SUMMATION OF THE PROPOSED 2010 CHANGES TO PAYMENT POLICIES AND RATES UNDER MEDICARE PHYSICIAN FEE SCHEDULE

OVERVIEW

On July 1, 2009, the Centers for Medicare & Medicaid Services (CMS) issued proposed changes to the Medicare Physician Fee Schedule (MPFS) for 2010. CMS issues annual updates for the MPFS to set payment policies and the payment rates for services furnished by over 1 million physicians and non-physician practitioners (NPPs) to people with Medicare. The proposed rule is one-step in an annual process intended to ensure that CMS pays appropriately for these services, based on a methodology set out in the Medicare statute. After reviewing public comments, CMS will publish a final rule by November 1, 2009, to become effective for services furnished during calendar year (CY) 2010.

Medicare law requires CMS to adjust the MPFS payment rates annually based on an update formula, which includes application of the Sustainable Growth rate, or SGR that was adopted in the Balanced Budget Act of 1997. This formula has yielded negative updates every year beginning in CY 2002, although CMS was able to take administrative steps to avert a reduction in CY 2003, and Congress has taken a series of legislative actions to prevent reductions in CYs 2004-2009. Based on current data, CMS is projecting a rate reduction of -21.5 percent for CY 2010. CMS is making several proposals to refine Medicare payments to physicians, which are expected to increase payment rates for primary care services. The proposals include an update to the practice expense and malpractice expense component of physician fees. For 2010, CMS is proposing to include data about physicians’ practice costs from a new survey designed by the AMA and a revision to the equipment utilization percentage. CMS has proposed these changes to ensure that the payment systems are updated to reflect changes in medical practice and the relative value of services. CMS is also proposing to stop making payment for consultation codes, which are typically billed by specialists and are paid at a higher rate than equivalent evaluation and management services. Practitioners will use existing E/M service codes when providing these services instead. The resulting savings would be redistributed to increase payments for the existing E/M codes. CMS is also proposing to refine how Medicare recognizes the cost of professional liability insurance in its payment system.

SIGNIFICANT ISSUES IN THE MPFS CY 2010 PROPOSED RULE

Relative Value Units: The Social Security Act requires that payments under the physician fee schedule be based on national uniform relative value units (RVUs) based on the relative resources used in furnishing services. The Act requires that national RVUs be established for physician work, practice expense, and malpractice expense. Under the MPFS, a relative value is assigned to each of more than 7,000 types of services to capture the amount of work, the direct and indirect (overhead) practice expenses, and the malpractice premiums typically involved in furnishing the service. The higher the number of relative value units (RVUs) assigned to a service, the higher the payment. The RVUs for a particular service are multiplied by a fixed-dollar conversion factor to determine the payment amount for each service. CMS updates the conversion factor annually using a statutory formula adopted in the Balanced Budget Act of 1997 (BBA) that was intended to constrain the rapid growth in spending for physician and NPP services by setting a target rate of spending for a year, and then adjusting the update in subsequent years to keep actual spending over time in line with the target.

Practice expense (PE) RVU: Separate PE RVUs are established for procedures that can be performed in both a nonfacility, such as a physician’s office, and a facility setting, such as a hospital outpatient department. The difference between the facility and nonfacility RVUs reflects the fact that a facility typically receives separate payment from Medicare for its costs of providing the service, apart from payment under the PFS. The nonfacility RVUs reflect all of the direct and indirect PEs of providing a particular service. In CY 2007, the PE methodology was changed to a “bottom up” approach and was implemented over a 4-year period. In CY 2010, the transition period is concluded and PE RVUs will be calculated based entirely on the “bottom up” approach. The AMA conducted a new survey, the Physician Practice Information Survey (PPIS), which expanded to include nonphysician practitioners (NPPs) paid under the PFS. The PPIS was designed to update the specialty –specific PE/HR date used to develop PE RVUs. This survey increases the PE/HR (practice expense per hour) ratio for radiation oncology. The use of the PPIS is expected to result in a 12% decrease to the radiation oncology specialty. CMS proposes to utilize the PE/HR developed using PPIS data for all Medicare recognized specialties that participated in the PPIS for payments effective January 1, 2010. As part of the PE methodology associated with the allocation of equipment costs for calculating PE RVUs, CMS has an equipment utilization percentage. The current equipment utilization percentage is 50% and CMS states that a 50% rate does not reflect the actual equipment utilization. CMS is proposing that equipment priced over $1 million use a 90% equipment utilization rate. The impact of the proposed increase utilization rate for radiation oncology results in a 5% decrease. However, CMS welcomes any additional analyses regarding access issues, and, as in the CY 2008 and CY2009 rulemaking, they welcome additional empirical data relating to equipment utilization rates.

