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Final Policy, Payment, and Quality Provisions in the Medicare Physician Fee Schedule for Calendar Year (CY) 2017

Final Policy, Payment, and Quality Provisions in the Medicare Physician Fee Schedule for Calendar Year (CY) 2017

Final Policy, Payment, and Quality Provisions in the Medicare Physician Fee Schedule for Calendar Year (CY) 2017

On Wednesday, November 2, 2016, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that updates payment policies and payment rates for services furnished under the Medicare Physician Fee Schedule (PFS) on or after January 1, 2017. CMS finalized a number of new PFS policies that will improve Medicare payment for those services provided by primary care physicians for patients with multiple chronic conditions, mental and behavioral health issues, and cognitive impairment conditions.

In addition, the final rule addresses other topics related to the Medicare program, such as release of certain Medicare Advantage bid data and Part C and Part D Medical Loss Ratio (MLR) data, enrollment requirements for providers and suppliers in Medicare Advantage, and the Medicare Diabetes Prevention Program (MDPP) expanded model. For more details on the Diabetes Prevention Program model test, visit the fact sheet for that portion of the rule:

The CY 2017 PFS final rule is one of several rules that reflect a broader Administration-wide strategy to create a health care system that results in better care, smarter spending, and healthier people.

Background on the Physician Fee Schedule

Payment for services furnished by physicians and other practitioners in all sites of service is made under the PFS. These services include but are not limited to visits, surgical procedures, diagnostic tests, therapy services, and specified preventive services.

In addition to physicians, a variety of practitioners and entities, including nurse practitioners, physician assistants, and physical therapists, as well as radiation therapy centers and independent diagnostic testing facilities are paid under the PFS.

Payments under the PFS are based on the relative resources typically used to furnish the service. Relative value units (RVUs) are applied to each service for physician work, practice expense, and malpractice. These RVUs become payment rates through, among other things, the application of a conversion factor, updated each year as specified in the statute.


Improving Payment Accuracy for Primary Care, Care Management, and Patient-Centered Services

CMS is continuing the Agency’s ongoing efforts to improve payment within traditional fee-for-service Medicare for primary care and patient-centered care management. CMS is finalizing several revisions to the PFS billing code set to more accurately recognize the evolving work of primary care and other cognitive specialties to accommodate the changing needs of the Medicare patient population.

Historically, care management and cognitive work has been “bundled” into the evaluation and management visit codes used by all specialties. This has meant that payment for these services has been distributed equally among all specialties that report the visit codes, instead of being targeted toward practitioners who manage care and/or primarily provide cognitive services.

To improve payment accuracy for such care, in recent years, CMS created new codes that separately pay for chronic care management and transitional care management services, and solicited public comment on additional policies the Agency should pursue. After considering the public comments received, for CY 2017, CMS is finalizing a number of coding and payment changes to better identify and value primary care, care management, and cognitive services:

  • Make separate payments for certain existing Current Procedural Terminology (CPT) codes describing non-face-to-face prolonged evaluation and management services.
  • Revalue existing CPT codes describing face-to-face prolonged services.
  • Make separate payments using a new code to describe the comprehensive assessment and care planning for patients with cognitive impairment (e.g., dementia).
  • Make separate payments using new codes to pay primary care practices that use interprofessional care management resources to treat patients with behavioral health conditions. Several of these codes describe services within behavioral health integration models of care, including the Psychiatric Collaborative Care Model that involves care coordination between a psychiatric consultant or behavioral health specialist, behavioral health care manager, and the primary care clinician, which has been shown to improve quality of care.
  • Make separate payments for codes describing chronic care management for patients with greater complexity.
  • Make several changes to reduce administrative burden associated with the chronic care management codes to remove potential barriers to furnishing and billing for these important services.

CMS believes that these coding and payment changes will improve health care delivery for the types of services holding the most promise for healthier people and smarter spending, and advance our health equity goals.

CY 2017 Identification and Review of Potentially Misvalued Services 

Section 3134(a) of the Affordable Care Act requires the Secretary to periodically identify potentially misvalued services and to review and make appropriate adjustments to the relative values for those services.

Through the Achieving a Better Life Experience (ABLE) Act of 2014, Congress set a target for adjustments to misvalued codes in the fee schedule for 2016, 2017, and 2018. The target was one percent for 2016, and will be 0.5 percent for 2017 and 2018.

