Legislation porposes new Medicare payment rule

August 1, 2006

The proposed change would make the practice expense methodology more transparent and easier to understand, would make it consistent across procedures, and would utilize data that has been collected by specialty societies.

The proposal was published as organizations representing physicians repeated warnings that if Congress fails to act before it adjourns this fall, Medicare will cut overall physician payments by another 5 percent on Jan. 1, 2007, with further reductions totaling as much as 37 percent on tap through 2015.

The American Medical Association (AMA) pointed out that those cuts would come even as practice costs during the same period are expected to increase 22 percent. Congress recently passed legislation reversing the physician payment cut of 4.4 percent that went into effect on Jan. 1, 2006, and setting the Medicare conversion factor at its 2005 level. The 2006 Medicare Trustees report forecasts a cut of about 5 percent in 2007 and cumulative cuts of more than a third by 2015.

While that issue was being waged on the political front, CMS said its changes, proposed June 21, will improve the accuracy of payments to physicians for Medicare services, and will increase payments for "evaluation and management" services.

However, the overall cost of those payment changes is estimated at some $4 billion, and the agency must meet budget neutrality requirements imposed by Congress. Thus, CMS also proposed changes in the way it calculates the practice expense portion of the fee schedule, which could cause offsetting reductions in payments.

According to CMS, its proposed payment rule reflects the recommendations of the Relative Value Update Committee (RUC) of the American Medical Association.

"It's time to increase Medicare's payment rates for physicians to spend time with their patients," says CMS Administrator Mark McClellan, M.D., Ph.D. "We expect that improved payments for evaluation and management services will result in better outcomes, because physicians will get financial support for giving patients the help they need to manage illnesses more effectively."

CMS says other changes in physician payment policy will be addressed in a separate proposed rule to be published at a later date. The agency says it will respond to public comments on both sets of proposals and announce final policies in early November. The changes will apply to payments for services furnished to Medicare beneficiaries beginning with 2007.

More complex; more remuneration

According to CMS, the new proposal constitutes the largest revisions ever instituted for services related to patient evaluation and management.

For example, the work component for relative value units (RVUs) associated with an intermediate office visit, the most commonly billed physician's service, will increase by 37 percent. The work component for RVUs for an office visit requiring moderately complex decision-making and for a similar hospital visit will increase by 29 percent and 31 percent respectively.

CMS says the proposal would revise work RVUs for more than 400 services to better reflect the work and time required of a physician in furnishing the service, which can include procedures performed as well as services involved in evaluating a patient's condition and determining a course of treatment. Work RVUs account for approximately $35 billion in Medicare payments - more than half of overall Medicare payments under the fee schedule.

Practice expenses revisited

CMS is also proposing changes to the way Medicare calculates the practice expense portion of physician fee schedule payments.

Practice expenses account for approximately $30 billion in Medicare Physician Fee Schedule payments, representing about 45 percent of overall Medicare payments under the schedule.

The proposed change would make the practice expense methodology more transparent and easier to understand, would make it consistent across procedures and would utilize data that has been collected by specialty societies and reviewed by the AMA RUC, CMS explains.

In the notice, CMS proposes to: