The CY 2024 Physician Fee Schedule Proposed Reg: The Good, the Bad and the Ugly (July 20, 2023) - McDermott+Consulting

The CY 2024 Physician Fee Schedule Proposed Reg: The Good, the Bad and the Ugly (July 20, 2023)

The CY 2024 Physician Fee Schedule Proposed Reg: The Good, the Bad and the Ugly

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July 20, 2023 – Last week, the Centers for Medicare & Medicaid Services (CMS) released the two major regulations we all were waiting for: the Calendar Year (CY) 2024 Physician Fee Schedule (PFS) proposed reg and the CY 2024 Outpatient Prospective Payment System (OPPS) proposed reg.

McDermottPlus has summarized each of these massive regs. Our PFS summary can be found here, and our OPPS summary can be found here. For this week’s Regs & Eggs, my colleague Kristen O’Brien and I thought it would be useful to highlight some of the key proposals in the PFS. Next week, I’ll do the same for the OPPS rule.

Since the PFS is a large and (let’s face it) very messy reg, Kristen and I will break down the PFS Wild-West style: separating out the good, the bad and the ugly proposals. While countless proposals could fit in these three buckets, here are some of the major ones:

The Good

  • Four Delayed Policies: As mentioned in a previous blog post, Congress has a tendency to kick the can down the road when it comes to the PFS, often delaying cuts and other costly policies into the future. CMS seems to have taken a page from Congress’s playbook in this reg and decided to propose a host of delays to several impactful policies.

These delays include the following:

  • Appropriate Use Criteria Program: Established in the Protecting Access to Medicare Act (PAMA) of 2014, the Appropriate Use Criteria (AUC) Program would have required practitioners to consult an AUC using a qualified clinical decision support mechanism before ordering an advanced diagnostic imaging service for a Medicare beneficiary. The program’s purpose was to require clinicians to check whether ordering an advanced imaging service was clinically appropriate in order to avoid ordering “unnecessary” services. However, many stakeholders believed that this program would delay necessary care, add administrative burden and be duplicative of other CMS initiatives that are aimed at reducing costs. CMS seemed to agree with these concerns and continued to delay the full implementation of this program year after year. Under PAMA, the program was supposed to go into effect in 2017, but the delays kept piling up—creating a level of uncertainty about when, if ever, the burdensome requirements of the program would actually start. Finally, in this year’s reg, CMS said enough is enough, and decided to delay the program indefinitely.
  • Split/Shared Services: Many physician groups that practice in hospitals and other facilities were waiting with bated breath to see what CMS would do with respect to split/shared services. These services occur when a physician and a non-physician practitioner are both involved in delivering an evaluation and management (E/M) service. Under Medicare, a service can only be billed by one clinician, and if non-physician practitioners bill for a service, they only receive 85% of the total Medicare rate. The major issue around split/shared services is deciding who provides the “substantive” portion of the service and can therefore bill for it. In the CY 2022 PFS final rule, CMS created a policy that provided some flexibility for how that decision could be made. Specifically, the clinician who performed the history and physical exam, the clinician who performed the medical decision-making (MDM), or the clinician who spent more than half of the total time spent with the patient could be selected as the clinician who provided the substantive portion of the split/shared service. In the future, however, CMS planned to only allow the third option (time) to be used for the purposes of determining the substantive portion of a split/shared service. Many physician specialty societies strongly opposed using only time to determine the substantive portion of a split/shared services. As Regs & Eggs described previously, time spent with a patient doesn’t necessarily dictate who provided the substantive portion of the service. Further, the time that a physician and a non-physician practitioner each spends with a patient isn’t really equivalent. CMS decided last year to delay the transition to time-only until 2024, and in this year’s reg, CMS again proposes to delay the transition until 2025. Therefore, CMS plans to continue to allow clinicians to use the history and physical exam, the MDM or more than half of the total time spent with a patient to determine the substantive portion of split/shared E/M services in CY 2024.
  • Revising the Medicare Economic Index: The Medicare Economic Index (MEI) measures the increased cost each year of providing physician services. While it is not used to update payments under the PFS (although we would argue that it would be very reasonable to increase PFS payments by an inflationary factor such as the MEI), the components of the MEI are usually used by CMS to determine the weight of each of the three factors of PFS relative value units (RVUs): work, practice expense and malpractice. While this may seem very technical and in the weeds, it’s very important. The work, practice expense and malpractice RVUs each have a specific weight, which when combined, determine how many RVUs are assigned to a specific service. If a particular service is concentrated on the work RVU, then having a higher weight for the work RVU and a lower weight for the practice expense and malpractice RVUs would be beneficial.

