Medicare Fee Schedule

The Medicare Physician Fee Schedule, established annually by CMS, outlines payments to physicians for the coming year. In establishing the fee schedule, Medicare takes into account recommendations from physicians groups via the RUC, its own analysis, as well as legislative mandates.

Get information on how this year's fee schedule will impact dermatology and what is proposed for next year: 

How are Medicare fees set?

The Medicare Physician Fee Schedule, established annually by CMS, outlines payments to physicians for the coming year. However, the actual process begins well before then when values are determined for CPT codes.

What is in a codes value?

Codes are valued based on the resources needed to perform the associated services. Each code is valued based on three basic components:

How are Medicare fees set


Who decides the value?

Before any dollar values are assigned, each of these components is allotted a certain number of "relative value units' by an intersociety committee of the American Medical Association: the Relative Value Scale Update Committee or RUC. The American Academy of Dermatology is among the specialty societies with representation on the RUC.

The first step in establishing physician work values for CPT codes is a survey that is conducted by specialty societies that are the primary users of that code. A standardized RUC survey instrument is used, and the specialty develops recommendations based on the results. The survey aims to quantify everything encompassed in a service, including the amount of time. Minutes matter, especially for services that don’t take long – so accuracy when completing RUC surveys is important.

CMS publishes the current physician times and RVUs assigned to codes. You can find the 2017 proposed times and proposed RVUs on the CMS website. 

The specialty also develops a list of supplies, equipment, and non-physician clinical inputs that are used to make practice expense (PE) recommendations. The results of the survey and the PE recommendations are presented by the specialty to the RUC, which then develops its own recommendations that are submitted to CMS.

However, CMS may choose to accept the values or may make changes for a variety of reasons. For example, when values for existing codes are being re-reviewed CMS considers changes in the time that it takes to perform a service when establishing new RVUs. If a service now takes half the time that it did when RVUs were last assigned, the RVUs will be significantly reduced, even if the RUC does not recommend the reduction.

How are payments set?

The RUC does not weigh in on the monetary value associated with an RVU. CMS determines what a single RVU's dollar value is using a number known as the Conversion Factor. The Conversion Factor is updated annually by CMS based on parameters set by Congress.

Total RVUs for code x Conversion Factor = Medicare payment amount

What is the Physician Fee Schedule?

All of these updates are published annually in the Federal Register in a rule called the Physician Fee Schedule. The Schedule includes:

  • Updates to the Conversion Factor
  • New or changed values for CPT codes
  • Information about various Medicare physician programs such as the payment innovation programs, quality reporting initiatives, EHR incentives, etc.

CMS's plans are first issued as a proposed rule, which is opened to comment then revised before the final rule is published.

Physician Fee Schedule timeline

CMS publishes a proposed Physician Fee Schedule and makes it publically available for review and comment.
July - September
Public comments. Individuals and organizations like the AADA review the proposal and provide feedback to CMS on issues of concern.
September - November
CMS evaluates comments and makes revisions to the fee schedule.
CMS issues the Final Physician Fee Schedule outlining payment and other requirements.
January 1
New Physician Fee Schedule takes effect.