment changes for a number of specialties.

As for the Quality Payment Program, CMS promotes its proposed changes as benefiting patients through greater emphasis on outcome-based measures and reduced regulatory burdens on eligible clinicians through measure elimination and consolidation. The Rule is also historical in its widespread adoption of communication technologies that will allow for virtual consultations and expanded coverage of telehealth services.

Other administration initiatives reflected in the proposed Rule include efforts to lower drug prices, reduce beneficiary out-of-pocket costs, and address the opioid crisis. To that end, CMS proposes to reduce payment for new Part B drugs and create a separate bundled payment for substance use disorders. Consistent with previous Medicare payment rules released by the agency for 2019, CMS is seeking stakeholder input on various payment and policy issues including proposals aimed at encouraging price transparency.

The Rule’s proposed policy changes would apply to Part B services beginning January 1, 2019. Comments are due September 10, 2018.

E/M Documentation Requirements

CMS would implement major changes to documentation requirements and payments for office/outpatient visit E/M codes (CPT codes 99201 through 99215) that purport to give practitioners choices as to the appropriate basis for distinguishing among E/M visit levels, decreasing documentation requirements, and reducing variation among E/M visit levels. The agency’s goal in making the changes is to reduce the administrative burden on practitioners so that they can exercise greater clinical judgment and discretion in what they document, focus on what is clinically relevant and medically necessary for the patient, and spend more time on patient care.

CMS notes that although office/outpatient E/M visits comprise approximately 20% of allowed charges for PFS services, they haven’t been revalued recently to account for significant changes in the disease burden of the Medicare patient population and changes in healthcare practice. In addition, the agency says it is responding to input from stakeholders who have long maintained that the E/M documentation guidelines are administratively burdensome, too complex, ambiguous, fail to meaningfully distinguish differences among code levels, and are not up-to-date for changes in technology.

To that end, the proposed Rule seeks to implement the following significant changes:

  • Reduce documentation requirements for office/outpatient visit E/M codes
  • Reduce documentation requirements specifically for home visits and same-day visits
  • Remove redundancy in E/M visit documentation
  • Simplify payment amounts by applying a single rate for E/M levels 2-5
  • Adjust single payment rates for resource costs associated with different types of E/M visits

CMS notes that prior attempts to revise the E/M guidelines were unsuccessful or resulted in additional complexity due to a lack of stakeholder consensus, particularly among specialties. We suspect that will continue to be the case with the proposed Rule. The agency anticipates that specialties that bill a large portion of E/M visits on the same day as procedures would experience a decrease in payments. In addition, specialties such as allergy/immunology and cardiology are likely to be negatively impacted by the proposed single payment rates themselves, although not to the same degree as they would have been without the new add-on G-codes. The specialties that CMS assumes will see an increase in payments due to a combination of the new single payment rates and the add-on G-codes include psychiatry and endocrinology.

CMS predicts that the documentation changes for office/outpatient E/M visits and the implementation of single payment rates may reduce the documentation time by one quarter of the current time for the average office/outpatient visit. If that is the case, the proposals would save clinicians approximately 1.6 minutes of time per office/outpatient E/M visit, which for a full-time practitioner with a payor mix that is 40% Medicare (60% other payers), the practitioner would have approximately 51 additional hours to spend with patients every year.

For a deeper dive, Morgan Lewis has prepared a detailed analysis of the CMS proposal to overhaul the E/M documentation requirements in a separate LawFlash.

Quality Payment Program

CMS proposed significant changes to the Quality Payment Program designed to better integrate the program with the agency’s Meaningful Measures Program, which also heavily influenced CMS’s proposed rule for inpatient hospital payment earlier in the Spring.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) eliminated the sustainable growth rate under the previous physician payment system and required the establishment of the Quality Payment Program as the method for implementing a new value-based payment model. The payment methodology under MACRA rewards value in one of two ways: (1) the Merit-based Incentive Payment System (MIPS), and (2) the Advanced Alternative Payment Models (APMs).

The proposed changes to Year 3 of the Quality Payment Program purportedly advance the stated goals of the Meaning Measures Program by focusing more on measuring meaningful outcomes, rather than on process measures.

In connection with the outcomes orientated approach, CMS is proposing to “add 10 new MIPS quality measures that include 4 patient reported outcome measures, 7 high priority measures, 1 measure that replaces an existing measure, and 2 other measures on important clinical topics in the Meaningful Measures framework; and (2) removing 34 quality measures.” (emphasis added). CMS indicated it was responding to physician feedback relative to the confusion of the measure selection process, and seeking to develop a patient-centered approach by streamlining the available measures.