In last year’s reg, CMS decided to rebase the MEI using more recently available data. However, that analysis produced an MEI that more heavily weighted the practice expense component at the expense of the other two components. If CMS had decided to revise the RVU weights to align with the rebased MEI, then all the codes that had high work RVUs but lower practice expense RVUs would have decreased. Many specialists that work in facilities provide services that have high work RVUs but lower practice expense RVUs. Therefore, if CMS had adopted the policy, overall payments for these specialists (emergency physicians, surgeons, anesthesiologists, etc.) would have decreased significantly. Fortunately, CMS decided not to revise the RVU weights in last year’s reg, and in this year’s reg again decided NOT to propose revisions to the RVU weights.

  • Electronic Prescribing for Controlled Substances: Over the last few PFS regs, CMS has implemented a provision in the Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act that requires electronic prescribing of controlled substances under Medicare Part D. CMS has mandated that clinicians electronically order at least 70% of eligible prescriptions, with some exceptions in the case of national disasters or other emergencies. CMS also has decided not to penalize clinicians who don’t meet this requirement, and instead only warn them by issuing noncompliance letters. While stakeholders have appreciated this flexibility, CMS has stated in previous regs that it may consider financial penalties going forward. Fortunately, in this year’s reg, CMS seems to have changed its tune and proposes to continue its policy of not imposing financial penalties to clinicians. CMS will only issue notices of noncompliance for the foreseeable future.

All in all, we’ll take these proposed delays as victories in this year’s reg. But remember, the split/shared service delay and the MEI rebasing delay are only temporary, and these policies are likely to rear their ugly heads in next year’s reg.

  • Health-Related Social Needs and Behavioral Health: It has been well-documented that social risk factors play a significant role in individuals’ overall physical and mental health, and clinicians spend a lot of time helping patients navigate these challenges, with limited resources. To CMS’s credit, the agency recognizes this, and proposes new codes and payment for community health integration services, social determinants of health risk assessment, and principal illness navigation services provided by social workers, community health workers and other auxiliary personnel. CMS also proposes to expand access to, and address shortages of, behavioral services and health providers by providing Medicare Part B coverage and payment for the services of marriage and family therapists and mental health counselors, introducing new codes for psychotherapy for crisis services, and expanding the list of eligible clinicians who can bill for health behavior assessment and intervention services.
  • Telehealth Policies: We would classify the proposed telehealth changes as “goodish,” as CMS recognizes the need to better address coverage for telehealth but continues to assert that it will review the progress of telehealth in the future. CMS also did not address a slew of new telehealth codes that have been making their way through the CPT/RUC process, which leaves questions open as to how the agency will handle the codes down the road.
    • Revised Process for Adding New Codes to Medicare Telehealth List: CMS proposes, at long last, to reform a confusing process for adding new services to the Medicare Telehealth List. Currently, CMS adds services to the list based on two permanent categories (Categories 1 and 2) and one temporary category (Category 3). The temporary category was established during the COVID-19 public health emergency, and the plan was to eventually eliminate Category 3 and assess whether the services temporarily added to the list during the PHE should be permanently added based on a Category 1 or Category 2 review. Services added to the Medicare Telehealth List on a Category 1 basis are similar to services that are already permanently on the list, such as office-based services. Category 2, which applies to non-office-based services, involves a review of peer-reviewed literature that proves whether the service, when provided via telehealth, improves quality and reduces costs. Category 2 is a nearly impossible bar to meet, and not many (if any) codes have been added to the Medicare Telehealth List based on a Category 2 review. Case in point: CMS received several codes in this year’s reg to add permanently based on Category 2 review and did not add any.

Fortunately, CMS proposes to eliminate the three categories and replace them with a unified process for adding new codes to the Medicare Telehealth List either temporarily or permanently. All services must meet the following criteria:

  1. Be separately payable under the PFS
  2. Include elements that, when delivered via telehealth, are a substitute for an in-person, face-to-face encounter
  3. Be provided using an interactive telecommunications system
  4. Perform similarly, when provided via telehealth, to services that are already on the list of approved telehealth services
  5. Have an equivalent clinical benefit regardless of whether the service is delivered via telehealth or in-person

Services that meet the first three criteria can be added on a temporary basis to the Medicare Telehealth List. However, CMS still needs to see data showing the clinical benefit of providing a service via telehealth before it will add the service permanently to the list.

