Understanding Basics of Physician Fee Schedule (PFS)

The Centers for Medicare & Medicaid Services (CMS) reimburses physicians for care furnished to Medicare Part B beneficiaries based on the Medicare Physician Fee Schedule (PFS), which lists the payment rates for more than 12,600 unique covered services. The PFS contains the resource costs associated with the physician work, practice expense, and malpractice insurance for the current procedural terminology (CPT) and Healthcare Common procedure Coding System (HCPCS) codes that represent office visits, surgical procedures, anesthesia services, diagnostic tests, and a range of other therapies.

CMS updates the PFS annually and publishes a Proposed Rule to allow for public comment before finalizing its policies. On July 7, 2022, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that announces and solicits public comments on proposed policy changes for Medicare payments under the Physician Fee Schedule (PFS), and other Medicare Part B issues, effective on or after January 1, 2023. Before analyzing the proposed rule, we discussed the basics of the physician fee schedule (PFS) in this article.

Basics of Physician Fee Schedule (PFS)

  • Since 1992, Medicare payment has been made under the Physician Fee Schedule (PFS) for the services of physicians and other billing professionals. 
  • Physicians’ services paid under the PFS are furnished in a variety of settings, including physician offices, hospitals, ambulatory surgical centers (ASCs), skilled nursing facilities and other post-acute care settings, hospices, outpatient dialysis facilities, clinical laboratories, and beneficiaries’ homes. 
  • Payment is also made to several types of suppliers for technical services, most often in settings for which no institutional payment is made.
  • For most services furnished in a physician’s office, Medicare makes payment to physicians and other professionals at a single rate based on the full range of resources involved in furnishing the service.  
  • In contrast, PFS rates paid to physicians and other billing practitioners in facility settings, such as a hospital outpatient department (HOPD) or an ASC, reflect only the portion of the resources typically incurred by the practitioner in the course of furnishing the service.
  • For many diagnostic tests and a limited number of other services under the PFS, separate payments may be made for the professional and technical components of services. The technical component is frequently billed by suppliers, like independent diagnostic testing facilities and radiation treatment centers, while the professional component is billed by the physician or practitioner.
  • Payments are based on the relative resources typically used to furnish the service. Relative value units (RVUs) are applied to each service for work, practice expense, and malpractice expense. These RVUs become payment rates through the application of a conversion factor. Geographic adjusters (geographic practice cost index) are also applied to the total RVUs to account for variation in practice costs by geographic area. Payment rates are calculated to include an overall payment update specified by statute.

Medicare PFS Payment Rates Formula

Payment = {[(Work RVU * Work GPCI) + (PE RVU*PE GPCI) + (MP RVU * MP GPCI)] * CF}


  • Work RVU: It reflects the relative time and intensity associated with furnishing a Medicare PFS service
  • Practice Expense (PE) RVU: It reflects the costs of maintaining a practice (such as renting office space, buying supplies and equipment, and staff costs) 
  • The Malpractice (MP) RVU: It reflects the costs of malpractice insurance
  • Geographic Practice Cost Indices (GPCIs): Each of the three RVUs is adjusted to account for geographic variations in the costs of practicing medicine in different areas within the country. These adjustments are called GPCIs, and each kind of RVU component has a corresponding GPCI adjustment.
  • Conversion Factor (CF): To determine the payment rate for a particular service, the sum of the geographically adjusted RVUs is multiplied by a CF in dollars. The statute specifies the formula by which the CF is updated on an annual basis.
  • QPP: Effective January 1, 2017, the Medicare Access and CHIP Reauthorization Act of 2015 repealed the previous formula to update the Medicare PFS and replaced it with several years of increases to overall payments for PFS services. In conjunction with that change, the law created the QPP, which rewards the delivery of high-quality and cost-efficient patient care.

Medical Billers and Coders (MBC) is a leading revenue cycle company providing complete medical billing services. We can assist you in receiving accurate insurance reimbursement for delivered services. To know more about our medical billing and coding services, contact us at info@medicalbillersandcoders.com / 888-357-3226

Reference: Calendar Year (CY) 2023 Medicare Physician Fee Schedule (MPFS) Proposed Rule

Published By - Medical Billers and Coders
Published Date - Jul-14-2022 Back

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