Change #1 Medicare’s base payment rate decrease

• CMS is paying slightly less for the same physician work; a 2.3% decrease equating to $2300 reduction for every 100K revenue. For most physicians that would be 5-10K reduction annually

• Independent physicians see a direct revenue decrease

• Physician groups will have lower collections across all physicians

• Hospital employed physicians will have increased operating losses likely requiring a larger subsidy

Change #2 Primary Care and ACO participants see extra support

• CMS is replacing G2211 add on code with new B1/B2 modifiers, which will increase payment for certain visits

• CMS is trying to pay more for managing patients over time rather than isolated visits

• designed to support primary care, value based care, ACO participation, and chronic disease management (Diabetes, hypertension, heart failure, copd)

• Primary care physicians may get a payment increase (balanced with the baseline decrease?)

• ACO’s may see more revenue

• Other large integrated systems may see some revenue if they are population health focused

Change #3 Same day visits and procedure payments decrease

• reduction on payment for additional services in the same visit

• disruptive to surgical specialties doing office procedures, urgent cares, and primary care physicians doing procedures

• The simple math: previously a $100 visit fee + $150 procedure fee = $250, may decrease to $80 + $150 = $230 for the same work. This is in additional to the baseline conversion factor reduction from change #1.

Change #4 Increases to Home health agencies

• increase of 2.4% payment overall, some of which is offset by other changes

• slight revenue increase to home health agencies

• cms promoting discharge options for hospitals and outpatient care for ACOs

• trends towards care at home and decrease length of stay in hospital

Winners, Losers, and Expectations

Independent Physicians will have base medicare payments decrease, reduction in same day procedure visits, and face continue increases in practice costs. There are opportunities in primary care incentives and ACO participation benefits. CMS is offering additional support for longitudinal care in value based arrangements. The expected trend will be towards ACO participation, CINs, direct contracting, hospital affiliation, and medicare advantage partnerships. Independent physicians who round in the hospital may start questioning if its worth the administrative burden in comparison to reimbursement. They may want to consolidate call coverage, share consult responsibilities, or employ hospital APPs.

Contracted Physician Groups will have an overall decrease in collections with the same staffing, decreasing margins, and incentivizing pushes to change to cheaper staffing models and improve efficiency. They will likely seek larger hospital subsidies, increased APP staffing, and secure inflation adjustments. Also focusing more on operational partners rather than pure staffing companies.

Hospital Employed Hospitalist groups will be affected indirectly. As physician reimbursement declines, the subsidy requirement will increase. Hospital administrators will likely expect higher census management, increased throughput, increased quality metrics, and consider shifting to APP models.

Hospitals will likely be asked for larger subsidies for employed physician practices, see lower professional service revenue, and have increased recruitment difficulties. Opportunities include stronger ACO incentives, expansion of population health initiatives, and greater focus on home care. Administrators may increase analysis on internalization, co-management agreements, and professional services agreements.

Other stakeholders like independent surgeons face decrease revenue in office based procedures in conjunction with the increasing operating costs. They will likely ask for increases in call stipends, trauma coverage payments, and co-management agreements. Employed surgical groups will have increased scrutiny for OR efficiency, first case starts, LOS, implant costs, and block utilization.

The Real Story

Its not just a 2.3% cut to reimbursement. CMS is simultaneously paying more for value based care and longitudinal management, disincentivizing same day procedures, and promoting care coordination through ACOs and home based care. Those relying on traditional fee for service reimbursement will continue to feel increasing financial pressures. The current health care environment continues to see physician reimbursement moving way from fee for service and increasingly dependent on employment agreements, directorship stipends, coverage stipends, quality incentives, value based contracts, population health programs, and co-management arrangements. Independent physicians will likely become more interested in partnerships and value based models, physician groups will likely seek larger subsidies and stronger contracts, and hospital executives will likely face growing pressure to decide on which services to employ or contract.

The winners, in the end, may not be the ones that bill the most services, but the groups that demonstrate measurable value to a hospitals broader goals of access, quality, throughput, patient retention, population health, and market growth.