Additionally, CMS proposes to rename the “advancing care information” performance category under the MIPS to “Promoting Interoperability” in order to coincide with previous CMS proposals for other providers. The proposal is designed to implement the interoperability requirements of the 21st Century Cures Act.

As part of the Promoting Interoperability category, CMS would require MIPS eligible clinicians to use 2015 Edition certified electronic health record technology (CEHRT) beginning with the 2019 MIPS performance period to ensure greater ease in patient access to their health information and the sharing of that information amongst the providers in charge of their care.

CMS estimates that approximately 650,000 physicians will be MIPS eligible clinicians for the 2019 MIPS performance period, and that the payment adjustments for the 2021 MIPS payment year would be approximately $372 million (both positive and negative adjustments for a budget neutral sum). In addition, $500 million would be available for “exceptional performance” to MIPS eligible clinicians whose final score meets or exceeds the proposed additional performance threshold of 80 points. CMS notes in the proposal that, pursuant to the Bipartisan Budget Act of 2018 (BBA), the payment adjustments are made to the professional services payments only of eligible clinicians.

CMS also estimates that between 160,000 and 215,000 clinicians will be Qualifying APM Participants and the total lump sum APM incentive payment for these Qualifying APM Participants will be $600–$800 million for the 2021 payment year.

While CMS proposes expanding the definition of MIPS eligible clinician to include physical therapists, occupational therapists, clinical social workers, and clinical psychologist (and a group that contains such clinicians), the agency added an additional criterion to the low volume threshold determination, which could increase the number of clinicians eligible for exclusion from the MIPS program (and, in turn, decrease the volume of potential funds in the payment pool). CMS held off on proposing additional providers such as speech-language pathologists, audiologists, certified nurse midwives, and registered dietitians from being included as MIPS eligible clinicians as these providers would have less than six MIPS quality measure available to them. CMS did propose an “opt-in” option for clinicians who would otherwise be excluded based on the low volume threshold determination.

The proposal also seeks to streamline, to the extent possible under the statute, the MIPS determination period (October 1, 2017, to September 30, 2018, (first segment) and October 1, 2018, to September 30, 2019 (second segment)). Despite some industry feedback seeking shorter periods for quality measure aspects of the MIPS performance period, CMS proposed to maintain the same 12-month performance periods as in Year 2 for quality and cost performance categories.

CMS is also soliciting comments on potential revisions to the group practice reporting option in response to ongoing stakeholder feedback to permit a group reporting option that would allow a portion of a group to report as a separate subgroup on measure and activities that are more applicable to the subgroup. This would be a helpful addition for multispecialty groups, which face challenges reporting across several specialty measure sets. However, CMS is also wary of the potential for subgroup reporting to create operational challenges for CMS to implement the proposal in a way to avoid potential gaming opportunities where groups may seek to create subgroups composed of only the highest performing clinicians within the group.

Physician compensation arrangements have historically focused on a physician’s collections as the primary determinant of a physician’s overall compensation with the goal of incentivizing increased productivity. It remains unclear whether the increasing weight of the cost performance category of MIPS (15% proposed for 2021 payment year) combined with the highest weighting of the quality performance category (45% for 2021 payment year) may move the needle closer to a tipping point where quality and efficiency metrics begin to supplement collections metrics in physician compensation plans. With the upside potential for a +7% positive adjustment and access to additional payments through the $500 million exceptional performance pool coupled with the potential downside risk of a -7% adjustment for payment year 2021, clinicians and groups focused solely on driving volume without devoting comparable efforts to promoting quality, efficiency, and interoperability may be leaving significant revenue on the table.

Conversion Factor Update

The conversion factor update for 2019 under MACRA was 0.5% prior to any additional adjustments. However, Section 53106 of the BBA lowered the update amount to 0.25% prior to any other adjustments. In addition to the update factor, the 2019 conversion factor also takes into account the separate relative value unit (RVU) budget neutrality adjustment.

For 2019, the proposed conversion factor is $36.0463, which represents a slight increase from the CY 2018 conversation factor of $35.9996.