If the net reductions in misvalued codes in 2017 are less than 0.5 percent of the total revenue under the fee schedule, a reduction equal to the percentage difference between 0.5 percent and the percent of expenditures represented by misvalued codes reductions must be made to all PFS services.

After consideration of public comments, CMS finalized misvalued code changes that achieve 0.32 percent in net expenditure reductions. These changes do not fully meet the misvalued code target of 0.5 percent, thus requiring an adjustment to the 2017 overall physician update.   After applying this and other adjustments required by law, the 2017 PFS conversion factor is $35.89, an increase to the 2016 PFS conversion factor of $35.80.

Valuation of Moderate Sedation Services  

In prior rulemaking, CMS noted that practice patterns for certain endoscopic procedures appeared to be changing, with anesthesia increasingly being separately reported for these procedures even though payment for sedation services was built-in to the payment to the physician furnishing the primary procedure. 

In response to CMS’ requests in prior rulemaking, the American Medical Association CPT Editorial Panel created separate codes for reporting moderate sedation, and the Specialty Society Relative Value Update Committee provided CMS with recommended values for the moderate sedation codes and recommended adjustments to valuation of the procedure codes. 

CMS is finalizing values for the new CPT moderate sedation codes and adopting a uniform methodology for valuation of the procedural codes that currently include moderate sedation as an inherent part of the procedure. CMS is also augmenting the new moderate sedation CPT codes with an endoscopy-specific moderate sedation code, and finalizing valuations reflecting the differences in physician survey data between gastroenterology and other specialties. 

Medicare Telehealth Services: End-Stage Renal Disease (ESRD) and Advanced Care Planning 

CMS is finalizing the addition of several codes to the list of services eligible to be furnished via telehealth. These include:

  • End-stage renal disease (ESRD)-related services for dialysis;
  • Advance care planning services;
  • Critical care consultations furnished via telehealth using new Medicare G-codes.

CMS is also finalizing payment policies related to the use of a new place of service code specifically designed to report services furnished via telehealth.

Payment for Mammography Services 

CMS is finalizing a new coding framework based on new CPT coding for mammography services. The coding revision reflects current technology used in furnishing these services, including a transition from film to digital imaging equipment and elimination of separate coding for computer aided detection services. CMS is maintaining the current valuation for the technical component of mammography services in order to implement coding and payment changes over several years. Due to operational issues involving claims processing for preventive services, CMS is implementing the new coding framework and descriptors through use of G-codes for Medicare.

Updated Geographic Practice Cost Indices (GPCI) for CY 2017

General GPCI Update 

As required by statute, CMS adjusts payments under the PFS to reflect local differences in practice costs using GPCIs for each component of PFS payment—physician work, practice expense, and malpractice expense. Consistent with the law, CMS is finalizing new GPCIs using updated data to be phased in over CY 2017 and CY 2018.

In conjunction with this update, CMS is revising the methodology used to calculate GPCIs in the U.S. territories for consistency among the Caribbean islands. This revision will increase overall PFS payments in Puerto Rico. 

California Localities

The Protecting Access to Medicare Act of 2014 requires that, beginning in CY 2017, CMS use new locality definitions for California based on a combination of Metropolitan Statistical Areas as defined by the Office of Management and Budget and the current locality structure. The California locality provision is not budget-neutral, meaning that payments to physicians in California will increase in the aggregate without across-the-board reductions in physician services elsewhere.

The movement to the new locality structure in California will increase payment to many physicians in urban parts of California without causing any reductions in specified counties that the law “holds harmless” from such effects. In a few other areas of California, the new locality structure may decrease Medicare PFS payments. 

Collecting Data on Resources Used in Furnishing Global Services

Section 523 of the Medicare Access and CHIP Reauthorization Act of 2015 requires CMS to gather data on visits in the post-surgical period that could be used to accurately value these surgical services.

In this year’s final rule, CMS finalizes a data collection strategy that significantly reduces the burden on practitioners compared to the proposed rule by:

  • Requiring reporting of post-operative visits only for high-volume/high-cost procedures
  • Using existing CPT code 99024 instead of the proposed G-codes.
  • Requiring reporting only from a sample of practitioners consisting of those in larger practices (10 or more practitioners) in specified states, and
  • Allowing all others to report voluntarily.

