5 Key Changes in the 2021 Medicare Physician Fee Schedule Final Rule

A final rule updating the physician fee schedule (PFS) rates was issued by The Centers for Medicare and Medicaid Services (CMS) on December 1, 2020. The Final Rule finalizes many of the changes that were included in the Proposed Rule. Among other updates, the new regulation decreases the 2020 conversion factor of $36.09 to $32.41 and increases work relative value units for evaluation and management codes effective January 1, 2020. The significant decrease in the conversion factor is due to the mandate of budget neutrality.

Per CMS, the final rule reflects a broader strategy to “create a healthcare system that results in better accessibility, quality, affordability, empowerment, and innovation.” Additionally, as part of the “Patients Over Paperwork” initiative, CMS is working to reduce unnecessary paperwork and obstacles that prevent providers from spending more quality time with patients. 

The 2021 final rule implements 2020 policy that simplified documentation and addressed the perception of lower reimbursement for primary care services. These changes together can help reduce physician burnout and improve the shortage of primary care physicians. 

There are five key changes that speak to CMS’s stated goals and represent changes for calendar year 2021.

1. Implementation of Revised Office and Outpatient Evaluation and Management (E/M) Codes

In 2019, CMS had proposed collapsing the current 5-level E/M visits into blended rates. However, in 2020, CMS published a return to separate rates for each level and revision to E/M payments to be effective January 1, 2021.  

According to the American Medical Association, the primary aim of the E/M revisions are[1]:

  1. To decrease the administrative burden of documentation and coding.
  2. To decrease the need for audits through the addition and expansion of key definitions and guidelines.
  3. To decrease unnecessary documentation in the medical record that is not needed for patient care.
  4. To ensure that payment for E/M is resource-based and that there is no direct goal for payment redistribution between specialties.

Marking one of the most significant updates to E/M codes in decades, WRVUs for E/M visits will increase substantially in 2021. The table below lists the current work relative value units (WRVUs) time guidelines for each level, illustrating the effective changes in calendar year 2021 compared to 2020.


Due to the conversion factor reduction, reimbursement for these codes does not necessarily align with the increase in WRVUs. The table below summarizes reimbursement variances for these codes. In fact, reimbursement for some of these codes actually decreases. 


The full effect of these changes will be dependent on the mix of services billed. Specialties that largely use E/M codes will likely see the largest increases. Examples include family practice and hematology/oncology. Those specialties with few E/M codes, like radiology and pathology, will likely see pay cuts. 

2. E/M Documentation Changes

There were no substantial changes in the final rule related to the E/M documentation guidelines for the aforementioned codes that are effective January 1, 2021. The days of using history and exam elements to define E/M codes have gone in favor of medical decision making (“MDM”) or time, which will also consider the provider’s preparation and follow up time. These changes further CMS’s effort to “reduce administrative burden, improve payment accuracy, and update the O/O E/M visit code set to better reflect the current practice of medicine.”

3. Expands Telehealth Services

The COVID- 19 public health emergency (PHE) brought on a historic telehealth expansion. In the 2021 final rule, CMS added over 60 services to the Medicare telehealth list. CMS also added additional services such as emergency department visits and physical therapy to remain in place through the calendar year in which the PHE ends. This allows rurally located Medicare beneficiaries greater access to care. In addition, CMS will continue to study telehealth opportunities. CMS has also clarified that direct supervision includes the virtual presence of the supervising provider through interactive audio and video through the end of 2021.

4. Non-Physician Provider (NPP) Scope of Practice

The final rule makes permanent policies implemented during the COVID 19 PHE to allow nurse practitioners, clinical nurse specialists, physician assistants, and certified nurse-midwives to supervise the performance of diagnostic tests within their scope of practice and state law.

5. Medicare Shared Savings Program

The final rule finalizes changes to the quality performance standards and reporting requirements for the 2021 performance year to align with Meaningful Measures.

Key Takeaways 

CMS is clear in its efforts to reduce administrative and oversight burden through measures to simplify and better align some elements of MPFS. In preparation for these changes, we recommend doing the following:

  1. Perform a prospective financial analysis related to the change in WRVU values and reimbursement.
  2. Review physician contracts and compensation models based on WRVUs and professional collections, as there is potential for significant unintended swings in compensation based on reimbursement and WRVU changes which could unintentionally create fair market value risks.
  3. Consider the benchmarks that are used for physician compensation and production. Published surveys related to physician compensation and production are typically based on prior year data. Understanding these surveys and the metrics reported will be crucial during this transition period.

The CMS Final Rule and additional updates can be found on the CMS website. 

The next blog in this series will discuss physician compensation and fair market value impacts as a result of these changes in more detail. 

If you have questions about the Final Rule and how it may affect your business, HORNE can help.  Contact us online or email us at HORNE.Healthcare@hornellp.com.

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[1] https://www.ama-assn.org/practice-management/cpt/cpt-evaluation-and-management

[2] List separately in addition to 99205 and 99215 for each additional 15 minutes.

[3] List separately in addition to office/outpatient evaluation and management visit.

Topics: Medicare, Physician Compensation

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