In addition to the significant proposed changes to E/M codes in the proposed rule, the other most significant impact to proposed RVUs for certain services is a result of the Misvalued Code Initiatives. For example, CMS proposes to update prices of over 1,300 supplies and 750 equipment items used in the calculation of practice expense (PE) RVUs, which will result in material effects on several specialties.

Supervision of Radiologist Assistants

In response to the Request for Information on CMS Flexibilities and Efficiencies in the CY 2018 PFS proposed rule, a number of commenters recommended revising the physician supervision requirement for diagnostic tests furnished by a radiologist assistant (RA) from personal to direct supervision. Stakeholders suggested that the current supervision requirements for certain diagnostic imaging services unduly restrict RAs from conducting tests consistent with their education and training and that they may do under current law in many states.

For diagnostic tests requiring personal supervision, CMS is proposing to only require direct supervision when permitted by state law and state scope of practice regulations and performed by a registered RA certified by the American Registry of Radiologic Technologists; and a radiology practitioner assistant certified by the Certification Board for Radiology Practitioner Assistants.

Determinations of Practice Expense Relative Value Units

Practice Expense Methodology

CMS has incorporated the available utilization data for two new specialties for 2019: hospitalists and advanced heart failure and transplant cardiology. The agency is proposing to use proxy practice expense per hour values for these new specialties by using the data from emergency medicine for hospitalists and cardiology data advanced for heart failure and transplant cardiology.

Changes to Direct PE Inputs for Specific Services

CMS is proposing a number of changes that will affect direct PE inputs in the 2019 rulemaking. These changes include standardization of clinical labor tasks, equipment recommendation for scope systems, a comment solicitation on balloon sinus surgery kit (SA106), and updates to prices for existing direct PE inputs. With respect to updating prices for existing direct PE inputs, for 2019, CMS proposes to update the prices of four supplies and one equipment item in response to public submission of invoices. These items include the kit, transurethral microwave thermotherapy (SA036); kit, transurethral needle ablation (SA037); stain, Wright's Pack (per slide), (SL140); neurobehavioral status forms, average (SK050); and Breast MRI computer aided detection and biopsy guidance software (EQ370).

Adjustment to Allocation of Indirect PE for Some Office-Based Services

The methodology CMS uses for allocating indirect costs examines each code on the basis of the direct costs associated with a code and the greater of either the clinical labor costs or the work RVUs. Direct PE input costs tend to be higher in the non-facility setting than in the facility setting, which similarly correlates to higher indirect PE RVUs being allocated to these services in the non-facility setting.

Determination of Malpractice Relative Value Units

CMS proposed to use malpractice premium data to update the specialty risk factors used to calculate the malpractice RVUs (MP RVUs) in the 2018 rule in advance of the next required update in 2020. However, CMS did not finalize the proposal in the 2018 rule after considering comments and highlighting differences in raw rate filings. In this year’s proposed Rule, CMS is seeking additional comments for the MP RVU update required no later than 2020. CMS is seeking comment on how to improve the specialty crosswalk in state-level raw rate filings data for categorization into the CMS specialty codes used to develop specialty-level risk factors and the MP RVUs.

Potentially Misvalued Services for 2019

CMS received a submission nominating a handful of high-volume codes for review under the potentially misvalued code initiative, which largely focused on the systematic overvaluation of work RVUs as identified by the General Accounting Office and MedPAC. The codes nominated include: 27130 Total hip arthroplasty; 27447 Total knee arthroplasty; 43239 Egd biopsy single/multiple; 45385 Colonoscopy w/lesion removal; 70450 CT head w/o contrast; 93000 Electrocardiogram complete; and 93306 Tte w/doppler complete. Another commenter requested that CPT code 92992 (Revision of heart chamber) be reviewed in order to establish national RVU values for these services under the PFS, as this code is currently being priced by individual Medicare Administrative Contractors.

Valuation of Specific Codes

CMS concerns regarding the rationale of the American Medical Association/Specialty Society Relative Value Scale Update Committee and its underlying practitioner survey data for establishing work RVUs have continued to increase in recent years alongside the agency’s review of the methodology for proposing direct PE inputs such as clinical labor, disposable medical supplies, and medical equipment. In this year’s Rule, CMS is soliciting comments on proposed new valuations for work values, direct inputs, or both for 72 separate code groups that may have a material impact on a number of specialties, including orthopedics and dermatology.

