Covid
The pandemic followed by the change in the Medicare Physician Fee Schedule in 2021 had some significant effects on physician compensation plans. According to a survey published by Pinnacle Healthcare Consulting, approximately 75% of health systems froze physician compensation in 2020 at no less than 90% of the physicians’ aggregate 2019 compensation.
With the simultaneous freezing of compensation to hold providers at pre-pandemic levels along with falling production due to the forced closure of non-emergent facilities, extended bans on elective procedures, and slow recovery or declining patient demand, benchmark data for 2020 is and will be complicated to decipher.
Applying this to an annual salary survey, annual metrics for compensation remained relatively steady while annual metrics for production (e.g., work relative value units (“wRVUs”) and collections) declined. The result of these circumstances is a distortion between provider compensation and production data. Of note, when using both compensation and production data for benchmarking purposes, a material change to one of these “input (i.e., annual) metrics” particularly affects the resultant “relational metrics”. For example, in the instance of Covid, when compensation remains level but production declines, the resulting compensation per wRVU shows a notable spike.
The following is a brief example of how the benchmarks would report 2020 compensation data:
| 2019 | 2020 | ||||
| Compensation | $500,000 | $450,000 | A | 90% of 2019 Compensation | |
| wRVUs | 8,000 | 6,000 | B | 75% of 2019 levels | |
| Compensation per wRVU | $62.50 | $75 | C = A / B | 20% increase |
A review of the recently published Medical Group Management Association (“MGMA”) 2021 Compensation and Production Survey confirmed these calculations as fact. While the number of respondents has decreased limiting comparability, aggregate compensation for all specialties remained flat to slightly higher along all percentiles. Conversely, wRVU levels dropped as much as 20% resulting in reported compensation per wRVU 10% to 20% higher than reported in the MGMA 2020 Compensation and Production Survey.
From a valuation perspective, fair market value (“FMV”) is set at the total annual compensation level as opposed to compensation per wRVU. The relational metric is used in compensation plans to allow a physician to earn fair market value compensation based on productivity. Using the above example, if compensation per wRVU were adjusted to the new benchmark data, and cases increase to pre-pandemic levels, then aggregate compensation would increase to $600,000 (i.e., 8,000 wRVUs times $75 per wRVU), a 20% increase over 2019 levels in 2021 for the same work performed. A study performed by Pinnacle Healthcare Consulting of both benchmark data and its proprietary database of physician compensation arrangements results in annual compensation changes for more specialties between 2.0% and 2.5% per year. In addition, other benchmarks such as physician losses may be unduly impacted as a result of Covid due to the same freezes in compensation and a decline in volume and revenue.
As a result of these collective facts, care must be taken in reviewing and utilizing 2021 provider benchmarks for fair market value review, performance evaluation, or other purposes, as they are based on 2020 data. While year over year changes can exist within the surveys, the unprecedented closures and societal impact of Covid-19 created a unique “force-majeure-like” effect on typically reliable benchmark metrics. To-date, many of the recognized benchmark provider surveys have not released their 2021 reports.
Medicare Physician Fee Schedule
To adequately reward providers for the increased time necessary to document certain levels of patient care, Medicare adjusted the physician time spent on certain procedures, effectively adjusting the wRVUs assigned to those procedures under the 2021 Medicare Physician Fee Schedule (“MPFS”). Some of the revenue impact was mitigated through a decrease in the conversion factor from $36.09 in 2020 to $34.89 in 2021, a 3.3% reduction.
