MPFS 2008: What’s in it For You?

By Linda Farrington, CPC
The first thing that comes to mind when I think about the 2008 Medicare Physician Fee Schedule (MPFS) is the conversion factor or, rather, the potential decline of the conversion factor. The conversion factor for 2007 was 37.8975 and the proposed conversion factor for 2008 was 34.0682, roughly a 10 percent decrease. At the time of this writing, however, it appears this cut will be postponed until July 2008—at which time Congress will address the matter once again — and, as it turns out, physicians can expect a slight (albeit temporary) payment increase. Enjoy it, because it’s anyone’s guess as to what will happen in the last half of the year. This being an election year, the MPFS is not likely to be a topic in the forefront.

Changes For 2008

The Centers for Medicare and Medicaid Services (CMS) develops fee schedules to pay physicians and other providers and suppliers for Medicare services rendered. The MPFS, in particular, can be a very useful tool and a partner to the National Correct Coding Initiative (CCI). The MPFS includes relative value units (RVUs) for CPT® procedure codes, professional and technical component indicators, the global days for each procedure code, and much more.
The formula for calculating the 2008 physician fee schedule payment amount is:
2008 Non-Facility Pricing Amount = (Work RVU * Budget Neutrality Adjustor (0.8806) * Work GPCI) + (Transitioned Non-Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * Conversion Factor
2008 Facility Pricing Amount = (Work RVU * Budget Neutrality Adjustor (0.8806) * Work GPCI) + (Transitioned Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * Conversion Factor
Note: When applying the 0.8806 work adjustor to the work RVU, round the product to two decimal places.
MPFS is all about “budget neutrality.” The term budget neutrality simply means there are only so many dollars to go around. When the fee schedule is adjusted each year, it’s a rearrangement of the relative values in the system or the reallocation of dollars. This affects different specialties each year, for better or worse. There are also other factors that affect payment rates. For example, in a letter sent to Congress, Health and Human Services (HHS) Secretary Michael Leavitt in December 2007 recommended rewarding physicians who adopt electronic technology such as electronic medical records (EMRs) and monetarily penalizing physicians who do not.
“In my view, any new bill should require physicians to implement health information technology that meets department standards in order to be eligible for higher payments from Medicare,” Secretary Leavitt said in a recent news release. To read the full statement released by the HHS, go to To learn about health information technology, go to the HHS website at

Time to Update Your Files

You can see the latest MPFS on the CMS website at Simply click on PFS Relative Value Files, navigate to the 2008 link, and then click on the most recently updated file. Download and save this file to your computer. This document will give you good information such as background, an overview of the payment formula, organizational information regarding the columns on the fee schedule, the payment policy indicators showing how use of a specific modifier affects payment, and whether or not a modifier should be used with a particular CPT® code. If you look carefully at the relative values of each CPT® code, you will see some changes this year.

Calculate How MPFS Affects You

How does the 2008 fee schedule affect your specialty or you as a coder specifically? First, let’s look at the winners and losers by specialty. Access the 2008 Update of the Federal Register, Nov. 27, 2007 Final Rule on the CMS website. Go to page 171 and, as you look at Table 39, “Combined CY 2008 Total Allowed Charge Impact For The Remaining 5-Year Review Of Work RVUs And Practice Expense Changes, OPPS Imaging Cap,” note the following statement regarding the combined payment impact in the preamble to the table:
“To the extent that there are year-to-year changes in the volume and mix of services furnished by physicians, the actual impact on total Medicare revenues will be different than those shown in Table 39. The payment impacts reflect averages for each specialty based on Medicare utilization. The payment impact for an individual physician would be different from the average, based on the mix of services the physician furnishes.”
There are a lot more losers than winners. The biggest winners are clearly nurse anesthetists with a 22 percent increase, and anesthesiologists and audiologists with 14 percent and 12 percent gains, respectively. The losers appear to be nephrologists, clinical psychologists and clinical social workers—all at a 3 percent decrease. As you can see, there is much disparity in these percentages. If the 10 percent reduction is back in force the latter half of the year, add the 10 percent to these numbers, or see the last column in Table 39.
It’s wise when planning a budget for the year to consider the impact to the practice if the 10 percent reduction should occur later in the year. It’s possible to use the MPFS to project Medicare revenue based on the previous year’s successful claims. Simply run a production report in your practice management system for the previous year. This gives you an exact snapshot of the practice patterns, or volume and mix of services, as far as procedure codes go. (Remember Table 39 illustrates an average for each specialty based on utilization.) Compare how the RVUs have changed for those codes and use the new RVUs to calculate the reimbursement assuming the practice pattern remains identical. It’s helpful to know your payer mix to calculate the percentage of impact to your practice for this payer. If this is not possible, you can always use the percentage in the table to anticipate the average gain or loss in Medicare revenue.
As Medicare goes, so go private payers eventually. As you negotiate contracts with these payers, an understanding of their payment calculation methodology is helpful. What relative value system or scale do they use? What is their conversion factor? If they use the Resource Based Relative Value Scale (RBRVS) that is used in the Medicare calculation, what year are they using? Some payers use an older version, so the RVUs are different. This makes calculating anticipated revenue impact for that payer difficult, however, taking the time to do so helps prevent any unexpected shortfalls at the end of the year.
To stay on top of developments with MPFS, keep an eye on EdgeBlast and Coding Edge.

MPFS: A Head Scratcher

If the Medicare Physician Fee Schedule (MPFS) has you scratching your head, it’s no wonder. We heard in 2007 about how it would be cut by 10.1 percent on Jan. 1, 2008. Then, with just two weeks left in the year, the House of Representatives passed a bill on Dec. 19, 2007 which replaced the reduction in Medicare Part B payments scheduled with a six-month 0.5 percent increase as part of the Medicare, Medicaid and SCHIP Extension Act of 2007. Just after Christmas, the president signed the bill into law.
In addition to temporarily averting the cut to the MPFS, the Medicare, Medicaid and SCHIP Extension Act of 2007 extends the following:

  • The Physician Quality Reporting Initiative (PQRI) for all of 2008
  • The 5 percent bonus payment to physician shortage areas through June 30
  • The geographic practice cost index floor of 1.0 through June 30
  • A provision in the Balanced Budget Act of 1997 that allows independent laboratories to bill Medicare directly for the technical component of certain pathology services provided to hospitals through June 30
  • The exceptions process for therapy caps through June 30
  • Current “charges to cost” methodology that provides a separate payment for brachytherapy beginning April 1, including therapeutic radiopharmaceuticals
  • Reasonable costs payments for certain clinical diagnostic laboratory tests in rural areas through June 30
  • The SCHIP at current funding through March 31, 2009

The Medicare, Medicaid and SCHIP Extension Act of 2007 requires CMS to adjust the average sales price (ASP) calculation to use volume-weighted ASPs based on actual sales volume and institutes a reimbursement rate for generic albuterol. Beginning April 1, it also allows reimbursement for certain diabetes laboratory tests for home use at the same rate as other glycated hemoglobin tests.

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