Geographic practice cost indices (GPCIs) RVU: The Act requires CMS to develop separate GPCIs to measure resource cost differences among localities compared to the national average for each of the three fee schedule components (work, PE and malpractice). It is a requirement that the GPCIs be reviewed and, if necessary, adjusted at least every 3 years. If more than 1 year has elapsed since the last GPCI revision, CMS must phase in the adjustment over 2 years, applying only one-half of any adjustments in each year. As required by MIPPA, beginning on January 1, 2010, the 1.000 work GPCI floor will be removed. As a result, 54 (out of 89) PFS localities will receive a decrease in their work GPCI. CMS is not proposing changes in the PFS locality structure at this time. In the event that CMS does decide to make a specific proposal for changing the locality configuration, they would provide extensive opportunities for public input and comments.

Malpractice relative value units (MP): CMS is proposing to implement a second review and update of malpractice RVUs. There were minor modifications to the MP relative values in 2006 and they are now being reviewed again. The calculation requires information on malpractice premiums, linked to the physician work conducted by different specialties that furnish Medicare services. Because malpractice costs vary by State and specialty, the malpractice premium information must be weighted geographically and across specialties. The proposed malpractice expense RVUs are based upon three data sources: Actual CY 2006 and CY 2007 malpractice premium data; CY 2008 Medicare payment data on allowed services and charges; CY 2008 Geographic adjustment data for malpractice premiums. Using the three data sources, CMS calculates risk factors to express the relative differences in national average premiums throughout the specialties. The risk factor is an index that is calculated by dividing the national average premium for each specialty by the national average premium for the specialty with the lowest average premium. The risk factor for radiation oncology is 2.30 (another example is allergy/immunology=1.0). CMS is assigning malpractice RVUs to the technical component of certain services. Specifically noted in the proposed rule was data on medical physicist malpractice premiums. Preliminary data has shown that the physicist malpractice premium was very low relative to a physician’s premium. The impact of the malpractice change proposed for 2009, specific to radiation oncology, is a negative 2%.

RVU Impacts: It is required that increases or decreases in RVUs may not cause the amount of expenditures for the year to differ by more than $20 million from what expenditures would have been in the absence of these changes. If this threshold is exceeded, CMS makes adjustment to preserve budget neutrality. The table below displays the average impact for each specialty based on Medicare utilization (for the full table please see page 717 of the federal registrar http://www.federalregister.gov/OFRUpload/OFRData/2009-15835_PI.pdf. The payment impact for an individual physician would be different from the average, based on the mix of services the physician provides. The average change in total revenues would be less than the impact displayed in the table because physicians furnish services to both Medicare and non-Medicare patients.