| HCPCS Code | 2020 wRVU | 2021 wRVU | wRVU Change | wRVU % Change | 2020 Min per Visit | 2021 Min per Visit |
| 99201 | 0.48 | Eliminated | 17 | |||
| 99202 | 0.93 | 0.93 | 0 | 0% | 22 | 20 |
| 99203 | 1.42 | 1.60 | 0.18 | 13% | 29 | 35 |
| 99204 | 2.43 | 2.60 | 0.17 | 7% | 45 | 60 |
| 99205 | 3.17 | 3.50 | 0.33 | 10% | 67 | 88 |
| 99211 | 0.18 | 0.18 | 0 | 0% | 7 | 7 |
| 99212 | 0.48 | 0.70 | 0.22 | 46% | 16 | 16 |
| 99213 | 0.97 | 1.30 | 0.33 | 34% | 23 | 30 |
| 99214 | 1.50 | 1.92 | 0.42 | 28% | 40 | 47 |
| 99215 | 2.11 | 2.80 | 0.69 | 33% | 55 | 70 |
As a result, the expected number of wRVUs accumulated for performing the same level of patient visits will increase. A study performed by Pinnacle Healthcare Consulting determined that primary care physicians will achieve a 20% increase in wRVUs, while most specialists will achieve a 5% to 10% increase in wRVUs over 2019 levels in 2021 if pre-pandemic patient volumes are achieved.
Impact to Emergency Department E&M Codes
| CPT | Description | 2020 wRVU | 2021 wRVU | % Change | 2020 Payment | 2021 Payment | % Change |
| 99283 | Emergency department visit, moderate complexity, problem focused history and exam. | 1.42 | 1.6 | 13% | $66.40 | $72.93 | 10% |
| 99284 | Emergency department visit, moderate complexity, detailed history and examination. | 2.6 | 2.74 | 5% | $121.98 | $123.87 | 2% |
| 99285 | Emergency department visit, high complexity. | 3.8 | 4.0 | 5% | $177.20 | $180.75 | 2% |
Impact to Telemedicine Codes
| CPT | Description | 2020 wRVU | 2021 wRVU | % Change | 2020 Payment | 2021 Payment | % Change |
| 99441 | Telephone E&M service, 5-10 minutes. | .25 | .7 | 180% | $14.44 | $56.88 | 294% |
| 99442 | Telephone E&M service, 11-20 minutes. | .5 | 1.3 | 160% | $28.15 | $92.82 | 230% |
| 99443 | Telephone E&M service, 21-30 minutes. | .75 | 1.92 | 156% | $41.14 | $131.55 | 220% |
According to a survey performed by Pinnacle, in light of Covid and the MPFS change, a majority of health systems have frozen the compensation per wRVU under their compensation plans and determine the number of wRVUs achieved by physicians in 2021 based on the 2020 MPFS. While the hospitals have made this operational decision, Pinnacle believes that the benchmarks will report wRVUs achieved in 2021 based on the 2021 MPFS.
The following is an example of the effect on the MPFS change on physician compensation:
| 2020 | 2021 | ||||
| Compensation | $450,000 | $450,000 | A | ||
| wRVUs | 6,000 | 6,900 | B | 15% increase | |
| Compensation per wRVU | $75.00 | $65.22 | C = A / B | 13% decrease |
The same study indicates that Medicare reimbursement will increase at approximately 50% to 60% of the corresponding increase in wRVUs. For example, if primary care wRVUs increase 20%, Medicare collections will only increase 10% to 12%.
Note that the operational decision to use prior year operational metrics as opposed to moving to current year operational metrics does not per se make the compensation earned in 2021 fair market value. In fact, Medicare, by adjusting the MPFS, has sent a message that physicians should earn more because of the amount of work required. It will be critical to understand what other payors do in response to the adjustments to Medicare (e.g., whether managed care payors also increase remuneration for E&M visits).
Overall, a study performed by Pinnacle Healthcare Consulting calculates a 1% to 3% increase in compensation based on changes in wRVUs, changes in Medicare reimbursement, and overall case mix and payor mix of the physician.
