Proposed Changes in the Medicare Physician Fee Schedule Five-Year Review and Revision of Practice Expense Methodology

June 22, 2006 – The Centers for Medicare and Medicaid Services (CMS) have proposed significant changes to the Medicare physician fee schedule flowing from the five-year review of physician work values and a revision of the practice expense methodology. ASH members will be affected differently depending on area of specialty, type of practice, and mix of services.

A separate rule is still pending on additional changes to the physician fee schedule, so all proposed changes for 2007 are not yet available. It is anticipated that this pending regulation will include a discussion of physician performance under the sustainable growth rate (SGR), the proposed SGR level for 2007, as well as any other policy changes affecting physician valuation of new and revised codes. Visit the ASH Advocacy Center to urge Congress to prevent a scheduled 4.7 percent decrease in the 2007 Medicare fee schedule.

The Relative-Value Update Committee (RUC) submitted recommendations to CMS on 422 codes and CMS accepted 71 percent of the recommendations. The most significant changes are the substantial increases in work values for many of the high volume evaluation and management (E/M) services. ASH was actively involved throughout the RUC Five-Year Review process. View a comparison of the current and proposed relative-value units (RVUs) for the office, hospital visits, office and hospital consultation, and critical care codes, as well as a comparison of selected services of interest to hematologists and hematologist/oncologists.

CMS is required to maintain budget neutrality for changes in relative value units exceeding $20 million. The proposed increase to the work RVUs of E/M and other physician services resulting from the Five-Year Review would raise Medicare payments substantially in excess of this threshold. CMS indicated that to maintain budget neutrality it could either reduce the conversion factor by about five percent or reduce the work RVUs across all codes by approximately 10 percent. CMS decided to reduce the work RVUs and not the conversion factor.

This decision has a differential impact on specialties, although the total dollars to the system are the same. Specialties with a higher than average portion of their payment coming from practice expenses, such as services with a technical component, benefit by the budget neutrality being applied only to the work RVU pool. Specialties whose payment is based mostly on the work value are disproportionately impacted by this methodology. Table 54 of the proposed rule provides a comparison across specialties.

It should be highlighted that although CMS chose to apply the budget neutrality to physician work, the reduced values are not reflected in the published work values found in Addendum B of the proposed rule. Rather, the adjustment would be made when CMS provides carriers with the actual payment rates for 2007 and when physicians are provided the proposed payment rates as part of the participating physician enrollment process.

CMS is proposing several major changes in the practice expense methodology. If implemented, the changes will be phased in over a four-year period with the new rates fully implemented in 2010. The agency proposes to:

• change from the "top-down" to the "bottom-up" method for calculating direct expenses – clinical staff, supplies and equipment;
  
• to accept supplemental practice expense studies submitted by several specialty societies including cardiology, gastroenterology, dermatology, allergy and immunology, urology radiology, and radiation oncology;
  
• to modify the method for calculating indirect practice expenses. The overall level of indirect practice expense for a specialty will be based on the survey data showing the relationship of indirect PE to direct PE. Also, for codes with minimal or no physician work value, the allocation of indirect PE will be based on the direct expenses plus the higher of the work value or clinical staff costs; and,
  
• eliminate the non-physician work pool (NPWP). This long awaited step is now considered possible since supplemental studies have been accepted for the major specialties comprising the NPWP: cardiology, radiology, and radiation oncology. The revised indirect practice expense allocation method softens any reductions for services with no or very low work values.

The ASH Committee on Practice and Subcommittee on Reimbursement are developing comments on the rule and welcome your input. Please e-mail your comments to ASH Practice Advocacy Manager Pamela Ferraro.