Medicare reports on the 2016 Physician Fee Schedule Value Modifier

For physicians who haven't begun working on the Value Modifier, 2016 is the year for immediate action.


The Value Modifier (VM) is Medicare's physician pay-for-performance program that rewards or penalizes primary care physicians and their practices for the quality and cost of care they provide. For calendar year 2015, Medicare began applying the VM to professional fees paid under its Physician Fee Schedule (PFS) for physicians in groups of 100 or more clinicians. That year, 14 of 106 groups received an upward adjustment to their fees of 4.89% and 11 groups were penalized with a 0.5% to 1% downward adjustment. The 319 groups who did not report quality measures to Medicare were penalized 2.5%.

For 2016, physician groups of 10 or more, of which there are 13,813, are subject to the VM. In this round, 5,418 groups were penalized the maximum downward adjustment of 4% in their fee schedule because they did not participate in the Medicare Physician Quality Reporting System (PQRS). Of the remaining 8,395 groups that did report to PQRS, 70 received an upward adjustment of 16% and 58 received a 32% increase. No group qualified for the maximum possible adjustment of 48%. Downward adjustments hit 59 groups with penalties of 1% to 2%. The 2016 VM awards and penalties are shown in the Table.

Photo by Thinkstock
Photo by Thinkstock

The VM adjustment employs a 2-year look-back period, so performance in 2014 determined the VM for 2016. Medicare will apply the VM in 2017 to all physicians in solo or group practices that provide primary care. Performance in 2015 will determine the 2017 VM and that in 2016 will determine the 2018 VM.

So if you haven't started working on this already, 2016 is the year for immediate action. Eligibility for VM rewards depends on participation in PQRS. Physicians, including hospitalists, who work in solo and group practices that provide at least some primary care can be penalized with a 1% to 2% reduction in fees in 2017 for not participating last year and a 2% to 4% reduction for 2018 for nonparticipation in 2016.

Hospitalists who are members of a group filing claims under a single taxpayer identification number (TIN) that includes primary care physicians are subject to the VM fee schedule adjustment. VM adjustment of a group that includes primary care physicians depends on the performance of only its primary care physicians, who are graded on the quality and cost of care for their patients based on all claims filed during the year by all clinicians who saw the patient during that year.

Physicians who never file an outpatient primary care code (CPT codes 99201-99215 and 99304-99341) are not subject to the VM awards and penalties unless they are members of a group that includes primary care physicians. They do remain subject to PQRS penalty if they do not report to that program, and their diagnostic documentation affects the performance of the primary care physicians whose patients they treat. Those individual practitioners and groups depend heavily on precise inpatient documentation that accurately reflects the true severity of their patients' illnesses.

How do solo and group practices reap the rewards of the VM? The first essential step is participation in the Medicare PQRS program to avoid the maximum PQRS/VM penalty of up to 4% in 2018 based on 2016 results. Next, ensure the best quality of care and keep costs as low as reasonably possible. Limit low-yield diagnostic testing or evaluation that won't change management decisions. Consider costly consultations carefully. Take an appropriate, reasonable approach to therapeutic choices. For example, does a high-cost drug or treatment really have significant advantages over a less costly alternative?

Finally, optimum results depend on precise medical record documentation that accurately reflects patients' severity of illness and the complexity of care provided as reflected by the ICD-10 codes submitted on the hospital's inpatient claims.

Quality of care often seems somewhat subjective: “Quality is in the eye of the beholder.” But whether we like it or not, thousands of objective criteria have been assigned to outcome and performance measures, with or without clinical validity, to quantify our clinical performance. It certainly helps to employ evidence-based and professional consensus guidelines to meet some of these expectations, but perhaps the most crucial factor in the analysis of quality data is adjustment for severity of illness.

Almost every measure of quality is severity-adjusted based on the number and severity of conditions in a given patient population, using the diagnostic codes submitted on claim forms to Medicare and other payers. But codes often do not accurately reflect severity of illness because coding rules can be inconsistent with clinical practice and physician documentation terminology is often insufficient to allow assignment of the correct code. For example, acute renal insufficiency is a nonspecific term that does not capture the severity of acute kidney injury/acute renal failure. The diagnosis of health care-associated pneumonia treated with antibiotics for gram-negative infection will be classified as nothing more than simple community-acquired pneumonia unless the suspected organism or organisms are identified to reflect the true severity of illness in the correct code.

In summary, Medicare's VM is having a greater impact on physician fees, putting all clinicians in competition for health care dollars based on analyses of the quality and cost of the health care they provide. The number and impact of such pay-for-performance programs are growing rapidly. Winners and losers will be determined not only by the actual cost and quality of care provided but also by the severity of illness adjustment applied to those outcome measures. To be successful, physicians must demonstrate responsible stewardship of health care resources, adopt clinical practices based on evidence and consensus guidelines, and employ precise clinical documentation terminology that translates into the correct codes to fully and completely describe the severity of illness of their patients.