A Dive into the Covid Issues
In addition to its typical array of various provider benchmarks, MGMA published a summary aimed to address the impact of Covid, entitled “Quantifying Covid-19 – Measuring the Pandemic’s Impact on Medical Practices” in conjunction with the release of its 2021 Compensation and Production Survey. The overview summarized MGMA’s collection of monthly data during calendar year (“CY”) 2020 to quantify the impact of Covid. Respondent sample varied from month to month and while there are some interesting observations related to the respondent pool, some overarching themes underscore what the industry recognized from a high-level standpoint. In particular, MGMA highlighted some specific statistics related to declining volume, including the fact that 71% of practices reported a drop in patient volume of 50% or more (by early April 2020) and that work RVUs hit their lowest level in April 2020. MGMA further reports that by June 2020, volumes began to rebound, with nonsurgical specialists reporting the largest decrease and increase, respectively.
In addition to commentary on decreased volume, MGMA’s summary also references the fact that providers’ type of compensation model affected the impact on overall compensation levels (i.e., guaranteed salary vs. production-based models). In addition to the freezes on provider compensation referenced herein (i.e., for practices affiliated with health systems), MGMA also highlights that fact that some provider compensation within medical practices was paid through Paycheck Protection Program (“PPP”) loans, Health and Human Services (“HHS”) stimulus funds, or other government relief efforts. Further, MGMA emphasizes the expense side of the equation, pointing out that the demand for cleaning supplies and personal protective equipment (“PPE”) spiked in 2020, resulting in increased costs during a time when revenue and patient volume were on the decline. These factors, which increased operating costs, further exacerbated the impact on declining collections during the pandemic.
Interestingly, MGMA points out that not all the news with medical practices was negative. They report that while PPE costs increased, some practices curtailed spending in other areas and decreased in-person visits to mitigate the impact on rising operating expenses. In addition, MGMA highlighted the fact that many practices addressed declining patient volumes with initiatives that included pivoting to telehealth, revisiting payment and collections policies, and enhancing patient communication through practice website and social media tools. One issue, however, whose impact is yet to be seen in changes to survey data is that MGMA indirectly stresses the overall influence on an already-strained physician supply. Specifically, they report that 28% of healthcare leaders reported unexpected physician retirement in the past year. While that fact may not have a direct influence on 2020 data, the effects of Covid could continue to influence data in years to come.
With regard to its 2021 survey, MGMA has commented that it has not made any adjustments to the 2020 data to account for the pandemic. MGMA specifically stated that it collected and reported on the 2021 surveys (based on 2020 data) in the same manner as previous years. MGMA does, however, state that it recommends referring to both the 2020 MGMA survey and the 2021 MGMA survey for data review purposes.
While the industry has known there would be some measure of impact to 2020 provider compensation and production data, the issue becomes how to adjust or normalize the information to support compliant arrangements and leadership decision-making given survey reporting of actual (i.e., unadjusted for Covid) data. Further complicating matters in addition to the pandemic, changes in the 2021 MPFS on both work RVU values and reimbursement has added additional complexities on go-forward performance projections, contract language, physician expectations, and sustainable arrangements.
Specifically, as many in healthcare have been tracking, the Centers for Medicare & Medicaid Services (“CMS”) released the 2021 MPFS which contained key changes to E&M coding and documentation requirements. These changes have substantial compliance, coding and documentation, reimbursement, and compensation plan administration implications, including a notable impact on organizations that compensate physicians on a productivity model. Thus, many healthcare organizations have been assessing how they should best respond to the new rule.
Based on the changes in the 2021 MPFS, a few key observations are apparent, including the fact that physicians who are compensated on a per work RVU model may earn higher or lower compensation under the 2021 MPFS. Specifically, physicians billing a notable amount of E&M codes on a work RVU model may meet their production threshold more quickly than in prior years. Furthermore, hospitals and employers may receive less reimbursement and thus greater losses unless changes are made to physician agreements (i.e., particularly with rising physician compensation). In addition, due to increased amounts of work RVUs under the new MPFS, physician compensation per work RVU may decrease if compensation remains similar to prior years.
