Evidence based insights into physician compensation, RVUs, contracts, investing, leadership, and the economics of healthcare.
Life and Business in Medicine.
What Is This About?
In our last newsletter, we discussed the RUC, the committee that helps determine the RVU values assigned to medical services. But that raises an important question. What happens when the RUC determines that a particular service deserves a higher RVU value? Can CMS simply increase the payment? Not necessarily.
Why Should Medical Professionals Care?
The decision of the RUC committee on one specialty, directly affects another one. That's because Medicare operates under a rule called budget neutrality. And this rule has become one of the most important forces shaping physician compensation in the United States. Let's start with a simple example.
Imagine the RUC reviews a patient encounter and determines that physicians are spending significantly more time managing these patients than they did in the past. Perhaps the medical decision-making has become more complex. Perhaps documentation requirements have increased. Perhaps patients have more chronic illnesses and require more coordination of care. The committee may conclude that this service deserves a higher RVU value. That seems reasonable right? After all, if the work increases, shouldn't the value increase as well?
The challenge is that Medicare is not designed to allow unlimited growth in spending. Under federal law, if changes to the Medicare Physician Fee Schedule are expected to increase total physician spending by more than approximately $20 million in a year, CMS is generally required to make offsetting adjustments elsewhere in the fee schedule. This is what we call budget neutrality.
Think of it like a pizza. The pizza can be redistributed, but it cannot grow indefinitely. If someone takes a larger slice, another person must get a smaller one.
As a result, increasing reimbursement for one service can create downward pressure on reimbursement elsewhere. And those reductions do not necessarily occur within the same specialty. A change benefiting primary care may affect procedural specialties. A change benefiting surgeons may affect radiologists. A change affecting one area of medicine may ultimately influence physicians who have nothing to do with that service.
This is one reason physician reimbursement discussions can become highly controversial. Different specialties often find themselves competing for a larger share of the same limited pool of Medicare dollars. Over the years, this has led to ongoing debates regarding fairness, specialty income differences, and how physician work should be valued.
Many physicians are surprised to learn that some of the reimbursement challenges facing healthcare today are not necessarily caused by declining productivity or lower demand. Instead, they are often the result of a payment system operating within strict spending constraints.
At the same time, healthcare continues to become more complex. Physicians are managing older patients, more chronic diseases, increasing administrative requirements, and growing documentation demands. Yet the overall payment system remains constrained by rules that limit spending growth. Not surprisingly, many physician organizations have expressed concerns about the long-term sustainability of this approach.
Fortunately, budget neutrality is not always the final chapter. When projected physician payment reductions become substantial, Congress has occasionally stepped in and provided temporary funding to soften or delay those cuts.
In fact, if you've ever received an email from your specialty society asking you to contact your senator or representative regarding physician reimbursement, this is often the reason.
Organizations such as the American Medical Association, ACOG, the American College of Surgeons, and many others regularly advocate on behalf of physicians when significant payment reductions are proposed.
Now before we finish, it's important to clarify one final point. The RUC helps determine how many RVUs a service receives. But neither the RUC nor budget neutrality determines the actual dollar value of an RVU. That's the responsibility of CMS.
For example, in my specialty, a D&C hysteroscopy is reported using CPT code 58558. That procedure has an assigned RVU value of a little more than 4 RVUs.
But knowing the RVU value alone doesn't tell us how much money the procedure generates. To answer that question, we need another piece of the puzzle.
What is the dollar value assigned to each RVU? And how does CMS decide that number?
That's exactly what we'll discuss in our next episode, when we break down the Conversion Factor, the mechanism that transforms RVUs into dollars and directly influences physician compensation.
This newsletter is for informational and educational purposes only and does not constitute financial, legal, tax, investment, contract, coding, billing, or medical business advice. Readers should consult qualified professionals regarding their individual financial, legal, tax, employment, contract, coding, billing, and medical business decisions.
The Bottom Line
All specialties are connected through a big and complex system that determines physician compensation.
Key Takeaways
✓ Medicare’s Physician Fee Schedule (MPFS) is required to remain budget neutral. If changes in RVUs are projected to increase or decrease total spending by more than $20 million, CMS must make an adjustment to offset that change.
✓ When CMS increases the relative value of certain services in one specialty, the budget-neutrality adjustment can reduce payments for other services, even in unrelated specialties.
✓ Congress has sometimes provided temporary funding to lessen scheduled reductions in physician payments.
“Think of Medicare physician payments as a large pizza. If one specialty receives a bigger slice, another may receive a smaller slice (unless Congress makes the entire pizza bigger)”.
MD&D Quote of the Day
What’s Next?
Next: Why Two Doctors Can Generate the Same RVUs But Earn Different Incomes
We’s address the factors affecting the value of an RVU.
Continue the Conversation
Join a growing community of medical professionals dedicated to understanding the business of medicine.
Bruno Casanova, MD
Founder & Host
Medicine, Dollars & Decisions
Life and Business in Medicine.