Today the Centers for Medicare & Medicaid Services (CMS) published the final rule to update the Medicare physician fee schedule (MPFS) for calendar year (CY) 2016. Despite the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) establishing a 0.5% conversion factor (CF) update for 2016, the final 2016 CF of $35.8279 actually is a decrease compared to the 2015 CF of $35.9335. This is because CMS has more than offset the 0.5% MACRA update with a -0.02% budget neutrality adjustment in addition to a -0.77% “target recapture amount” to reach a statutory target for savings achieved from misvalued code adjustments (discussed below).

Final rates and policies are effective January 1, 2016, with certain exceptions. CMS is accepting comments until December 29, 2015 on a limited number of provisions of the rule (e.g., interim final work, practice expense, and malpractice RVUs; interim final new, revised, potentially misvalued HCPCS codes; and changes to the physician self-referral list of codes).

The sweeping rule includes numerous policy provisions, including the following:

  • The final rule addresses payment for potentially misvalued services, including both valuation of specific procedures and broader policy issues. For instance, the final rule implements a Protecting Access to Medicare Act of 2014 (PAMA) provision that requires CMS to phase in over two years any decrease of 20% or more in total relative value units (RVUs) for an existing service.  Rather than apply the decrease evenly over two years, CMS has adopted its proposal to reduce the RVUs by the maximum allowed amount (19%) in the first year, and apply the remainder of the reduction in the second year.
  • The final rule also implements a PAMA provision, as amended by the Achieving a Better Life Experience Act of 2014, that directs CMS to meet a 1% target for net reductions in MPFS expenditures resulting from adjustments to misvalued code RVUs in 2016 (the target drops to 0.5% for CYs 2017 and 2018).  If the estimated net reduction is less than the target for a year, the CF must be reduced accordingly.  CMS determined that the final rule only identified 0.23% in net savings attributable to misvalued code adjustments. Thus in order to reach the 1% target, CMS is reducing the CF by 0.77% (as noted above). CMS also finalized its methodology to distinguish “misvalued code” adjustments from other RVU adjustments, and calculate and measure the “net reduction.”
  • With regard to specific codes, the final rule identifies 103 “high-expenditure” codes that CMS will review as potentially misvalued codes. CMS also is reducing payments for radiation therapy services by increasing from 50% (25 hours/week) to 70% (35 hours/week) the utilization rate assumption used to determine capital equipment costs for these services (to be implemented over two years). CMS also is revising the codes and values for the lower gastrointestinal endoscopy code set. CMS also acknowledged comments it received on data sources for valuing individual components of the global surgical package in accordance with MACRA, which CMS will consider as it develops proposals for next year’s proposed rule.
  • The final rule includes numerous provisions that revise Medicare physician quality and value programs. CMS is adopting a series of changes to the Physician Quality Reporting System (PQRS) to address gap areas, eliminate topped out or duplicative measures, and identify more robust measures.  CMS also added a reporting option that will allow group practices to report quality-measures data using a qualified clinical data registry.  In addition, CMS adopted various changes to the Physician Value-Based Payment Modifier (VM) program requirements, the Medicare Electronic Health Record (EHR) Incentive Program clinical quality measure submission requirements, and Physician Compare data. In the proposed rule, CMS solicited comments on future reforms to Medicare physician quality programs under MACRA; while CMS did not address the substance of those comments in the final rule, the agency expects to consider them when developing the new policies.
  • CMS adopted its proposal to base Medicare payment for a biosimilar biological product on the average sales prices of all National Drug Codes assigned to the biosimilar biological products included within the same billing and payment code.
  • The final rule makes a series of revisions to current physician self-referral restrictions “to accommodate health care delivery and payment systems reform, to reduce burden, and to facilitate compliance.” In particular, CMS is establishing two new exceptions and clarifying certain regulatory terminology and technical requirements.  Reed Smith is preparing a separate analysis of these provisions.
  • The final rule begins to implement a PAMA requirement that physicians who order advance diagnostic imaging services consult with appropriate use criteria (AUC) via a clinical decision support (CDS) mechanism. Among other things, the rule addresses the process by which provider-led entities become qualified by Medicare to develop or endorse AUC and the evidence-based requirements for AUC development. CMS acknowledged, however, that it is unlikely to meet the January 1, 2017 deadline for establishment of the CDS program.
  • CMS has adopted a modifier that must be used beginning January 1, 2016 on claims for computed tomography (CT) services furnished using equipment that does not meet National Electrical Manufacturers Association (NEMA) dose standards (such as older, higher-dose scanners). Pursuant to PAMA, CT services performed on the higher does equipment will result in a payment reduction for the technical component of the CT service (95% of the Medicare payment level in 2016 and 85% in 2017 and thereafter). CMS has issued an educational article on this new requirement.
  • In the proposed rule, CMS invited comments on whether to make Open Payments (“Physician Payments Sunshine Act”) data available on the Physician Compare website, linked to individual eligible professional profile pages, in addition to the current posting of payment data on In the final rule, CMS acknowledged commenters’ concerns regarding this proposal, including the need to ensure that the context for the Open Payment data is understood by beneficiaries. While CMS continues to test the data with consumers, the agency will consider the feedback it received and, if appropriate, will address the issues in possible future rulemaking.
  • The final rule includes numerous other policy provisions, including:  new separate Medicare payment for advance care planning services; changes to the telehealth services list; modifications of Medicare Shared Savings Program policies related to quality measures and the definition of primary care services; and clarifications to physician “incident to” rules to, among other things, require the billing physician or practitioner also to be the supervising physician/practitioner.