Specialty Specific Impacts

The significant proposals on E/M coding, coupled with the proposed payment accuracy adjustments in the Rule, are estimated to generate significant impact on certain specialties. The specialties CMS estimates will fare best under the Rule’s proposals include Obstetrics/Gynecology and nurse practitioners with an estimated potential impact of 4% and 3%, respectively. On the other end of the spectrum, CMS projects certain specialties such as hematology/oncology (less than 3% estimated decrease in payment) and dermatology (-4%) may see material changes to overall payments as a result of the proposals in the Rule.

Telehealth Changes

Currently, there are several statutory restrictions on Medicare telehealth coverage based on Social Security Act §1834(m), such as the originating site requirement and the rural/health professional shortage area (HPSA) requirement. This statute has represented a substantial hurdle that has ostensibly thwarted CMS efforts in the past to liberalize telehealth coverage. Now, the agency has evolved its position on the issue, stating that §1834(m) only applies to services that existed at the time of enactment of the statute and that are described by existing CPT codes. CMS states its new position succinctly:

We now recognize that advances in communication technology have changed patients’ and practitioners’ expectations regarding the quantity and quality of information that can be conveyed via communication technology. From the ubiquity of synchronous, audio/video applications to the increased use of patient-facing health portals, a broader range of services can be furnished by health care professionals via communication technology as compared to 20 years ago. Among these services are the kinds of brief check-in services furnished using communication technology that are used to evaluate whether or not an office visit or other service is warranted.

Under this framework, CMS is free to establish new telehealth-supported Medicare benefits so long as those services cannot also be provided in-person (i.e., a CPT code 99212 could still be provided via telehealth but would have to meet the §1834(m) requirements, whereas a new “telehealth-only” code would not).

Based on this position, CMS has proposed several new codes that could significantly reshape the encounter process. Specifically, CMS proposes to establish coverage for “virtual check-ins” and related telehealth service lines, including remote evaluation of pre-recorded patient information (i.e., store and forward), remote interprofessional consultations, acute stroke telehealth services, and web-based counseling for substance use/abuse disorders. If fully implemented, these additions represent a major evolution in how patients and physicians interact in managing chronic and low acuity conditions. Note that CMS is requesting comments in a variety of areas related to these proposals.

The virtual check-in represents an exciting new opportunity to incentivize healthcare providers to keep patients out of the office, but CMS still hasn’t flushed out all of the program’s contours. For instance, CMS is seeking comment on whether "audio-only telephone interactions" will be sufficient for virtual check-ins or if CMS should require that audio communications be "enhanced with video or other kinds of data transmission." From a resource perspective, HIPAA-compliant, healthcare-specific audio/video systems may be cost prohibitive for both elderly patients and physicians. Although Skype and Facetime may be nearing ubiquity, these technologies are substantially more complicated and involved than simply picking up the phone.

Note also that virtual check-ins, both live and through store-and-forward, may only be performed for established patients. CMS believes that a "practitioner needs to have an existing relationship with the patient, and therefore, basic knowledge of the patient's medical condition and needs, in order to perform this service." Although current "Medicare telehealth services" could be available for a new patient, those services would be subject to existing statutory limitations, including originating site and HPSA/rural restrictions, as well as applicable state practice requirements. In addition, virtual check-ins may be bundled into other E/M codes in certain situations. CMS has proposed that the virtual check-in would be payable only if it does not result in a further E/M service. In other words, if a patient calls up and the doctor determines that the patient doesn't need an in-person service, the doctor could bill the virtual check-in code separately. However, if there was an E/M service up to seven days prior to the check-in or 24 hours after the check-in, the check-in would be bundled into the other E/M code as pre- or post-visit time and not separately billable. CMS is seeking comments on what the appropriate window is for bundling purposes.

Importantly, much like what several states already require, CMS is pondering whether it should require a specific documented informed consent notation in each virtual check-in medical record. CMS has proposed that patients would need to consent to receive these virtual check-in services and that the practitioner would need to document that verbal consent has been received in the medical record for each virtual check-in service billed. Furthermore, CMS plans to keep reimbursement for the virtual check-in lower than current E/M rates. CMS anticipates that the virtual check-in will be a "low work time and intensity" procedure and that low reimbursement accounts for the expected resource costs and efficiencies associated with the use of communication technology. In addition, CMS wants to avoid incentives that would influence a physician’s decision to avoid bringing a patient into the office if needed.

Virtual check-ins will present both a money making opportunity for physicians and other healthcare professionals as well as a way to save time, cost, and unnecessary visits. CMS’s proposal is a step—and a particularly creative one at that—in the right direction for telehealth, but many of the specific contours of this proposal are ripe for comment. CMS wants stakeholders to actively engage in shaping this policy so that it works for physicians.

Part B drugs

Expressing concern over “the growing number of drugs with high annual spending and high launch prices,” CMS proposes to reduce the add-on percentage for new Part B drugs and biologicals—when average sales price (ASP) data are not available—from the current wholesale acquisition cost (WAC) plus 6% to WAC plus 3%. The policy change is consistent with last year’s MedPAC report that recommended “creating pressure for drug manufacturers to reduce or slow the growth of drug prices” as a means for reducing “excessive payments” for these drugs. According to CMS, the proposed approach would also help Medicare beneficiaries afford to pay for new drugs by reducing out-of-pocket expenses.

Site of Service

Noting that the PFS relativity factor “encourages fairer competition between hospitals and physician practices by promoting greater payment alignment between outpatient care settings,” CMS proposes to leave the site neutral payment policy for off-campus provider-based departments unchanged for CY 2019. As a result, the current PFS relativity factor for non-excepted items and services furnished by non-excepted provider-based departments would be maintained at 40%. The proposed Rule also notes that CMS is “broadly interested in stakeholder feedback and recommendations” for ways in which the agency can improve pricing and transparency with regard to payment rates across sites of service.

Stark Law

The Rule proposes to codify in regulations existing CMS policy and statutory language pertaining to writing and signature requirements of certain exceptions to the physician self-referral law known as the Stark Law. Most of the compensation exceptions to the Stark Law require that the financial arrangement be documented in a written agreement signed by the parties. CMS proposes to add a special rule on compensation arrangements, specifying that the writing requirement may be satisfied by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties. With respect to signature requirements, the Rule proposes to incorporate a recent change to the statute, which allows the parties to obtain the required signature within 90 consecutive calendar days immediately following the date on which the signature was required but not obtained, as long as the arrangement otherwise complies with an exception. A prior limit to the 90-day allowance, providing that the allowance can be used only once every three years with the same physician, is eliminated.

Substance Use Disorders

In an effort to more effectively address the opioid epidemic, CMS is soliciting public comment on creating separate bundled payment for treating substance use disorders. Coding and payment for an episode of care could include necessary counseling and elements related to medication assisted treatment (MAT) such as medication management and observation of drug dosing under the PFS. To that end, the agency is requesting public input on certain specifics such as service period duration, number of counseling sessions, types of practitioners, and applicable conditions of payment, among others. Finally, CMS seeks stakeholder input on (1) whether the counseling portion and other MAT components could be provided by qualified practitioners “incident to” the services of the billing physician; (2) regulatory and sub-regulatory changes to help prevent opioid use disorder and improve access to treatment under Medicare; (3) methods for identifying non-opioid alternatives for pain treatment and management; and (4) barriers that may inhibit access to these non-opioid alternatives, including barriers related to payment or coverage.

Request for Information Price Transparency

As hospitals get ready to post their current standard charges to the internet effective January 1, 2019, CMS is requesting information on potential actions to address beneficiary out-of-network access to care, surprise medical bills, and efforts to increase patient health plan literacy regarding coverage and benefits. Specifically, CMS seeks comments on the following:

  • How should the term “standard charges” be defined in various provider and supplier settings with an overt recognition that the “chargemaster” may not be the most transparent or accurate means to educate the population?
  • What information is most beneficial to patients and how can providers help patients in their decision making process regarding their healthcare needs?
  • Should providers and suppliers be required to provide patients with the actual out-of-pocket costs to be incurred prior to furnishing services to patients?
  • What burden is associated with a requirement that providers and suppliers provide patients with information on what Medicare covers and pays?
  • What is the best way to describe how Medigap coverage affects patients’ understanding of their out-of-pocket costs?

With varying insurance policies and network configurations, both in Medicare and in the commercial insurance market, the issue of price transparency and surprise medical bills will continue to plague providers and suppliers. In a recent letter to CMS, the American Hospital Association emphasized that out-of-pocket information “is the most relevant pricing information for patients” and offered to meet with CMS and other stakeholders to explore ways to achieve enhanced price transparency in a way that is most beneficial to patients.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Greg Etzel
Scott McBride
Banee Pachuca

Washington, DC
Kathleen McDermott
Scott Memmott
Albert Shay
Howard Young
Jacob Harper

San Francisco
Reece Hirsch