The 2018 Medicare physician fee schedule: An overview of provisions that will affect surgical practices

New payment policy, coding, and reimbursement changes set forth in the 2018 Medicare physician fee schedule (MPFS) final rule took effect January 1. The MPFS, which the Centers for Medicare & Medicaid Services (CMS) updates annually, lists payment rates for Medicare Part B services and introduces or modifies other policies that affect physician reimbursement and quality measurement.

On September 11, the American College of Surgeons (ACS) submitted comments to CMS related to the MPFS proposed rule released earlier in the year. Some provisions in the final rule, released November 2, incorporate changes recommended in the ACS comments. Although the final rule includes important payment and policy changes that affect all physicians, this article focuses on updates that are particularly relevant to general surgery and its related medical specialties.

Determination of malpractice relative value units

As a result of ACS advocacy efforts, CMS did not finalize a proposal that would have reduced Medicare payments to surgeons based on insufficient malpractice (MP) insurance premium data. In the 2018 MPFS proposed rule, CMS solicited public comments on using the most recent MP insurance premium data collected by its contractor, Acumen, to calculate MP relative value units (RVUs) for 2018. MPFS payments are determined based on the RVUs assigned to each provider service. RVUs have three components: physician work, practice expense (PE), and MP insurance expense.

MP RVUs, which reflect the relative cost of MP insurance to physician and nonphysician provider specialties, are updated annually using a Medicare claims-based specialty mix for each service. MP insurance premium data, which are generally updated every five years, are used in the MP RVU calculation. The most recent update occurred in calendar year (CY) 2015, and the next MP RVU update must take place no later than CY 2020, per statute.

The ACS strongly opposed CMS’ proposal to update MP RVUs in 2018, citing a flawed MP RVU calculation methodology and a lack of robust, valid data needed to accurately determine premiums and RVUs for each medical specialty. The use of the data collected by Acumen would have resulted in an unfair, disproportionate reduction in payment for providers who frequently furnish surgical services relative to providers who furnish nonsurgical services. The College, both in its MPFS proposed rule comments and in a separate letter, urged CMS to suspend use of new MP premium data for the purposes of calculating MP RVUs as proposed until more precise data are collected.

CMS recognized that the data it proposed to use to update MP RVUs in 2018 were insufficient and not reflective of the significant differences in surgical and nonsurgical MP insurance premium rates. CMS stated that before updating MP RVUs, it will work to resolve inconsistencies in MP insurance premium coding practices and specialty categorizations to avoid inappropriate fluctuations in data between MP RVU updates.

Equipment recommendations for scope systems

CMS proposed but did not finalize the creation of a single scope equipment Current Procedural Terminology (CPT)* code, along with standardized prices for five scope categories: rigid scope, semi-rigid scope, non-video flexible scope, non-channeled flexible video scope, and channeled flexible video scope.

In its comments on the proposed rule, the ACS indicated that CMS’ five proposed scope categories did not represent all types of scopes and expressed concern that different scopes and their related equipment within a single category would vary significantly both in use and in pricing. In the final rule, CMS acknowledged the College’s comment that, within the flexible scope category, the price difference between scopes can be up to $10,000. The ACS noted that standardizing scope prices could result in incorrect payment to physicians and recommended that the agency collaborate with the American Medical Association/Specialty Society Relative Value Scale Update Committee to determine how scope equipment should be categorized and priced. CMS indicated it will allow additional time for stakeholders to provide recommendations on the proper organization and pricing of scope equipment before implementing any CPT coding and payment changes.

E/M guidelines and care management services

In the final rule, CMS indicated that it will collaborate with stakeholders to consider ways to revise evaluation and management (E/M) documentation guidelines. CMS solicited public comment in the proposed rule on ways to reform the guidelines, reduce associated burdens, and better align E/M coding and documentation with the practice of medicine. CMS specifically sought comment on whether it would be appropriate to remove its documentation requirements for the history and physical (H&P) exam for all E/M visits at all levels. The agency also contemplated eventually allowing medical decision making and/or time to serve as the key determinant of E/M visit level.

The College and other public commenters agreed with CMS that the E/M documentation guidelines should be modified and noted that the present system is outdated and requires unnecessary documentation, sometimes obscuring relevant and necessary information for patient care. However, the ACS did not support removing documentation requirements for the H&P exam for all E/M visits, nor did it support using physician time as the key determinant of E/M visit level. The College encouraged CMS to instead convene a group of physicians, including surgeon representatives, to review and modernize E/M documentation guidelines to remove redundancies, streamline clinical workflow, and align use with electronic health records (EHRs).

CMS recognized these comments and indicated that it is working to identify the best approach for collaboration with stakeholders before implementing any changes to the E/M documentation guidelines. The agency asserted that it is immediately focused on revising E/M guidelines to reduce unnecessary administrative burden.

AUC for advanced diagnostic imaging services

CMS finalized that the appropriate use criteria (AUC) for advanced diagnostic imaging services reporting requirement will officially start in 2020, and the first year will be an educational and operations testing period. In the first year, reporting will span January 1 through December 31. This means that physicians will be required to report consultation with a clinical decisions support mechanism (CDSM) for advance diagnostic imaging services on their Medicare Part B claims. However, because it is an operational and testing year, CMS will continue to pay claims for diagnostic imaging services regardless of whether providers correctly include information on AUC CDSM consultations.

