CMS Publishes Physician Fee Schedule for 2006

On August 8, 2005, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register its proposed physician fee schedule rule for 2006. Comments are due by COB September 30, 2005.

MAJOR ISSUES

Update and SGR
The physician fee update is based on two factors: (1) the Medicare Economic Index, which measures the inflationary change in the cost of operating a physician practice, and (2) performance under the Sustainable Growth Rate system, which compares actual spending for physician services to a target rate of spending. If actual spending exceeds the target, as it has in the past three years, then the law requires CMS to reduce the update factor. As expected, the SGR target has been substantially exceeded and, as a result, CMS projects a negative update for 2006 of minus 4.3 percent. Most observers assume that Congress will again enact a modest update of perhaps + 1.5 percent for 2006.

CMS highlighted five areas of increased spending growth that are largely responsible for the proposed reductions:

1. An increase in spending for office visits, with a shift toward longer and higher intensity visits;
2. Greater utilization of minor procedures, including physical therapy, and drug administration;
3. More patients receiving more frequent and more complex imaging services, such as an MRI or an echocardiogram;
4. More laboratory and other physician-ordered tests; and
5. Higher utilization of physician administered drugs.

CMS invites comments on these trends including which changes are likely to be associated with health improvements and which ones have “questionable” health benefits. CMS notes that it has consulted with the AMA and other physician groups but has not yet reached any firm conclusions as to how, or if, to curb these trends. CMS is supportive of MedPAC’s recommendation for the development of quality measures related to the quality and efficiency of care furnished by physicians, and notes that it wants to better understand geographic variation and local practice patterns in the context of the five trends identified above.

CMS says it is exploring means of sharing information related to quality and resource use with physicians which CMS believes can help restrain spending increases.

Practice Expenses
The most significant policy change in the proposed rule are changes proposed in the methodology for calculating practice expense values under the resource-based relative PE system. For the future, CMS proposes to base the calculation of direct practice expenses (clinical staff, supplies, and equipment) on a “bottom-up” methodology. Under this system, the direct practice expenses are based on the inputs approved by the CPEP/PEAC process. In contrast, under the current “top down” methodology, under a very complex formula, the allowable direct expenses approved by the PEAC are “scaled” to the performing specialty’s PE per hour. The PE per hour is, of course, derived from the SMS surveys of physician practices and/or a supplemental PE survey sponsored by one of the specialty societies. Under the proposal, indirect practice expenses—rent, office overhead, etc., would continue to be based on the current top down method. To lessen the adverse impact on any specialty because of this change, CMS proposes to phase in the change over a four year period.

Another change to the PE system is the proposed elimination of the non-physician work pool which is used to calculate the practice expenses for technical component services and other services without a physician work value. The NPWP was initially developed to protect the technical components of cardiology and radiology services from sustaining major reductions under the resource-based PE system which was in part due to the fact that the costs of TC services were not adequately captured in the SMS data base. However, for 2006, CMS is accepting supplemental PE studies from cardiology, radiology, and radiation oncology which will largely obviate the need for the special treatment of these services under the NPWP. In addition to these specialties, supplemental PE studies have also been accepted for gastroenterology, dermatology, urology, and allergy.

The changes in the PE methodology, which will be budget neutral, will lead to some substantial redistributions between specialties. Some examples of the specialty impact on total revenues of the PE changes at the end of the four year transition:

Cardiology –2.1%
Cardiac Surgery –3.9%
Dermatology +17.5%
Gastroenterology +5.7%
Hematology/Oncology +1.4%
Internal Medicine –0.6%
Neurology –2.2%
Ophthalmology –4.4%
Otolaryngology –2.2%

Malpractice Values
CMS proposes to modify calculations for malpractice RVUs by limiting the risk-factor data associated for specialties that perform less than 5% of a particular procedure or service. This will help assure that the malpractice RVUs are based on the experience of the specialties that primarily perform the services. There are also some proposed changes to cardiac code risk factors, applying surgical risk factors to several non-surgical cardiac procedures, and reduces risk factors for psychology, social work, physical therapy, chiropractic, and optometry. The changes have no measurable impact on most specialties with a maximum +0.1 impact on a few specialties.

