Calculating the Future of CMS Payments


Hospitalists and other physicians with Medicare patients are awaiting final word on proposed changes to the Medicare Physician Fee Schedule, due to take effect next year.

How, exactly, will the fee changes affect you? What will your revenue look like in 2007? You can find answers to these questions by understanding what the changes will be and by using a new online tool developed by the American College of Physicians (ACP).

A Look at the Proposed Payment Changes

The Centers for Medicare and Medicaid Services (CMS) has proposed specific changes to the Medicare Physician Fee Schedule that would significantly increase payments for Medicare beneficiaries’ hospital visits, office visits, consultations, and other evaluation and management (E/M) services. If the proposed changes are enacted, Medicare payments would substantially increase for these services. How substantial are the increases? The work relative value unit (RVU) for initial hospital care (CPT code 99221) would increase by 47%, and the work RVU for subsequent hospital care (CPT code 99232) would increase by 31%. (For a detailed breakdown of the “Impact of the Proposed Rule on E/M Codes Billed by Hospitalists,” see p. 38.)

How will these proposed increases affect your income? The dollar amount is difficult to calculate, partly because, due to legislative restrictions, Medicare payments won’t increase by the same percentage as the E/M relative values. CMS can make only budget-neutral changes. This means it can’t increase payments by more than $20 million per year. Because the proposed 2007 changes exceed this amount—they come close to $4 billion—CMS has proposed an additional adjustment that reduces payment equally for all physician services in order to maintain 2007 expenditures at roughly their 2006 level. This adjustment means that payment for some low-level E/M services will decrease.


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An Online Calculator Can Help

The ACP has developed an interactive revenue calculator to enable its members to estimate their reimbursements under the proposed changes. Available for members only on the ACP Web site (, the calculator estimates the potential revenue change for E/M services only.

“We thought [the calculator] would be helpful to our members,” explains Brian Whitman, senior analyst for Regulatory and Insurer Affairs, ACP. “The RVU changes are technical and complex, and it’s hard for a practicing physician to translate the changes. Doctors see dollars, not RVUs. Also, the changes all depend on the volume of Medicare patients they have and how they code.”

Physicians who use the ACP reimbursement calculator enter the number of visits they provide to Medicare beneficiaries in a typical week, categorized under individual CPT codes. The calculator then determines their Medicare revenue for 2006 and their projected Medicare revenue for 2007. Finally, it estimates how much their 2007 revenue will change in a typical week and in the upcoming year.

Of course, the Medicare payment received for many non-E/M services will decrease because, as stated earlier, the Medicare statute requires CMS to keep 2007 expenditures at roughly the same level as those generated in 2006.

After using the online calculator to determine their payments from the affected E/M codes, ACP members can then estimate their projected net revenue change. The ACP recommends that physicians estimate their 2006 Medicare revenue for all services not specifically listed in the calculator and then multiply that figure by 0.95 to account for the budget neutrality adjustment. They can then subtract that number from the total payment found in the online calculator to get an estimate of their net Medicare payment change in 2007.

The ACP’s reimbursement calculator is not designed to be precise; that would be impossible. “The calculator itself is an estimate,” warns Whitman. For one thing, the payments per RVU will not be certain until CMS publishes its final 2007 relative values. In addition, E/M service payments by private health plans that use the Medicare-approved RVUs for determining their own fee schedules are likely to increase.

What Happens Next?

CMS proposed the changes in June. According to the law, CMS must solicit comments from the public for 60 days. Some time after considering these comments, CMS will announce its final decision on the payment changes for E/M and other services. “They usually release their final rule in October or November,” says Whitman. CMS has proposed using the revised RVUs beginning January 1, 2007.

For the latest news on the proposed payment changes, check the SHM Web site at If you’re a member of the ACP, check out the online reimbursement calculator at TH

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