Medicare’s 2024 Physician Fee Schedule Has Expired: More Cuts? Yes

On Thursday, July 13, Medicare released its Proposed Rule outlining changes to a variety of Medicare programs, including but not limited to quality programs, MIPS, farm work, telehealth, and more. The 2,033-page annual joy letter describes programmatic changes proposed for CY 2024. Between the Draft Rule and publication of the Final Rule in the fall, stakeholders were invited to comment on the proposals. The Final Rule (FR) was released in early November 2023.

While various professional medical associations and others have complained, and rightfully so, about the reduction in the CY 2024 conversion factor (CF) from $33.89 to $32.74 (a decrease of $1.15 or 3.4%), many people in health care area write big Assume that the 3.4% reduction means that their compensations, net/net, will decrease by 3.4% during 2024. This is simply not true.

Coefficient of conversion

For those unfamiliar with Medicare reimbursement math, it basically involves a series of calculations that take into account relative value units (RVUs) including work (wRVU), malpractice (mRVU), and practice expense (peRVU). While these rates can change annually, once set, RVU rates are static across the US. In Figure 1 below I describe how you arrive at the Medicare “allowable” for a given CPT code. The component RVUs are multiplied by geographic practice cost indices (GPCIs), and the sum of these products is then multiplied by the CF to arrive at a geographically adjusted reimbursement rate for a CPT code. GPCIs are developed to allow for cost differences in the delivery of care between different regions of the country.

Figure 1

To see the math “in action”, in Figure 2 below we look at reimbursement for visit 99203, a Level 3 New Patient Visit, in both Atlanta, GA and Richmond, VA, respectively. I compare CY 2023 to CY 2024 and make adjustments for the 2024 change in CF as announced in the FR.

Figure 2

As you can see, the “work value” of 99203 has not changed between 2023 and 2024. This means that the “work” involved in delivering a 99203 has remained static. However, wGPCI has changed for Richmond. Note also that the Richmond practice fees (peGPCI) for a 99203 have, in theory, decreased. Also, theoretical malpractice cost exposure (mGPCI) decreased in Richmond between 2023 and 2024, but Increased in Atlanta. The conclusion of this exercise is that after accounting for geographic disparities and the new CF, the payment for a 99203 in Atlanta dropped almost $2 while a 99203 in Richmond dropped more than $3.50.

The sky is falling

Maybe, maybe not. It all depends on your patient mix, specialty, etc. Let’s look at Atlanta and the reimbursement changes for established patient (EP) visits and new patient (NP) visits between 2023 and 2024. E&M codes, especially EP and NP visits, account for a large portion of billing submitted annually in the US.

In Figure 3 you can see the delta between 2024 and 2023 Medicare allowables. For EC visits, the allowance is reduced to between .96% and 1.90%. Similarly, for NP visits the reduction per CPT ranges between 1.32% and 2.32%. So while the PF has been reduced by 3.4%, you can see that with these selected codes, the reduction in compensation is nowhere near 3.4%.

Figure 3

That said, your total reduction really depends on the CPTs you bill, your patient mix, and geography/demographics. In Figure 4 we look at a practice in Atlanta.

Figure 4

In our fantastic outpatient clinic, Dr. X billed 100 99202 and 100 99205 office visits in 2023. FR released and ran its data, based purely on what it billed last year. As Figure 4 describes, Dr. X, all things being equal, would lose $154 on 99202 and $305 on 99205 for a total loss doing exactly the same job, $459 or about 1.5%. A couple of suggestions: first, this is obviously a fictional example, but it makes a pretty clear point. In reality, your practice may not have a 3.4% reduction in reimbursement. After that, the percentages are pretty irrelevant. The cost to the practice is the “real dollars” that disappear. Finally, given inflation and the ever-increasing cost of running health systems and clinics, the 1.56% cut in Figure 4 is hardly a victory.

Am I suggesting that clinicians bill for the exact same services and/or change billing habits to optimize revenue (or cut your losses)? No way! Coding/billing is based on what is presented to the clinician. This exercise just gives you an easy idea, all things being equal, of what the CY ’24 Medicare changes could mean for your clinic’s finances.

As a side note, and just as important: outpatient practices need to clearly understand their payer contracts. Many policies are tied to Medicare deductibles, which means that if Medicare cuts your deductibles, you may get a cut in your commercial deductibles as well.

The moral of the story as we head into 2024? Is the sky falling? No. But it can rain very hard!