Update on 2022 Healthcare Payment Rules

Center for Medicare & Medicaid Publishes Proposed and Final Rules on Medical Reimbursement Rates

The U.S. government is the largest payor of medical costs, through Medicare and Medicaid, and consequently has a strong influence on physician reimbursement. The prevalence of these public payors in the healthcare marketplace often results in their acting as a price setter and being used as a benchmark for private reimbursement rates. Consequently, changes to Medicare and Medicaid payment rates are notable as they may indicate a shift in the greater healthcare reimbursement landscape. Over the summer, the Centers for Medicare & Medicaid Services (CMS) released updated payment rules, either in proposed or final rules, indicating the state of healthcare reimbursement for 2022. This article briefly summarizes each of these payment rules and discusses their significance to healthcare valuation professionals.

The U.S. government is the largest payor of medical costs, through Medicare and Medicaid, and consequently has a strong influence on physician reimbursement. The prevalence of these public payors in the healthcare marketplace often results in their acting as a price setter, and being used as a benchmark for private reimbursement rates. Consequently, changes to Medicare and Medicaid payment rates are notable as they may indicate a shift in the greater healthcare reimbursement landscape.

Over the summer, the Centers for Medicare & Medicaid Services (CMS) released a number of its payment rules, either in proposed or final rules, indicating the state of healthcare reimbursement for 2022. This article briefly summarizes each of these payment rules and discusses their significance to healthcare valuation professionals.

Medicare Physician Fee Schedule (MPFS)

Medicare pays for physician and other health professional services based on a list of services and their payment rates, i.e., the MPFS. Under this fee schedule, CMS determines the payment rate for each service based on various relative value units (RVUs): (1) the work required to provide the service (wRVUs); (2) expenses related to maintaining a medical practice (PE RVUs); and (3) medical malpractice insurance costs (MP RVUs). Those payment rates are adjusted to account for variations in the input prices in different markets, but may also be adjusted based on provider characteristics, additional geographic designations, and other factors.[i]

The 2021 MPFS increased the wRVUs for certain Evaluation and Management (E/M) services. For example, the wRVU values for E/M codes 99202 through 99205 (new office visits) increased by a range of 7% to 13%. More notably, the wRVU values for E/M codes 99212 through 99215 (established office visits) increased by a range of 28% to 46%. As a result, physicians performing the same volume of E/M visits in 2021 as they did in 2020 will produce 7% to 43% more wRVUs in 2021 for those visits. 

Conversion factors are applied to RVUs to become payment rates. The MPFS payment updates for 2021 were particularly notable because of the large reduction in the conversion factor (a nearly 7% reduction from 2020, to $34.89).[ii] The proposed conversion factor for 2022 is $33.58, a decrease of 3.9% from 2021.[iii] This decrease, much of which is due to one-time policy changes implemented by CMS for 2021 that will not carry through to 2022, will help to offset some of the RVU changes, i.e., while certain procedures may have an increased number of wRVUs, the payment rate for reach of those will decrease.[iv]

In addition to payment rate updates, CMS also proposed allowing certain telemedicine services to be covered under Medicare until December 31, 2023, as opposed to the calendar year in which COVID-19 ends.[v] CMS’s goal in extending coverage for these services through 2023 is to alleviate the concerns of patients and providers that services would be ended abruptly, by creating a “glide path” while CMS gathers information and decides whether to add certain telemedicine services permanently.[vi] Additionally, CMS proposed updates to several regulatory restrictions and requirements for telemedicine services, such as permanently allowing rural and underserved Medicare beneficiaries to access telemedicine services from their homes as well as audio-only communication technology when used for the diagnosis, evaluation, or treatment of mental health disorders.[vii]

CMS also proposed changes to non-physician practitioner (NPP) billing regulations, allowing providers such as physician assistants to bill Medicare directly for their services and reassign their rights to payment and benefits to any employer, facility, hospital, or physician group beginning January 1, 2022.[viii] Further, CMS proposes that in evaluation and management settings, the provider who performs the majority of the work during split visits (e.g., a patient visit wherein both a physician and an NPP performs portions of the visit) will bill Medicare, which gives NPPs more autonomy for billing purposes.[ix] Currently, both the physician and the NPP must bill Medicare if the NPP performs a majority of the visit, and the physician will bill Medicare if they perform a substantive portion of the visit or service.[x]

The MPFS final rule will be published in November or December 2021.