CMS is hopeful that use of the existing CPT code for reporting these services will be significantly less burdensome than the proposal to require time-based reporting using the G-codes.

In addition, while practitioners are encouraged to begin reporting post-operative visits for procedures furnished on or after January 1, 2017, the requirement to report will be effective for services related to global procedures furnished on or after July 1, 2017. To the extent that these data result in proposals to revalue any global packages, that revaluation will be done through notice and comment rulemaking at a future time.

Zero-day Global Services that are Typically Billed with an Evaluation and Management (E/M) Service with Modifier 25 

CMS has noted that several high volume procedure codes currently valued with routine visits as part of the global package are typically reported with a modifier that allows separate payment for visits, even though the modifier should only be used for reporting services beyond those usually provided. Therefore, CMS believes the services may be misvalued. As a result, CMS is prioritizing 19 services for review as potentially misvalued and intends to investigate this policy concern in future rulemaking. 


The final rule requires health care providers and suppliers to be screened and enrolled in Medicare in order to contract with a Medicare Advantage organization to provide items and services to beneficiaries enrolled in Medicare Advantage health plans. 

Background on Medicare Advantage Provider and Supplier Enrollment in the PFS    

This final rule creates consistency with CMS’s current health care provider and supplier enrollment requirements for all other Medicare (Part A, Part B, and Part D) programs. It is also consistent with a recently published Medicaid Managed Care Rule that requires health care providers in a Medicaid managed care plan’s network to be screened and enrolled with the state Medicaid program. 

CMS believes this rule is necessary to help ensure that Medicare enrollees receive appropriate or medically-necessary items or services from health care providers and suppliers that fully comply with Medicare enrollment requirements. The Medicare enrollment process helps to protect Medicare beneficiaries and the Medicare Trust Funds by carefully screening health care providers and suppliers, especially those that could pose an elevated risk to Medicare or to beneficiaries, to ensure that they are qualified to furnish Medicare items and services. 

Medicare beneficiaries, the Medicare Trust Funds, and the program at large are at risk when providers and suppliers have not been adequately screened and enrolled. We believe our enrollment processes will further ensure that only qualified providers and suppliers treat Medicare beneficiaries. 

For instance, Medicare Advantage network providers that perform medically unnecessary tests, treatments, or procedures could threaten enrollees’ welfare, as could a physician who routinely overprescribes prescription drugs. Requiring providers and suppliers that contract with a Medicare Advantage organization and furnish items and services to enroll in Medicare allows CMS to provide more robust oversight and conduct consistent verification of information provided by these health care providers and suppliers. 

Any time a health care provider or supplier fails to meet CMS enrollment requirements or violates certain federal rules and regulations, CMS may revoke the provider or supplier’s enrollment and prevent them from billing Medicare Part A or B programs and from prescribing Part D drugs. This final rule also prevents Medicare Advantage plans from making payments to individuals or entities that have been excluded by the Office of Inspector General or have been revoked by the Medicare program, regardless of if that provider or supplier is out of network.     

Health care providers or suppliers – either as individuals or entities – can enroll if they are eligible in accordance with the requirements of the Social Security Act. The requirements of this rule apply to:

  • Medicare Advantage network providers and suppliers;
  • First-tier, downstream, and related entities (FDR);
  • Health care providers and suppliers in Program of All-inclusive Care for the Elderly (PACE) plans;
  • Suppliers in Cost Health Maintenance Organizations (Cost HMOs) and/or competitive medical plans (CMPs). Medicare Cost HMOs and CMPs are types of Medicare health plans available in certain areas of the country. Some Cost HMOs or CMPs only provide coverage for Part B services. These plans do not include Medicare Part D prescription drug benefits; they are sponsored by employer or union group health plans or offered by companies that do not provide Part A services; 
  • Health care providers and suppliers participating in demonstration and pilot programs;
  • Locum tenens suppliers that provide physician staffing services for hospitals, outpatient medical centers, government and military facilities, group practices, community health centers, and correctional facilities; and      
  • Incident-to-suppliers that furnish integral, but incidental, professional services in the course of diagnosis or treatment of an injury or illness.  