CY 2010 Total Allowed Charge Impact for Work, Practice Expense, and Malpractice Changes
Specialty / Allowed Charges (mil) / Impact of Work RVU Changes / Impact of PE RVU Changes** / Impact of MP RVU changes / Combined Impact
TOTAL / $77,744 / 0% / 1% / 0% / 1%
FAMILY PRACTICE / $5,055 / 2% / 5% / 1% / 8%
INTERNAL MEDICINE / $10,061 / 1% / 4% / 1% / 6%
GASTROENTEROLOGY / $1,779 / -1% / 1% / 0% / 0%
GENERAL PRACTICE / $719 / 1% / 5% / 0% / 6%
GENERAL SURGERY / $2,213 / -1% / 4% / 1% / 4%
GERIATRICS / $167 / 1% / 6% / 1% / 8%
HEMATOLOGY/ONCOLOGY / $1,888 / 0% / -5% / -1% / -6%
INTERVENTIAL RADIOLOGY / $227 / 0% / -10% / 0% / -10%
NEUROSURGERY / $586 / -1% / 3% / 1% / 2%
NUCLEAR MEDICINE / $72 / 0% / -12% / -2% / -13%
RADIATION ONCOLOGY / $1,799 / 0% / -17% / -1% / -19%
RADIOLOGY / $5,254 / 0% / -10% / -1% / -11%
UROLOGY / $1,989 / 0% / -6% / 0% / -7%
DIAGNOSTIC TESTING FACILITY / $1,044 / 0% / -19% / -5% / -24%
PORTABLE X-RAY SUPPLIER / $85 / 0% / -8% / -2% / -11%
**NOTE: The law caps on the MFS imaging payment amount at the comparable payment amount in the hospital outpatient payment system (OPPS cap). In the absence of the negative current law CY 2010 MFS update, the proposed PE change to the equipment utilization rate for expensive equipment from 50-90% would increase expenditures by approximately 1% due to a loss of savings from the OPPS cap.

Work RVU impacts are almost entirely attributable to the proposed changes for consultation services. CMS is proposing to no longer recognize the billing codes for consultation services. CMS is budget neutrally eliminating the use of all consultation codes (except telehealth) and have allocated the work RVUs that were allotted to these serves to the work RVUs for new and establish office visit services, initial hospital visit, and initial nursing facility visits to reflect this change.

PE RVU impacts are primarily attributable to the proposed incorporation of PE data from the Physician Practice Information Survey (PPIS). For two specialties, Independent Diagnostic Testing Facilities and Radiation Oncology, the impact of CMS proposed change in the utilization rate of expensive equipment is significant. CMS estimates that for these two specialties, the utilization rate change will result in impacts of -2 and -5%. These impacts are displayed in the table above.

Malpractice RVU impacts are attributable to the changes proposed for the five-year review of the MP RVUs. These impacts are primarily driven by the expansion of the MP premium data collection and the proposed changes to the methodology for TC services.

The proposed RVUs impact ranges from an increase of +12% for optometry to decrease of -24% for IDTFs. The effect of CMS proposal on primary care specialties such as General Practice, Family Practice, Internal Medicine, and Geriatrics are positive. These impacts are prior to the application of the negative CY 2010 conversion factor update under the current statute.

Conversion Factor: Since 1999, Physician Fee Schedule rates have been updated under the sustainable growth rate (SGR) system. The general thought concept under the SGR system is that growth in total expenditures for physicians’ services should be limited to sustainable levels. If expenditures exceed a statutorily determined percentage increase amount, the PFS update for the following year is reduced. If expenditures are less than the percentage increase amount, the PFS update is increase in the following year. The update is adjusted based on a comparison of cumulative actual spending to target spending from a base period through the current year. Thus, if spending exceeds the target in a single year, the following year’s update must be adjusted to reduce annual expenditures, as well as recoup the difference between target and actual spending in the prior year. The SGR is a cumulative system, meaning that past increases in spending levels above the target will continue to affect future PFS updates until there has been sufficient adjustment to make target and actual spending equal. In 2003, the President signed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA). The Act specified that the update to the single conversion factor (CF) for CYs 2004 and 2005 shall not be less than 1.5% to the PFS rates. In 2004, instead of applying the update of -4.5%, CMS applied an increase of 1.5% to the PFS rates. Congress took similar actions to avert reductions to PFS rates for CYs 2006-2009. Because legislation did not affect the computation of the levels of allowed and actual expenditures for these years, there is now a substantial difference between cumulative target and actual spending that must be accounted for through further reductions to the PFS rates. CMS estimates that the difference between cumulative target and actual spending from the 1996/1997 base year through December 2009 at $69.7 billion. CMS estimates the PFS update would be -21.5% for CY 2010. CMS estimates further reductions of between 5 and 6.5% for the next several years.