Interpreting the Medicare Physician Fee Schedule Proposed Rule for 2023

In July, the Centers for Medicare and Medicaid Services (CMS) released its initial proposal for changes to the 2023 Physician Fee Schedule. The most notable change is a 4.4 percent reduction in the conversion factor from $34.61 in 2022 to $33.08 in 2023. While there are several components to Medicare’s payment methodology, the conversion factor has the largest impact on overall payment, as it is applied to all relative value unit components as well as geographic adjustments.

To gauge the impact a provider needs to understand how payments are calculated and the relevance of each component in the calculation:

CMS Reimbursement Methodology

The following formula determines how much a provider is paid for services they render:

CF * ([ wRVU * w GPCI] + [ peRVU * pe GPCI] + [mpRVU * mp GPCI])

CF = Conversion Factor

RVU = Relative Value Units are broken down into three distinct categories: work, practice expenses, and malpractice. Each CPT submitted on a claim representing a service that was rendered has different relative value units for each of those three components.

wRVU = Relative value units associated with the amount of work that corresponds to a particular service rendered.

peRVU = Relative value units associated with the corresponding practice expenses of a service. These units also vary depending on the place of service, that is, where the patient was treated as other providers such as a hospital or nursing home could be responsible for paying for the direct expenses related to the patient’s treatment.

mpRVU = Relative value units associated with the level of risk for a particular service.

GPCI = Geographic Practice Cost Index: Factors related to the economic differences among localities throughout the U.S.

By understanding the payment methodology and each of its components we can recognize that there are multiple areas that need to be reviewed annually. A provider’s employment status and compensation structure might also impact their earnings. Most employed providers are compensated based on their production of wRVUs, while independent practitioners’ compensation is affected by the combination of all three components of the calculation.

Unlike 2022 and the significant reweighting of wRVUs for evaluation and management services, the proposed changes to wRVUs for 2023 are minimal. A continued reweighting of consult codes will influence the wRVU production of certain specialties that have a significant portion of new patients referred to them by other providers. These changes to the wRVU value for consult CPTs further aligns the value of reimbursement for outpatient and inpatient consults with that of new or initial patient visits.

During an economic period characterized by high inflation we would also expect positive adjustments in the peRVU or the peGPCI. But these components are essentially unchanged from 2022. Overall, the reduction in the conversion factor by more than 4 percent, with minimal change to the other components of the calculation, will essentially be passed through, resulting in at least a 4 percent reduction in top-line revenue for providers in nearly all specialties.

CMS’s initial 2023 reimbursement methodology proposal is certain to be met with significant pushback. The comment period is open until September 6 with a final ruling expected in early November. At that time we hope to see a revised conversion factor.