As part of these changes, the enrollment provisions would be included in CMS contracts with the designated plans and programs. Plans that do not meet these requirements may be subject to contract actions ranging from intermediate sanctions to contract termination. These provisions will begin two years after publication of this final rule and will be effective on the first day of the plan year. 


Consistent with the Administration’s commitment to transparency and making data publicly available, CMS is finalizing a proposal to release two sets of data related to plan participation in Medicare Advantage and the Part D prescription drug program. CMS hopes that making this data publicly available will assist public research that will support future policymaking efforts in the Medicare program and provide valuable information to beneficiaries in making enrollment decisions.

Medicare Advantage Bid Pricing Data 

Each year, Medicare Advantage organizations (MAOs) apply to participate in the Medicare Advantage program through a bidding process. MAOs submit bids to CMS that reflect the MAO’s estimated costs associated with providing benefits to enrollees. CMS approves bids that meet a variety of statutory and regulatory conditions. 

CMS is finalizing the release of data associated with these bids on an annual basis. The data released would be at least five years old and would exclude certain information considered to be proprietary, as well as beneficiary-identifying information. 

Medical Loss Ratio Data

The Affordable Care Act created a minimum Medical Loss Ratio (MLR) requirement for MAOs and Part D plan sponsors, comparable to the MLR standard created for commercial plans. Under the MLR standard for Medicare Advantage and Part D, at least 85 percent of revenues must be attributed to claims and quality improvement activities. 

CMS already makes commercial MLR data public, as required by the Affordable Care Act. This rule finalizes the release of certain Medicare health and drug plan MLR data on an annual basis.  


Section 218(b) of the Protecting Access to Medicare Act (PAMA) of 2014 establishes a new program under the statute for fee-for-service Medicare to promote the use of appropriate use criteria (AUC) for advanced diagnostic imaging services. 

CMS established the first of the four components of this program in the CY 2016 Physician Fee Schedule final rule focusing on requiring an evidence-based and transparent process for developing AUC. AUC under this program may only be developed by qualified provider-led entities (the initial list of qualified entities is posted on the CMS website at This year’s final rule focuses on the next component of the Medicare AUC program and includes policies for priority clinical areas, clinical decision support mechanism (CDSM) requirements, the CDSM application process, and exceptions for ordering professionals for whom consultation with AUC would pose a significant hardship. 

Priority clinical areas are intended to be the areas of focus for future outlier calculations when determining which ordering professionals will be subject to prior authorization. This will be discussed in future rulemaking. CMS finalized the first eight priority clinical areas including: (1) Coronary artery disease (suspected or diagnosed); (2) Suspected pulmonary embolism; (3) Headache (traumatic and non-traumatic); (4) Hip pain; (5) Low back pain; (6) Shoulder pain (to include suspected rotator cuff injury); (7) Cancer of the lung (primary or metastatic, suspected or diagnosed); and (8) Cervical or neck pain. 

CMS finalized the CDSM application to allow for preliminary qualification or full qualification based on the whether the applicant can demonstrate that all requirements are met at the time of application. The application deadline for this first round of applications is March 1, 2017. Applicants that cannot demonstrate adherence to all requirements may provide documentation to include when and how they intend to meet the remaining requirements. These applicants are eligible for preliminary qualification.

CDSMs are the electronic tools through which a clinician consults AUC to determine the level of clinical appropriateness for an advanced diagnostic imaging service for that particular patient’s clinical scenario. 


The Medicare Shared Savings Program was established to promote accountability for a patient population, coordinate items and services under parts A and B, and encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery through provider and supplier participation in an Accountable Care Organization (ACO). The CY 2017 PFS final rule includes the following several finalized policies specific to certain sections of the Shared Savings Program regulations such as:

  • Updates to ACO quality reporting requirements, including changes to the quality measure set and the procedures for quality validation audits, revisions to terminology used in quality assessment, revisions that would permit eligible professionals in ACOs to report quality separately from the ACO, and updates to align with the Physician Quality Reporting System and the final Quality Payment Program;
  • Modifications to the assignment algorithm to align beneficiaries to an ACO when a beneficiary has designated an ACO professional as responsible for their overall care;
  • Establishment of beneficiary protection policies related to use of the Skilled Nursing Facility 3-day waiver; and,

The final rule can be found at the Federal Register website here:


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