Changes to ASP Methodology
In determining the Average Sales Price (ASP), manufacturers are required to take into account discounts and other price concessions. Since there may be a lag in time between a sale and the granting of a price concession, manufacturers are required to estimate the costs attributable to these concessions. CMS believes that the accuracy of the estimation of concessions can be improve, particularly for wholesale chargebacks, and CMS proposes some changes in how the data is reported to better capture this information. CMS is also proposing a change in the method for reporting the wholesale acquisition cost (WAC) for single source drugs and for drugs for which data on sales is not yet available. It is not clear what impact, if any, this will have on the determination of the ASP. CMS will elaborate on these and other drug price reporting requirements in a forthcoming information collection notice. CMS also notes that currently the law directs the OG to conduct studies to compare the ASP with the widely available market price (WAMP) and the average manufacturer price (AMP). Where the ASP for a drug exceeds the WAMP or AMP by some threshold (currently 5%), the Secretary may disregard the ASP. For 2006, CMS has decided to retain the 5% threshold percentage. As of now, the OIG is still conducting its first review.

Telehealth Services
CMS proposes to add individual medical nutrition therapy to the list of Medicare telehealth services. As required by law, only a registered dietitian or other nutrition professional may furnish and receive payment for this service.

Blood Clotting Factors
Currently, hemophilia treatment centers and homecare companies that supply blood clotting factors have received a fee for furnishing these product of $0.14 per unit. The proposed rule indicates that that fee will be updated in 2006 by the percentage increase in the consumer price index (CPI) for medical care. As of now, the update percentage is not yet available and will be included in the final rule.

Drug Supplying Fee
The MMA authorizes the payment of a supplying fee for drugs that are covered under the program outside of the incident-to benefit. This includes immunosuppressive drugs, oral cancer drugs, and oral anti-emetic drugs. For 2006, CMS proposes to continue its current policy of paying $24 for the first prescription and $50 in the case of the first immunosuppressive, over and above the payment for the drug product. CMS is now proposing to pay an $8 dispensing fee for prescriptions after the first one, a rate that is supposedly consistent with other payers.

Opt-out Provision
Physicians who opt out of the Medicare program are required to meet certain conditions. CMS is proposing to clarify the actions to be taken when physicians do not comply with these requirements.

National Coverage Decision Timeframe
CMS proposes to revise the timeframes for National Coverage Decisions (NCDs) to reflect the timeframes mandated by the MMA. NCD requests not requiring an external technology assessment (TA) or Medicare Coverage Advisory Committee (MCAC) review, must be decided not later than six months after the date the request is received. For NCD requests requiring either an external TA or MCAC review, the decision must be made not later than nine months. In addition, the MMA directs that not later than the end of the six or nine month period, a draft of CMS’ proposed decision must be on display to the public for at least a 30-day comment period. After the comment period has ended, a final decision must be rendered within 60-days.

Based on the MMA’s stipulated timeframes, CMS is proposing to amend the regulations to provide that if CMS informs the Departmental Appeals Board (DAB) considering a coverage appeal DAB that a revision or reconsideration was or will be initiated, the DAB will stay the proceedings and set appropriate timeframes in order for the revision or reconsideration to be completed. CMS’ proposed change would eliminate the current 90-day reconsideration period for NCD appeals and, instead, the DAB would be able to establish sufficient timeframes to reflect the time for the publication of the proposed decision, a 30-day comment period, and time for CMS to prepare its final determination in response to public comments. This proposed change, however, will not apply to local coverage determinations.

Termination of Chemotherapy Demo and Drug Administration Add-on
CMS is planning to terminate the $300 million demonstration to improve the quality of chemotherapy services. Under the demonstration, a $130 payment is provided per encounter to physicians who solicit information from patients on their pain, nausea, and fatigue. In addition, the 3% add-on to drug administration fees provided in the MMA is being eliminated. Total Medicare revenues to hematologists/oncologists, including drug payments, physician fee schedule payments, and the demonstration payment, are projected to be reduced in 2006 by about 5.6%.

CMS has indicated that participation in this program has been “robust.” While there are no immediate plans announced to extend the demonstration to 2006, CMS invites input on the merits of the program including the following:

1. Are there more effective time frames for inquiring about patient quality of life symptoms?
2. Are there more effective alternatives to collecting data on quality of life than focusing on cancer patients receiving intravenous chemotherapy treatment in physicians’ offices?
3. Are there more effective measures related to quality of care, for example, measures related to the use of evidence-based guidelines? and
4. How should the experience of the oncology demonstration program be considered in the context of physician payments?