Outpatient Prospective Payment System (OPPS)

The OPPS sets payments for individual services provided in hospital outpatient departments (HOPDs) or ambulatory surgery centers (ASCs) using a set of relative weights, a conversion factor, and adjustments for geographic differences in input prices. Providers also can receive additional payments via outlier adjustments for extraordinarily high-cost services and pass-through payments for some new technologies.[xi]

On July 19, 2021, CMS released the proposed rule for OPPS and ASCs for 2022, wherein it proposed increasing OPPS payment rates to HOPDs that meet specific quality reporting criteria by 2.3%.[xii] ASCs that meet the required quality criteria will also receive proposed payment rate increases of 2.3%, by way of the same calculation for OPPS payment rates.[xiii]

Further, the 2022 OPPS proposed rule suggested certain changes to the Hospital Price Transparency Final Rule (Transparency Rule), which requires all U.S. hospitals (effective January 1, 2021) to provide online pricing information in a clear, accessible manner.[xiv] First, CMS proposed to prohibit the use of “blocking codes” or any methods that prevent search engines from displaying pricing in search results to disallow hospitals from embedding code in their webpages to prevent them from being indexed by search engines.[xv] Second, to disincentivize noncompliance, CMS proposed increasing the civil monetary penalties associated with Transparency Rule violations for larger hospitals of 30 beds or more.[xvi]

The final rule will be published in November or December 2021.

Inpatient Prospective Payment System (IPPS)

The IPPS primarily pays hospitals fixed per discharge rates covering operating and capital expenses during an inpatient illness episode, which incentivizes providers to provide efficient, cost-effective care. These per-discharge payments are derived through a series of adjustments applied to those operating and capital base payment rates, which rates are then adjusted to reflect geographic factors, patient case mix, facility characteristics, and other factors.[xvii]

Unlike the MPFS and the OPPS, the IPPS is published on a fiscal year schedule (in contrast to a calendar year schedule). Consequently, CMS published the IPPS final rule for fiscal year (FY) 2022 on August 2, 2021.[xviii] Notably, CMS determined in the final rule that it would be using FY 2019 data to determine inpatient hospital utilization for FY 2022 due to FY 2020 aberrations in the data due to COVID-19.[xix] The final rule includes a 2.5% payment increase for hospitals that report quality data and are meaningful users of electronic health records.[xx] Under the FY 2022 IPPS, hospitals may also see payment reductions for excessive readmissions, 1% payment reductions for the worst-performing quartile of hospitals, and neutral payment adjustments due to CMS suppressing many hospital value-based purchasing program measures during COVID-19.[xxi]

Valuation Implications

These finalized payment rules may have a number of implications for healthcare-related valuations (both of entities and compensation arrangements). For example, the MPFS payment rates have been relatively volatile over the past couple of years due to the changes made in response to the COVID-19 pandemic and CMS’s readjustment of work relative value units, and their allocation among primary care and specialty procedures. These changes have had particularly negative impacts on specialist physicians. While the proposed conversion factor decrease for 2022 may have a less severe effect on specialists than the 2021 conversion factor decrease (with most payment changes increasing or decreasing no more than 2%),[xxii] certain specialties could experience large payment reductions.[xxiii] These reductions reflect budget-neutrality adjustment requirements[xxiv] and increases in clinical labor pricing, which lower payments to specialties that utilize expensive equipment. Conversely, primary care had historic boosts in the 2021 MPFS payment rule, which are anticipated to persist in the CY 2022 proposed fee schedule with payment increases of approximately 1% to 2%.[xxv]

Not only may these changes to the MPFS impact physician practice revenue, it may impact physician compensation valuation engagements. Without any physician compensation adjustments, physicians who primarily bill E/M codes, and who are compensated on a wRVU productivity basis, may earn additional compensation by performing the same, if not less, volume of care.

