Last week (July 10th) the Centers for Medicare and Medicaid Services (CMS) released its Proposed Rule delineating suggested changes in a variety of Medicare programs including, but not limited to, improving ambulatory specialty care, caregiver training services, “health integration services,” and extra telehealth provisions. This annual rite of passage delineates programmatic changes proposed for CY 2025. Between the Proposed Rule and the Final Rule’s release in the fall, interested parties are invited to, and should, comment on the proposal. The Final Rule (FR) for CY 2025 should be released in early November of 2024.
In 2024 CMS reduced the Medicare conversion factor (CF) from $33.89 to $32.74 (a $1.15 or 3.4% reduction). Due to the hue and cry throughout healthcare, Medicare utilized the CF of $32.74 from January 1st to March 9th of 2024 then increased the CF to $33.29 for the remainder of 2024. Essentially that means that for much of 2024, the Medicare CF was effectively reduced .60 cents (vs. $1.15) from 2023’s CF.
Conversion Factor
For those unfamiliar with Medicare reimbursement math, basically it entails a series of calculations taking into account relative value units (RVUs) including work (wRVU), malpractice (mRVU), and practice expense (peRVU). While these values can change annually, the RVU values, once established, are static throughout the entire US. In Figure 1 below I delineate how to arrive at the Medicare “allowable” (payment rate) for a given CPT code. The RVU component pieces are multiplied by geographic practice cost indices (GPCI) and the sum of those products is then multiplied by the CF to arrive at the geographically adjusted reimbursement rate for a CPT code. GPCIs are deployed to allow for cost differences in the delivery of care between different areas of the country.
Figure 1
To see the math “in action,” in Figure 2 below we examine reimbursement for a 99203, a Level 3 New Patient Visit, in both Atlanta, Georgia, and Richmond, Virginia, respectively. I compare CY 2024 to CY 2025 and make allowances for the 2025 change in CF as announced in the Proposed Rule (Figure 2 math assumes no changes in RVUs or GPCIs for CY 2025 and compares the CF deployed by Medicare from 3/10/2024 to 12/31/2024 [$33.29]).
Figure 2
Using the same RVU and GPCI assumptions as I used in an earlier article (Medicare’s 2024 Physician Fee Schedule Is Out: More Cuts? Yup, December 2023), you can see the “work value” of the 99203 is the same. This implies that the “work” involved in delivering a 99203 is the same, regardless of where this is performed. However, wGPCI is higher in Richmond indicating a slightly higher geographic adjustment to the “work.” Note, too, that practice expenses in Richmond (peGPCI) are less for a 99203 than they are in Atlanta. Also, the theoretical malpractice cost exposure (mGPCI) of a 99203 is significantly higher in Atlanta than it is in Richmond. Allowing for these differences it is evident that, all things being equal, a 99203 in Atlanta will decline $3.12 in 2025 while a 99203 in Richmond will decrease $3.05. That said, in 2025 clinicians in Atlanta will still garner $2.50 more per 99203 than their peers in Richmond.
Conversion Factor
CMS suggests that reimbursements are driven by statutorily mandated budget constraints. There are adjustments that can be made to the RVU values, the GPCIs, and the CFs to alter reimbursement rates. Taken in a vacuum the (proposed) 2025 CF changes we note a 1.16% or .38 cent decrease from 2024 to 2025. However, in Figure 3 I contemplate the CF decline since 2020. The CF has decreased almost 11% or nearly $4 during the measured period. While $3.73 does not appear to be a significant “cut,” it doesn’t take a rocket scientist to understand the math fundamentals that while performing the same work you collect less revenue. That falls under the rubric “…you can’t make the chair for $10, sell it for $8, and make it up on the volume….”
Figure 3
Again, do these cuts necessarily indicate that your revenue will drop by 1.16% (or, off the “new” 2024 CF rate, 2.79%) in CY 2025? Maybe, maybe not. Remember, a practice’s revenue depends on patient mix, specialty, production, etc. (Again, for a deeper explanation, please see my December 2023 Forbes.com article Medicare’s 2024 Physician Fee Schedule Is Out: More Cuts? Yup.)
The Bottom Line
In our fictional/fun world of static data points, let’s consider the practical ramifications that these Medicare cuts can wreak on a health system and how the financial impact differs from location to location (given our fee calculation).
Owing to the fact that all RVUs and GPCIs remain the same in 2025, practices will see a 2.79% drop in reimbursement but that does not mean they will, in real terms, be equally financially impacted. In Figure 4, we see that our providers billed 1,000 99203s in 2024. Assuming the exact same volume and case mix in 2025, we note that the health system will lose $3,122 or realize a 2.79% decrease in revenue. Now that’s yucky. Ugh.
Figure 4
In Figure 5 let’s look at our Atlanta and Richmond groups. The groups are employed by a health system. The clinicians are paid on a “per wRVU” basis meaning they are compensated at a certain dollar rate per unit of work they perform.
Figure 5
In Figure 5, our clinicians delivered 1,600 wRVUs at a pay rate of $25 per wRVU. In both 2024 and 2025 they were paid $40,000. However, you can see (I know, simple/absurd example but follow along) that the bottom line is now down $3,122 in Atlanta and $3,050 in Richmond. Again, same work, same resources, no allowance for inflation, and the clinics are losing $3,122 and $3,050 vs. 2024. Now apply this logic to an 800 doc medical group that bills 20 – 30 different CPT codes, maybe with different wRVU comp plans, and you get a better picture of how the math and financial impact play out.
As I’ve suggested before, and equally as important: outpatient clinics must understand, with clarity, their payer contracts. Many contracts are tied into the Medicare allowables which means if Medicare cuts allowables, you may receive a cut in your commercial allowables, too.
The moral of the story as folks begin to digest the 2025 Proposed Rule? It’s time to engage with your professional societies (ACC, ASNC, STS, AMA, etc.) and Congressmen to voice concern. In our majority fee-for-service environment, clinicians and healthcare systems simply cannot endure year-over-year cuts and expect to keep the doors open. Put differently: you simply can’t build the chairs at this price.
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