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Understanding Changing Fee Schedules in 2021

With the many “new normal” scenarios we are facing, the shift in fee schedules and reimbursement for 2021 may seem daunting to navigate.

It’s possible that your practice management system has already pushed out new coding modules and data that could be impactful as you work to understand the ways these changes may affect your current fee schedules and revenue.

As a result, it’s critical to enter the new year with a solid understanding of the components that make up fee schedules, the changes you should look out for in your 2021 fee schedules, and the tools needed to ensure success. 

Understanding Changing Fee Schedules

One of the best ways to understand the 2021 fee schedule changes is to first, break down the way fee schedules are constructed and the different components at play.

There are a number of different sources where baselines are set such as Cigna RBRVS, Aetna Market Fee Schedule or Humana ChoiceCare, but since CMS is the most broadly adopted, we’ll use it as our example. 

CMS generates a lot of data that feeds the market and most commercial payers use some components of CMS-based fee schedules, but how are those fee schedules built? If you’ve never seen the Medicare fee schedule, there is a meaty formula used to determine what you are paid, with inputs that are ever-changing (especially at the start of a new year) and important to understand: 

[(Work RVU * Work GPCI) + (PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * Conversion Factor

Medicare Fee Schedule Formula Explained

Let’s start by breaking down the different components of the formula so we can understand how they work together: 

Work RVUs: The standard unit of productivity. 

Work GPCI:The geographic practice cost index that is an adjuster based on the general cost of labor in your area. These are changed annually. 

PE: Practice expense, which is the overhead to support procedures.

PE GPCI: The geographic practice cost index for practice expense which has its own inflator or deflator based on the expense of the overhead. 

MP: Malpractice expense (i.e., your insurance as a provider). 

MP GPCI: The GPCI for malpractice expense. 

Conversion Factor: This changes yearly.

Changes to Fee Schedules in 2021

Now that we have broken down how a typical fee schedule is constructed we can better understand how the changes in 2021 will affect the inputs that are their foundation. 

Productivity/RVUs

The first big change is to productivity/RVUs. This is the productivity unit across all localities so when these change they impact all allowables. In 2021, big changes came to not only simplifying the coding components, but in incentivizing more preventative care through evaluation and management codes.

In order to better compensate providers for doing more preventative care, the RVU was driven up (which is beneficial for some providers). However, in order to balance the budget and correct for these increases, cuts were made from higher dollar procedures such as orthopaedic surgery and other specialties. 

Conversion Factor

Along with the changes to RVUs came significant changes to the conversion factor. In 2020, physicians were paid just over $36 per RVU, but in 2021 that has changed to $34 per RVU, a 3.3% decrease from the previous year.

As a result, it’s critical to understand how this decrease will impact your compensation model, since, even if your RVU’s increase, you may still receive diminished reimbursement because the multiplication factor over and above your RVU’s is decreasing.  

Building a Dynamic Model

It’s not only important to be aware of the fee schedule changes in 2021, it will also be crucial to have systems in place to assist in managing their effects to your bottom line. Harnessing technology and leveraging software to create a dynamic model can analyze the impacts these changes may have at the practice level. 

The components of a good model include the four A’s: 

Accurate: If you are building a data model it must be accurate.

Automated: Having an automated model is very helpful when you have iterative changes or when you need to model a few different outcomes. 

Actionable: Your model should give you insights, tell you what is good/bad, and direct your attention to where you should focus. 

Available: It should be easy to access so that many people can use it, if desired.

When building your model your data should be as relevant and timely as possible. The more complexities in the data, the harder the model will be to work with.

Harnessing Software

With an ever-evolving healthcare landscape comes the need to update the tools used to navigate it, and leveraging software can help to expedite your analysis and improve accuracy.

Software is built with purpose in mind and will deliver the most relevant actionable insights. Plus, software allows you to move data with ease, it has the capacity to process data in a short amount of time, and it reduces human error. 

One example, the Rivet Data Modeler, is constructed using a few different inputs. First, by utilization (i.e. how many times are you billing every single plan), then by product, then payers, fee schedules, specific line item, CPT, and date of service. 

The Rivet Data Modeler shows your current baseline and allows you to create different scenarios while being very iterative. This means it can show (from a revenue standpoint) what 2021 might look like when compared with 2020.

In addition, it is dynamic, accurate, and accessible. Plus, the automated analysis component means that you won’t spend time hard-coding things or updating formulas, and most of the work is done for you. 

Impact of New Contractual Allowables

To try to understand the impact of new contractual allowables for 2021 and illustrate the need for a dynamic model, we’ll look at an orthopaedic case study. This model was built for an orthopaedic practice who wanted to understand the 2021 shift for their practice from a net revenue perspective. 

The Data: Utilization was kept constant (i.e. 1000 of a specific code was billed in 2020, so we plan to bill the same in 2021), in order to highlight where revenue changes would be coming from. The only added variable was modeling the 2020 fee schedules vs. the shift in those for 2021. 

The Result: When this data was entered into the model, it returned a negative net-revenue impact of 556,000 by doing nothing different in the new year. This result would be extremely worrisome for a practice without a large profit margin and illustrates just how pertinent having this information can be from fee schedule year to fee schedule year.

This information can help you plan from the executive level and know where your focus should be (cut procedures, emphasize others). 

Patient Component 

Not only will the changes in 2021 affect revenue for your practice but they will also create shifts in patient responsibility as the cost of procedures change. As a result, when you are creating estimates for patients in the new year there may be added confusion because of the increase in some network allowables and the added expense that may fall to the patient.

Using fee schedules to assess which procedures in 2021 will result in higher patient responsibility will be helpful in communicating changes early to patients in a transparent way. It will also help you determine what accounts receivable strategy you will need in place to continue to collect effectively. 

Now is the time to start diving into fee schedules and allowables to set your practice up for success in the new year. Understanding changes to fee schedules in the new year can empower your practice to create systems that will strengthen the bottom line of your practice.

For more information about the tools Rivet provides to help combat these changes, schedule a Rivet demo.