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When Medicare payments are cut, everybody loses, not just self-employed physicians.

Fam Pract Manag. 2010;17(3):7-10

Kent Moore is the AAFP's manager of health care financing and delivery systems and is a contributing editor to FPM. Author disclosure: nothing to disclose.

As I write this, the 2010 Medicare physician fee schedule is in stable condition, but the long-term prognosis is uncertain.1 This is of keen concern to many family physicians. However, the prevailing sentiment among physicians who are employed by hospitals, health systems and large medical groups seems to be one of frustration with Congress but general lack of interest. There is an apparent disconnect between the potential 21-percent reduction in Medicare fees and their compensation, which is usually based on a guaranteed contract tied to relative value units (RVUs). The reality is that what happens to the Medicare fee schedule and the RVUs on which it is based does have an impact on employed family physicians.

Impact of Medicare fees

A change in Medicare fees may not directly impact employed family physicians' income, at least for the term of their guaranteed contracts. But what happens to Medicare fees will have a direct impact on these physicians' employers, who bill Medicare for their services, and ultimately on the physicians themselves. For instance, if Medicare fees decreased 21 percent, a family physician's employer would face a potentially significant decrease in revenue, depending on the percent of their business that comes from Medicare and the extent to which private payers follow suit, as they often do. These employers, whether for-profit or not-for-profit, must also decrease costs to maintain financial viability.

This is where employed family physicians start to feel the cuts. For example, there may be fewer ancillary staff to support the physicians or fewer physician colleagues with whom to share the workload. And when these employed physicians' contracts come up for renewal, there may be a more direct impact, as the employer must determine whether to renew their contracts and at what compensation level.

Impact of RVUs

Many employed family physicians have contracts that measure productivity in terms of RVUs. The advantage of using RVUs is that they are not affected by the limitations associated with measuring charges or collections. Two physicians providing the same service will generate the same RVUs, regardless of the patients' insurance or the physicians' respective charge schedules. RVUs also reflect the fact that not all encounters or hours spent in patient care are the same. An office visit for treating tinea pedis with topical therapy would generate different RVUs than an office visit for evaluating and managing a patient's complaint of chest pain, assuming the visits reflected different CPT codes.


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That said, RVUs are not a perfect measure of physician productivity. Although the medical profession has input into the RVUs, the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers the Medicare program, ultimately decides what the RVUs for a given CPT code will be. Thus, universal consensus does not exist for all of the work RVUs for all of the CPT codes that make up the resource-based relative value scale (RBRVS, the basis for the Medicare fee schedule). Another limitation is that RVUs depend on appropriate CPT coding, so employed physicians who don't code correctly (perhaps because they think it doesn't matter in their situation) may be paid based on a false sense of their productivity.

How employed physicians' contracts define RVUs and how they are used can have a direct impact on their income. For instance, the total RVUs for a service include RVUs for physician work, practice expenses and malpractice expense. Some employers measure physician productivity based on total RVUs, and some measure it based only on physician work RVUs. If the employer is measuring only physician work RVUs and comparing those to benchmarks based on total RVUs, an employed family physician's productivity can look very poor.

Also, the number of RVUs assigned to CPT codes changes from year to year. If the contract does not specify what year's RVU schedule is to be used, employed family physicians cannot know whether they are being appropriately compensated. Physicians who want to know the RVUs for a given service in a given year can use the Medicare Physician Fee Schedule Look-Up tool online at

Worse yet, depending on what year their contracts specify, employed physicians may find themselves under-compensated relative to the current year's RVUs. For instance, between 2006 and 2010, the total RVUs for 99213, one of the most common services provided by family physicians, increased 31 percent. If the employed family physician's contract specifies 2006 RVUs, he or she is at a disadvantage compared to someone whose contract specifies 2010 RVUs.

Of course, RVUs are only part of the equation. The compensation per RVU (sometimes referred to as the conversion factor) also deserves attention. If the employer moves from 2006 RVUs to 2010 RVUs but reduces the level of dollars it pays per RVU, its employed physicians won't benefit.

So what?

What are employed family physicians to do with this information? First, they should shed any apathy they may have about what is happening in Washington relative to the Medicare physician fee schedule. What happens to Medicare fees will likely have an impact on employed physicians, just as it does on their self-employed colleagues. The impact may be indirect initially, but eventually it will catch up with them.

Second, employed physicians should pay attention to the terms of their employment contracts to ensure that they understand the mechanism for measuring their productivity and compensating them for their work. What year's RVUs are specified in the contract? How many RVUs must the physician generate to achieve a given level of compensation (i.e., what's the benchmark)? What types of RVUs (e.g., “work” or “total”) are being used? How does the compensation per RVU change as the RVUs change?

Finally, employed family physicians should pay attention to their coding. RVUs generated depends on CPT codes reported. Thus, if RVUs are an important part of the contract, so is appropriate coding.

It would seem easy, as an employed family physician with a guaranteed contract, to remain unconcerned with what happens to the Medicare physician fee schedule and the RVUs on which it is based. However, as my grandmother used to say, what is easy isn't always what is best.


The opinions expressed here do not necessarily represent those of FPM or our publisher, the American Academy of Family Physicians. We encourage you to share your views. Send comments to, or add your comments below. 

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