Additionally, in regard to outpatient hospital payments, the opaque nature of pricing and quality in the U.S. healthcare market has often been viewed as a market failure, preventing consumers from making an educated decision and consequently hindering competition. The Transparency Rule, and the proposed changes to the rule that are intended to ameliorate compliance issues, may serve to “draw back the curtain” on the prices charged by hospitals for outpatient services, fundamentally changing the competitive marketplace, and providing valuation professionals with additional data in the coming years to analyze in determining the fair market value of a subject interest.

Lastly, the expansion of covered services under Medicare (e.g., telemedicine services), may result in additional opportunities for valuation professionals as providers expand their own services, or team up with other providers to provide, and require a valuation to ensure compliance with federal fraud and abuse laws.

 

[i]       “Physician and Other Health Professional Payment System” Medicare Payment Advisory Commission, MedPAC Payment Basics, October 2020, http://medpac.gov/docs/default-source/payment-basics/medpac_payment_basics_20_physician_final_sec.pdf?sfvrsn=0 (Accessed 8/20/21).

[ii]      “Calendar Year (CY) 2022 Medicare Physician Fee Schedule Proposed Rule” Centers for Medicare & Medicaid Services, July 13, 2021, https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2022-medicare-physician-fee-schedule-proposed-rule (Accessed 7/14/21).

[iii]     Ibid.

[iv]     The Consolidated Appropriations Act of 2021 (CAA) increased the conversion factor by 3.75% for 2021 only and suspended the 2% payment adjustment 9sequestration) through March 31, 2021. “Calendar Year (CY) 2022 Medicare Physician Fee Schedule Proposed Rule” Centers for Medicare & Medicaid Services, July 13, 2021, https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2022-medicare-physician-fee-schedule-proposed-rule (Accessed 7/14/21).

[v]      “Calendar Year (CY) 2022 Medicare Physician Fee Schedule Proposed Rule” Centers for Medicare & Medicaid Services, July 13, 2021, https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2022-medicare-physician-fee-schedule-proposed-rule (Accessed 7/14/21).

[vi]     “CMS Proposes Physician Payment Rule to Improve Health Equity, Patient Access” Centers for Medicare & Medicaid Services, July 13, 2021, https://www.cms.gov/newsroom/press-releases/cms-proposes-physician-payment-rule-improve-health-equity-patient-access (Accessed 7/14/21).

[vii]     “Medicare Program; CY 2022 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment Policies; Medicare Shared Savings Program Requirements; etc.” Federal Register, Vol. 86, No. 139, July 23, 2021, https://www.govinfo.gov/content/pkg/FR-2021-07-23/pdf/2021-14973.pdf (Accessed 7/26/21), p. 39224.

[viii]    Ibid., p. 39204–39205.

[ix]     “CMS Proposes Physician Payment Rule to Improve Health Equity, Patient Access” Centers for Medicare & Medicaid Services, July 13, 2021, https://www.cms.gov/newsroom/press-releases/cms-proposes-physician-payment-rule-improve-health-equity-patient-access (Accessed 7/19/21).

[x]      “Medicare Program; CY 2022 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment Policies; Medicare Shared Savings Program Requirements; etc.” Federal Register, Vol. 86, No. 139, July 23, 2021, https://www.govinfo.gov/content/pkg/FR-2021-07-23/pdf/2021-14973.pdf (Accessed 7/26/21), p. 39204-39205.

[xi]     “Outpatient PPS” American Hospital Association, https://www.aha.org/advocacy/current-emerging-payment-models/outpatient-pps (Accessed 8/20/21).

[xii]     Calculated from the proposed hospital inpatient market basket percentage increase of 2.5% minus the proposed productivity adjustment of 0.2%. “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Price Transparency of Hospital Standard Charges; etc.” Centers for Medicare & Medicaid Services, July 19, 2021, unpublished version, https://public-inspection.federalregister.gov/2021-15496.pdf (Accessed 7/20/21), p. 12.