  • Facility Versus Non-Facility Payment Rates: Also in the “goodish” category, CMS proposes to allow the higher non-facility payment rate for telehealth services that are performed for patients located at their homes. These services would be billed under the place of service (POS) code 10. However, much to the dismay of telehealth advocates, CMS proposes to return to its pre-pandemic policy of paying the lower facility-based rate for all telehealth services in which patients are not located in their home (and instead are located at a physician’s office or hospital, for example). CMS believes that the cost of providing the telehealth service, as reflected in the practice expense RVUs, is more accurately reflected by the non-facility rate. Clinicians would be required to use POS 02 for these telehealth services.
  • Alignment with Consolidated Appropriations Act, 2023: As expected, CMS proposes policies to align with the Consolidated Appropriations Act, 2023 (CAA, 2023), that delayed the following until 2025: the in-person requirement for mental health telehealth services, the Medicare originating site and geographic restrictions (which forced patients to go to a facility in rural area to receive a telehealth service), and coverage of audio-only services for services on the Medicare Telehealth List. These proposals are generally all good news, but also are mainly policies that Congress addressed rather than proposals that signal where the agency stands on making more permanent changes.
  • Other Temporary Extensions: In another win for telehealth advocates, CMS proposes to continue its suspension of frequency limitations for certain subsequent inpatient visits, subsequent nursing facility visits and critical care consultations furnished via telehealth. CMS also continues to be flexible with respect to its supervision requirements, allowing physicians to supervise services delivered by non-physician practitioners remotely and teaching physicians to supervise residents remotely in both urban and rural areas.

The Bad

Switching gears, we are going to wrap up the blog post by talking about two harmful sets of policies—one set “bad” and the other set truly “ugly.”

  • The Quality Payment Program: The Quality Payment Program (QPP), the quality and cost performance program for clinicians in Medicare, includes two tracks: the Merit-based Incentive Payment System (MIPS) and the Advanced Alternative Payment Models (APMs). The majority of clinicians are currently in MIPS, but CMS’s goal has always been to help transition clinicians into Advanced APMs.

In the PFS proposed reg, CMS introduces policies that will make MIPS more challenging and at the same time reduce the incentive for clinicians to move into Advanced APMs. With respect to MIPS, CMS proposes to increase the performance threshold (the point threshold that determines whether a clinician will receive a bonus or a penalty) to 82 points. The threshold has been 75 points the last two years. Since the 2019 performance period, clinicians have been able to claim a hardship exemption due to COVID-19. That exemption may not be available in 2024. Thus, CMS would raise the bar for MIPS at a time when many clinicians are just starting to readjust to the post COVID-19 era, with potentially no exemptions. CMS also proposes some other problematic MIPS policies, such as increasing the data completeness criteria threshold to at least 80% for the CY 2027 performance period/2029 MIPS payment year and lengthening the Promoting Interoperability Category performance period from 90 to 180 days.

CMS itself agrees that most clinicians won’t be able to meet the proposed new MIPS performance threshold. In fact, CMS estimates that 54% of clinicians would receive a penalty in 2026 based on their performance in 2024 (remember, there is a two-year time lag between the performance period and the year in which clinicians receive a bonus or penalty based on their performance). If CMS didn’t introduce this or other more challenging requirements for MIPS in CY 2024, CMS estimates that only 35% of clinicians would receive a negative adjustment (which is still high!) In all, the introduction of the CY 2024 MIPS proposals would result in about 145,000 more clinicians receiving a negative adjustment than if CMS decided to maintain the status quo. The average negative adjustment is expected to be -2.4%.

Now, if clinicians could avoid MIPS by easily transitioning to an Advanced APM, there wouldn’t be much of a problem with these new MIPS requirements. However, transitioning to an Advanced APM still isn’t an option for the majority of specialists, who simply don’t have an opportunity to participate directly in an Advanced APM. Further, not all clinicians in Advanced APMs can avoid MIPS. In order to be exempt from MIPS and qualify for an Advanced APM bonus, clinicians must provide at least a certain percentage of their payments or care for a certain percentage of their patients through the Advanced APM. Clinicians who meet this threshold are called qualifying APM participants (QPs). Since the inception of the QPP, QP status has been determined at the Advanced APM entity level rather than at the individual clinician level. Over the last few years, CMS has heard that this policy may have discouraged some APM entities from including certain types of clinicians who they believed did not contribute significantly to the APM. Thus, CMS has reconsidered its current policy to make most QP determinations at the APM entity level and instead proposes that, beginning with the QP performance period for CY 2024, it would make all QP determinations at the individual level.

