Health Care Alert: Proposed 2023 Medicare Physician Fee Schedule – Provider Bottom Lines Meet Government Reimbursement Limitations

An 8.5% payment reduction. That’s the proposal in the 2023 Medicare Physician Fee Schedule (MPFS). Although this headline looks like another repurposed headline from the last 20 years in history, this one is causing some medical practices to reconsider whether Medicare— which often ranges between 30-50% of a practice’s payor mix— is worth leaving unrestrained.

The Centers for Medicare and Medicaid (CMS) is proposing this reduction based on two reasons. One reason is the typical reduction in the Medicare conversion factor, and the other is the elimination of the 4% PAYGO sequester—a complicated government policy intended to limit increases in the federal budget deficit. While the concept of proposed reimbursement reductions by CMS is no stranger to health care providers, the operating environment in which this particular proposal falls is new territory.

Medicare has, for many providers, been the “standard” in reimbursement rates. Many commercial payors base their reimbursement on what Medicare pays. As a general rule, we often assess the value of any payor contract on its relativity to the Medicare fee schedule. For a long time Medicare also paid a “reasonable” amount to providers, especially given some inferior propositions from commercial payors. Suffice it to say, it was never viewed in a light so poor as providers would consider limiting the number of Medicare patients for which it cared. Add to that the current labor market costs, and you might call this the perfect storm. And that’s exactly what a recent survey conducted by Medical Group Management Association (MGMA) shows. Out of 517 medical practices surveyed, 58% are considering limiting the number of new Medicare patients they accept. That same number is considering a reduction in the number of clinical staff they employ. Nearly 30% are considering closing satellite locations.

But before throwing in the towel or making these swift changes to your medical practice, I would advise really looking at your reimbursement by payor and digging deep. Many lump Medicare into a payor source that includes Medicare managed care plans (MA Plans) like United Health Care, Anthem, and Aetna—plans that have a commercial and government offering. In fact, for many practices, the Medicare managed care version outweighs the traditional “red-white-and-blue” version of Medicare. And with those MA Plans comes a managed care contract. Those agreements often have a string of calculations on reimbursement. For example, the fee schedule is XX% of the MA plan’s Medicare fee schedule. What is that number exactly? Additionally, the MA Plans may reserve the right to change their fees at any time based on Medicare’s changes to fees. In other instances, MA Plans’ fee schedules are based on some static or prior year’s Medicare fee schedule—not the one currently in effect. And finally, your contract may have some language that obligates the MA Plan to provide you with notice of such changes and subsequently, a narrow window of time for you to object, otherwise the new fees go into effect.

Once you come out of the accounting blackhole to determine what you’re actually getting paid, you may then need to determine what, if any options you have to actually reduce the number of new Medicare patients you accept. Some MA Plan contracts require providers to accept any beneficiary who presents to the provider. MA Plans’ counterpart—Medicaid managed care plans, often allow providers to limit the number of patients it chooses to accept so long as the provider accepts the minimum number. Are we now reaching that point here? The MGMA survey seems to suggest that a majority thinks as much.

At the end of the day, this is a proposed Medicare fee schedule. So running out to make quick decisions is not advisable. Groups like MGMA and others, such as the American Medical Group Association (AMGA) are pressing Congress not to allow these changes to go into effect. However, even if they are delayed for one more year, it may be time to really review your detailed payor mix and dig up the managed care contracts that make up most of your revenue to assess what your options are and the timing for making such decisions.

Our health care attorneys at Brouse McDowell are highly experienced at contract review and analysis and can efficiently assist you with legal and business counsel in this very complex revenue cycle and your contractual rights and obligations in same. Please contact us to learn more.