[xiii]    “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Price Transparency of Hospital Standard Charges; etc.” Centers for Medicare & Medicaid Services, July 19, 2021, unpublished version, https://public-inspection.federalregister.gov/2021-15496.pdf (Accessed 7/20/21), p. 15.

[xiv]    “Hospital Price Transparency Final Rule, By Rhonda Sheppard and Terri Postma, Medicare Learning Networking, December 8, 2020, https://www.cms.gov/files/document/2020-12-08-hospital-presentation.pdf (Accessed 7/21/21), p. 4.

[xv]     “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs; Price Transparency of Hospital Standard Charges; etc.” Centers for Medicare & Medicaid Services, July 19, 2021, unpublished version, https://public-inspection.federalregister.gov/2021-15496.pdf (Accessed 7/20/21), p. 749.

[xvi]    “CY 2022 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Proposed Rule (CMS-1753-P)” Centers for Medicare & Medicaid Services, July 19, 2021, https://www.cms.gov/newsroom/fact-sheets/cy-2022-medicare-hospital-outpatient-prospective-payment-system-and-ambulatory-surgical-center (Accessed 7/20/21).

[xvii] “Hospital Acute Inpatient Services Payment System” Medicare Payment Advisory Commission, MedPAC Payment Basics, October 2020, http://medpac.gov/docs/default-source/payment-basics/medpac_payment_basics_20_hospital_final_sec.pdf?sfvrsn=0 (Accessed 8/20/21).

[xviii]   Fiscal Year (FY) 2022 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospital (LTCH) Rates Final Rule (CMS-1752-F)” Centers for Medicare & Medicaid Services, August 2, 2021, https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2022-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-0 (Accessed 8/3/21).

[xix]     Ibid.

[xx]     “Medicare Program: Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long Term Care Hospital Prospective Payment System and Policy Changes and Fiscal Year 2022 Rates; Quality Programs and Medicare Promoting Interoperability Program Requirements for Eligible Hospitals and Critical Access Hospitals; Changes to Medicaid Provider Enrollment; and Changes to the Medicare Shared Savings Program” Federal Register Vol. 86, No. 154, August 13, 2021, https://www.govinfo.gov/content/pkg/FR-2021-08-13/pdf/2021-16519.pdf (Accessed 8/13/21), p. 44790.

[xxi]     Fiscal Year (FY) 2022 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long Term Care Hospital (LTCH) Rates Final Rule (CMS-1752-F)” Centers for Medicare & Medicaid Services, August 2, 2021, https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2022-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-0 (Accessed 8/3/21).

[xxii]  “Medicare Program; CY 2022 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment Policies; Medicare Shared Savings Program Requirements; etc.” Federal Register, Vol. 86, No. 139, July 23, 2021, https://www.govinfo.gov/content/pkg/FR-2021-07-23/pdf/2021-14973.pdf (Accessed 7/26/21), p. 39122-39123.

[xxiii]          Ibid.

[xxiv]  Adjustments must remain budget neutral, which means that if some procedure codes are increased in value so that RVU expenditures differ by more than $20 million annually, other codes must consequently be reduced. “CMS Proposes Cut to ‘Conversion Factor’ in Medicare Physician Fee Schedule” By Joyce Frieden, Med Page Today, July 14, 2021, https://www.medpagetoday.com/practicemanagement/reimbursement/93577 (Accessed 7/19/21).

[xxv]   “Medicare Program; CY 2022 Payment Policies under the Physician Fee Schedule and Other Changes to Part B Payment Policies; Medicare Shared Savings Program Requirements; etc.” Federal Register, Vol. 86, No. 139, July 23, 2021, https://www.govinfo.gov/content/pkg/FR-2021-07-23/pdf/2021-14973.pdf (Accessed 7/26/21), p. 39122-39123.

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Todd A. Zigrang, MBA, MHA, ASA, CVA, FACHE, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.

Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to tzigrang@healthcapital.com.

Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.

Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to jbailey@healthcapital.com.