Specifically, the AUC for advanced diagnostic imaging reporting requirement will mandate that ordering providers communicate their consultation with a CDSM to the furnishing provider. The furnishing provider then must include the ordering providers’ consultation with a qualified CDSM in the Medicare claim information.

The testing period allows clinicians and CMS to prepare for the new reporting requirement. CMS will test to make sure its system processes claims correctly. The delay also provides more time for CMS to implement program education and outreach and time for CDSMs to further develop to be more user-friendly, less burdensome, and more interoperable. Providers have the option to voluntarily begin reporting AUC for advanced diagnostic imaging in their Medicare Part B claims July 1 through December 31, if they would like extra time to prepare for the program.
The ACS advocated for CMS to finalize 2019 as a truly voluntary year rather than a test period, and the agency incorporated the recommendation into the final rule. In addition, the ACS successfully advocated for testing to ensure that submitted claims with the AUC information are correctly processed before the program is implemented. The ACS supported these policies and believes they will relieve regulatory burdens when surgeons are simultaneously working to meet the new Medicare Quality Payment Program (QPP) requirements.

PQRS reporting requirements lowered

The rule finalizes a policy that will result in a reduction in Medicare Part B payment penalties for many providers. To reduce 2018 Physician Quality Reporting System (PQRS) provider penalties, CMS retrospectively lowered the number of measures required to meet the 2016 PQRS program.

The reduction in program requirements is part of a U.S. Department of Health and Human Services (HHS) initiative to reduce regulatory burdens on Medicare providers. The new payment determination for 2018 (based on 2016 reporting) will now only evaluate providers’ performance based on six quality measures, with no National Quality Strategy (NQS) domains or cross-cutting measure requirements for providers that submitted through claims, qualified registry, qualified clinical data registry (QCDR), and EHR reporting mechanisms in 2016. Additionally, providers that submitted through a QCDR will not be evaluated on whether they submitted an outcome or high-priority measure. Previously, the program required nine measures spanning three NQS domains with one cross-cutting measure (measures designated by CMS as being broadly applicable across providers and specialties), which is what providers were required to report in 2016. Providers will not need to report any additional data or information this year to benefit from this new policy, given that these data already were reported in 2016, and CMS will simply recalculate incentive payments based on the new and lower bar requirements.

The change in reporting requirements is in response to the struggle many providers encountered in meeting the 2016 PQRS reporting requirements and who would therefore face penalties in 2018 at a time when they are simultaneously working to implement the new QPP requirements. In 2017, the PQRS program transitioned to the Quality component of the new Merit-based Incentive Payment System (MIPS) program. The updated PQRS policy for the 2018 payment incentive will also better align with the new 2017 and 2018 MIPS payment program reporting requirements, which mandates that MIPS-eligible clinicians report six measures with no NQS or cross-cutting measure domain requirement. More information about the QPP is on the ACS website.

The ACS supported CMS’ proposals for reducing the number of measures and criteria because it will provide necessary relief from a penalty during a time when surgeons are investing in changing their health care delivery systems’ business operations for successful QPP participation. The College also agrees that aligning the PQRS program with the MIPS Quality performance category will help reduce confusion during the transition to the QPP.

VM adjustments

The rule finalizes reductions to Value-Based Payment Modifier (VM) adjustments that will result in fewer Medicare Part B payment penalties and bonuses for many providers.
To help providers transition from the VM to MIPS, CMS is limiting the maximum payment adjustment under the 2018 VM, which is based on 2016 reporting, to –2 percent for all providers. Because the VM is budget neutral, this change also means that the size of bonuses for high performers will be reduced.

The VM measures the quality of care furnished based on quality measures reported for PQRS as compared with the cost of care. CMS then analyzes and categorizes provider performance into low, average, and high for both quality and cost, a process referred to as quality tiering. The VM program hinges on PQRS participation, so the lowered PQRS reporting requirements will carry over to the VM program.

For groups and individual providers who met the criteria to avoid the 2018 PQRS adjustment based on 2016 performance, CMS finalized a proposal to hold these providers harmless from VM penalties for the 2018 payment year, but they still are eligible to receive a bonus (see Table 1). CMS finalized reducing the maximum bonus under the VM from four times an adjustment factor (+4.0×) to two times an adjustment factor (+2.0×) for groups with 10 or more providers. As stated earlier, this reduction in a bonus is because the VM is budget neutral. CMS initiated these changes to lower the administrative burden for providers in 2018 (see Table 2).

Table 1. Final 2018 VM adjustments under quality tiering

Table 1. Final 2018 VM adjustments under quality tiering--Individual

Table 2. Final 2018 VM adjustments under quality tiering

Table 2. Final 2018 VM adjustments under quality tiering--Group

For groups with two to nine eligible providers and individual providers who did not meet the criteria to avoid the 2018 PQRS payment adjustment, CMS finalized a reduced penalty of –1 percent. Previously, the maximum penalty for a health provider who met these criteria was 2 percent. This final rule will result in fewer providers being subject to a penalty.

