Oncology Programs: Take Action Now to Avoid a Massive Increase in Physician Expense in 2021

In early August, the Centers for Medicare & Medicaid Services (CMS) released proposed rules for CY 2021, including changes affecting the Medicare Physician Fee Schedule (MPFS). A recent ECG blog post outlined the proposed work RVU (WRVU) valuation changes for office-based E&M codes and their subsequent impact on healthcare organizations.

Organizations with WRVU-based compensation models may experience significant increases in physician compensation expense in CY 2021. More concerning, organizations will not experience a proportional increase in revenue from CMS, as the agency is also proposing a reduction to the conversion factor to achieve budget neutrality. As a result, all organizations currently paying physicians on a WRVU-based model will experience a disruption in the relationship between revenue and expense. For some specialties, such as medical oncology, this disruption may be significant and, if not addressed, may lead to meaningful financial losses for the organization.

Oncology programs should quickly evaluate the financial impact of these changes, as most employed physicians or PSA arrangements for oncology specialties are WRVU based. Below, we explore the anticipated impact of the proposed WRVU changes for contract physician relationships and provide strategies to mitigate financial exposure before the changes take effect on January 1, 2021.

Impact on Oncology Programs

Since medical oncology is predominantly an office-based specialty, the proposed changes will impact it more significantly than radiation or surgical oncology. Medical oncology practices with an average distribution of CPT codes will experience a 22% increase in WRVUs compared to 9% in radiation oncology. Without compensation plan adjustments, the financial implications could be significant.

To illustrate the potential impact, a median-producing medical oncologist under a median dollar per WRVU plan could see a compensation increase of approximately $95,000 in CY 2021 with no change in practice patterns or productivity. Similarly, a median-producing radiation oncologist could see increases of approximately $46,000. Table 1 shows a comparison between median WRVUs and total compensation for CY 2020 and 2021.

The impact of these changes at the practice level could be staggering. For example, an oncology program with 10 medical oncologists and 5 radiation oncologists could experience a $1.2 million increase in compensation expense in CY 2021.

There are two key concerns associated with the increase in WRVUs and associated physician income.

• Operating Losses: Due to a revaluation of the conversion factor (approximately an 11% reduction), changes in CMS revenue will be less than the new WRVUs. As a result, the variance between changes in physician compensation (if WRVU based) and professional collections are likely to drive operational losses for organizations. Below are two examples for medical and radiation oncologists.
  • Assuming median WRVU-based compensation and professional collections, organizations could expect medical oncology compensation to increase by $95,000,^[1] while professional collections will only go up by $49,000. Therefore, organizations could experience a net loss of $46,000 per medical oncologist.
  • Likewise, radiation oncologist WRVU-based compensation is expected to increase by $44,000,^[2] and professional collections will decrease by $20,000, resulting in a total net operating loss of $64,000 per radiation oncologist.
• Fair Market Value (FMV): The increases in physician compensation without corresponding changes in production may drive physician compensation above reasonable market levels, creating FMV concerns.

Mitigation Strategies

To reduce or eliminate the impact of these changes, oncology programs should adjust any existing WRVU-based physician contracts before January 1, 2021. ECG recommends a two-step approach to mitigate the impact of these changes.

Step One: Continue Using CY 2020 Compensation Formula

Organizations may continue to use their CY 2020 compensation formula with the 2020 WRVU schedule and payment conversion factors. While holding at the CY 2020 schedule will provide short-term stability, this approach may miss new and/or withdrawn codes, potentially creating a discrepancy between revenue and payments. It is worth noting that although this step is likely easy to implement from a political and organizational standpoint, it can be complicated to implement operationally. Ultimately, it is a short-term approach that can be considered for CY 2021 before tackling step two.

Step Two: Adjust the Compensation Structure for 2022 Forward

After a year of experience with the new CPT codes, WRVU values, and associated collections, oncology programs will be better positioned to prepare for and calculate future adjustments to WRVU-basedcompensation rates (e.g., rebasing the rate of compensation per WRVU in proportion to WRVU value increases). Before determining the specific adjustments, ECG recommends analyzing the financial and regulatory implications of the anticipated MPFS changes.

Given the typical timeline of 60 to 90 days’ notice for crafting and executing amended contracts, ECG recommends that organizations notify physicians in October of proposed changes to be in place by January 1, 2021. The timeline in table 2 will enable organizations to establish the necessary changes for CY 2021 contracts before the beginning of the year.

Because an oncology program’s specific tactics may have complex compensation formulas, it is important to perform financial modeling to understand exactly how your oncology program may be affected over the long term.

Timely action will allow your organization to proactively manage the financial impact of these changes and preserve compliance with FMV standards. ECG is available to support your organization in evaluating the implications of the 2021 MPFS changes by assessing vulnerabilities associated with physician arrangements, analyzing financial and regulatory implications, and identifying the appropriate mitigation tactics to reduce financial exposure. Please contact us at [email protected] for more information about our services.

Published September 18, 2020