Making all the QP determinations at the individual level, in our view, would make it very difficult for many clinicians, especially specialists, to meet the QP thresholds. The QP thresholds are determined by law. The CAA, 2023, extended the QP thresholds of 50% for the payment amount method and 35% for the patient count method through performance year 2023 (payment year 2025). However, starting in performance year 2024 (payment year 2026), the QP thresholds are set to increase to 75% for the payment amount method and 50% for the patient count method. With CMS’s proposed change, it would be exceedingly hard for individual physicians to meet these high thresholds, especially those that see patients in different healthcare settings.

To make matters worse, even if an individual clinician were to reach the QP threshold in performance year 2024, there really isn’t much of an incentive to being in Advanced APM. Under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which established the QPP, there is a slightly higher PFS conversion factor starting in performance year 2024/payment year 2026 for QPs than for other clinicians: 0.75% versus 0.25%. A 0.75% payment increase is a far cry from the 5% payment bonus that MACRA initially provided for being a QP—and therefore a much more muted incentive for clinicians to make what could be a very challenging transition to an Advanced APM. It remains to be seen whether Congress will further extend this bonus, as it did last year, albeit at a reduced bonus amount of only 3.5%.

The Ugly

  • PFS Conversion Factor: Unfortunately, as we expected, CMS proposes a large cut to the PFS conversion factor (CF)—the factor that translates RVUs into a dollar amount. CMS proposes a 2024 CF of $32.7476, representing a 3.36% reduction from the 2023 physician CF of $33.8872, and a 2024 anesthesia CF of $20.4370, representing a 3.26% reduction from the 2023 anesthesia CF of $21.1249. The CF cut stems from three overarching elements: a 0% update for CY 2024 that was established under MACRA, a temporary congressional fix that yields a 1.25% reduction to the CF in CY 2024, and a budget neutrality adjustment of 2.17%.

Of the 2.17% budget neutrality cut, 90% (i.e., a negative impact of roughly 2%) comes from one proposed policy: CMS’s intention to go forward with the introduction of a new add-on code for complexity. As background, in the CY 2021 PFS final reg, CMS implemented a new add-on code for complex patients, G2211, that could be reported with office and outpatient (O/O) E/M codes. The primary policy goal of G2211 was 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 that G2211 would be reported with 90% of all O/O E/M visits claims, which account for a significant portion (approximately 20%) of total PFS spending. Given this initial extremely high utilization assumption, G2211 had a significant effect on budget neutrality. Overall, G2211 accounted for an estimated increase in PFS spending of $3.3 billion and a corresponding 3% cut to the CY 2021 PFS CF. Because of the potential reduction in payments for physicians who do not typically bill O/O E/M visit codes, Congress delayed the implementation of G2211 until CY 2024.

CMS has proposed that G2211 will go into effect as expected on January 1, 2024. However, CMS proposes to institute several policy refinements to G2211 that would result in a less significant negative budget neutrality adjustment. Mainly, CMS revised its assumption for how often G2211 would be billed alongside an O/O E/M visit code. CMS received significant feedback on this assumption, with some stakeholders arguing that many practitioners deliver care in settings designed to address acute conditions that do not require the type of care coordination and follow-up that G2211 is intended to capture. Further, CMS does not believe that G2211 should be reported if care is delivered by a provider who does not have an ongoing relationship with the patient. Considering stakeholder feedback, the uptake of new codes in prior years and the billing patterns of all specialties, CMS significantly revised its previous 90% utilization assumption in the proposed rule. CMS now estimates that G2211 would be billed with 38% of all O/O E/M visit claims initially. CMS estimates that when fully adopted after several years, G2211 would be billed with 54% of all O/O E/M visit claims.

Despite CMS decreasing its prior utilization assumption from 90% to 38% (and eventually 54%), G2211 would still drive a 2% payment reduction to overall PFS spending for CY 2024. While this is better than a 3% cut, it still would really harm clinicians, especially those that don’t typically bill O/O E/M visits.

Thus, clinicians may have to turn to Congress again for relief. A 3.36% cut to the CF coupled with a more challenging quality reporting program that could cut more than half of MIPS participants is simply untenable as the cost of providing services continues to grow significantly (CMS estimates the MEI in 2024 to be 4.5%) and staffing and supply shortages worsen.

We are sorry to end on a down note, but navigating the PFS is really like being in the Wild, Wild West, and there can be some tough realities we need to face! With respect to the question many of you may be asking (“do the good proposals in the reg outweigh the bad and the ugly?”), we will leave that for you to determine . . . but in our view, the bad and the ugly proposals in the reg are definitely tough pills for any hardworking clinician to swallow.

Until next week, this is Jeffrey (and Kristen) saying, enjoy reading regs with your eggs.

For more information, please contact Jeffrey Davis. To access the full archive of Regs & Eggs, visit the American College of Emergency Physicians.

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