Because of these dynamics, some hospitals are considering adjustments to their physician arrangements to mitigate losses resulting from an environment characterized by rising physician compensation (i.e., due to increased work RVUs under the new MPFS) versus less incremental reimbursement. Specifically, some hospitals are considering adjustments to physician compensation terms including increases in work RVU production thresholds and/or decreases in compensation per work RVU conversion rates. These same entities are also considering alternative forms of compensation to support specialists through affiliation agreements.
In addition to these types of contractual changes, many hospitals and medical groups have been in the process of determining a response for purposes of physician compensation plan administration. For instance, many organizations have been considering the various options for purposes of administering their contracts, including (i) retaining the 2020 work RVU values, (ii) implementing the 2021 work RVU values and absorbing the impact of the changes to reimbursement, (iii) implementing the 2021 work RVU values but adjusting the compensation per work RVU rate to offset the impact of the changes, (iv) moving away from a work RVU structure, or (v) awaiting further legislation.
Furthermore, some entities plan to make any changes quickly whereas others have yet to enter the planning phase to address the updates. While most organizations have yet to make a definitive plan for how they will move forward, many are working to quantify the size of the impact, evaluate alternatives, or are seeking recommendations from internal or outside resources such as legal counsel and consultants.
Observations & Takeaways
The simultaneously dual issues of navigating the aftereffects of Covid and its impact of provider benchmark data as well as changes to the MPFS have created a challenging environment in which to assess and determine appropriate provider compensation. Given the importance of doing so in light of regulatory risk and the requirements of fair market value and commercial reasonableness, several key takeaways merit mentioning.
In addition to MGMA’s commentary on the matter, a preliminary review of the data to assess year over year and multi-year trends on compensation, production, and resulting relational metrics reveals some key considerations. Specifically, the MGMA data indicates findings consistent with the trends described herein – consistent annual compensation with a notable decline in production on both work RVU and collections bases. The result of these dynamics is the predictable outcome on relational metrics – an inordinate spike on the data, including compensation per work RVU and compensation as a percent of collections. These results reflect the emergency-like status of 2020 given the effects of Covid – while patient volume declined, total compensation was favorably supported (through both health system affiliations and government relief efforts) to promote provider retention and long-term continuity of patient care.
Given the unique status of 2020 as a societal health crisis, the effect on provider data reflects somewhat artificial results. Unless reviewed in isolation (i.e., comparing 2020 production amongst like providers), reliance on 2021 surveys – particularly for relational metrics such as compensation per work RVU – could pose an area of risk. Many health systems are already discussing ways to best address these factors within their organizations and agree that their organizations recognize the impact in methodology review and the need for adjustments in data use and physician discussions. Some approaches include:
- blending multiple years of data with 2021 survey data (e.g., three-year average),
- performing a comparison to 2020 survey data,
- utilizing 2020 survey data with a time adjustment (e.g., average year-over-year-growth for at least the previous five-year period), and
- utilizing 2020 survey data with an adjustment for the 2020 MPFS.
Furthermore, many health systems are also concurrently analyzing the changes to the MPFS, including impact assessments to evaluate the impact of the MPFS changes and to make recommendations for relevant physician compensation plans. These analyses review the impact to both work RVUs and reimbursement based on the specialties and case mix of individual providers and/or groups.
In the interim, healthcare entities should exercise prudence in utilizing 2021 provider benchmark surveys. Given the unique circumstances, these resources may not provide adequate stand-alone decision support for application to compensation agreements. Not only are the consequences of Covid affecting the results, but organizations must also take care when using benchmark data without consideration of the impact of the MPFS changes as doing so may result in compensation that runs afoul of regulatory requirements. Organizations must understand the magnitude of the pandemic and MPFS changes and their impact on physician arrangements and continue thoughtfulness in communication strategies with physician groups, including rationale for any adjustments, as well as the impact on the industry and efforts to evaluate ongoing compliance. While many factors have changed over the last year, the approach to provider arrangements must continue to be supported by fair market value and commercial reasonableness.
A special thank you to the following authors of this in-depth article.