For groups with 10 or more providers who did not meet the criteria to avoid the 2018 PQRS penalty, CMS finalized a reduced penalty of –2 percent. Previously, the maximum penalty for groups of 10 or more providers was –4 percent. As a result, fewer providers will be subject to a penalty.

CMS policymakers believe the new policies will ease the transition to MIPS for providers because it limits the penalties providers will be subject to in the early years of MIPS. The cost measures used to evaluate the VM have been transitioned to the Cost category of MIPS.

Additionally, CMS will not post 2016 VM data on its Physician Compare website because there would be only one year of data, and the data may be confusing to the public and providers. The ACS agreed with CMS that VM data on Physician Compare would be confusing and not meaningful, and therefore supported this policy change. The website, created in 2010 as required under the Affordable Care Act, is intended to help patients find and compare data about Medicare-participating physicians.

The ACS supported these policies, which reduce penalties on providers at a time when surgeons are investing time and resources to prepare for successful QPP participation.

Reporting requirements lowered for EHR Incentive Program

The final rule lowers the reporting requirements for the EHR Incentive Program to reduce the number of providers receiving a penalty and future administrative burdens. The program, commonly referred to as meaningful use (MU), has retrospectively reduced the number of clinical quality measures (CQMs) providers are required to report to just six, instead of the previously required nine CQMs. This change will result in fewer providers receiving a penalty under MU. As MU transitions to the Advancing Care Information performance category of MIPS, the change in reporting requirements is in line with CMS’ goals to align clinical measures across programs. Providers do not need to report any additional data or information in 2018, as these data were already reported in 2016. For similar reasons, the ACS supported the changes to the PQRS and VM programs.

MACRA patient relationship categories and codes

CMS finalized that the reporting of patient relationship codes will be voluntary instead of mandatory starting January 1. The Medicare Access and CHIP (Children’s Health Insurance Program) Reauthorization Act (MACRA) of 2015 requires the development of categories and codes that define and distinguish the relationship and responsibility of a provider with a patient at the time an item or service is furnished. MACRA also requires that claims submitted for items and services furnished by a provider on or after January 1 must include applicable codes established for patient relationship categories as deemed appropriate by the Secretary of HHS.

CMS solicited feedback on a draft list of codes intended to capture different provider/patient relationships, such as providers who meet the following criteria:

  • Consider themselves to have the primary responsibility for the general and ongoing care of the patient over an extended period of time
  • Consider themselves to be the lead providers and who furnish items and services and coordinate care furnished by other providers for the patient during an acute episode
  • Furnish items and services to the patient on a continuing basis during an acute episode of care but in a supportive, rather than a lead, role
  • Furnish items and services to the patient on an occasional basis, usually at the request of another provider
  • Furnish items and services only as ordered by another provider

CMS finalized for 2018 the Level II Healthcare Common Procedure Coding System (HCPCS) modifiers shown in Table 3 as patient relationship codes. The use and selection of the HCPCS modifiers will not be conditions of payment for providers submitting Medicare claims.

Table 3. Patient relationship HCPCS modifiers and categories

Table 3. Patient relationship HCPCS modifiers and categories

Overall impact on surgery

The combined impact of changes to RVUs for specific services under the misvalued code initiative, along with changes to PE and MP RVUs, was 0 percent for general surgery. Table 4 shows the estimated effect for all providers and other surgical specialties.

Table 4. 2018 MPFS estimated effect on total allowed charges for surgical specialties

Table 4. 2018 MPFS estimated effect on total allowed charges for surgical specialties

Conversion factor

The 2018 MPFS conversion factor (CF) is $35.9996, an increase from the 2017 MPFS CF of $35.8887. The 2018 CF reflects a budget-neutral adjustment, a 0.5 percent update factor as set forth in section 1848 of the Social Security Act, and a –0.09 percent target recapture amount (see Table 5).

Table 5. Calculation of the 2018 MPFS conversion factor

Table 5. Calculation of the 2018 MPFS conversion factor

The target recapture amount was specified in the Protecting Access to Medicare Act of 2014, under which CMS established an annual target for reductions in MPFS expenditures resulting from adjustments to relative values of misvalued CPT codes for 2017–2020. The Achieving a Better Life Experience Act of 2014 set a 0.5 percent target for reduced expenditures for 2018. If the net reduction in MPFS expenditures resulting from adjustments to misvalued codes in 2018 is less than the 0.5 percent target, MPFS payments will be reduced by the difference between the target amount and the net reduction amount. For 2018, CMS calculated a 0.41 percent net reduction in expenditures resulting from adjustments to relative values of misvalued codes. Since the 2018 net reduction (0.41 percent) does not meet the specified 2018 target (0.5 percent), MPFS payments will be reduced by 0.09 percent.


*All specific references to CPT codes and descriptions are ©2017 American Medical Association. All rights reserved. CPT and CodeManager are registered trademarks of the American Medical Association.


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