Medicare 101: Policy and Process

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Medicare 101 Policy and Process

• ACC Legislative Conference
• September 29, 2005

2
Session Objectives

• Update on current issues affecting Medicare
  physician payment
• Provide background for tomorrows Hill visits
• Discuss future for Medicare reimbursement for
  cardiovascular services

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Major topics

• Proposed rule for 2006 Medicare Physician Fee
  Schedule
• Five year review of RBRVS and other RUC
  activities
• Sustainable Growth Rate and 2006 payment cut

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Medicare physician payment basics

• Payments are based on RVUs for each code
• The pool of RVUs is fixed any changes must be
  budget neutral
• Specialties compete for a share of the fixed pool
• The Medicare conversion factor determines the
  overall level of Medicare payments
• A formula spelled out in the Medicare statute
  determines the annual update to the conversion
  factor

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Cardiovascular services under the microscope

• Large share of Medicare physician payments
  second only to Internal Medicine
• High and increasing need for cardiovascular
  services among Medicare beneficiaries
• High volume procedures, including imaging
• Rapidly developing and diffusing new technology

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Cardiovascular services under the microscope

• Other physician specialties want to protect
  Medicare payments for their services
• CMS looks to high volume procedures for possible
  savings
• Achieving fair valuation of new cardiovascular
  services and maintaining current values of
  existing services will be challenging

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Evolving framework for Medicare physician payment

• Right now, Medicare reimburses any physician with
  a provider number for any covered service for any
  covered diagnosis
• Payment does not vary by qualifications,
  specialty, or outcome
• Change is coming ACC needs to be prepared to
  lead in this new environment

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Five year review of RBRVS

• Medicare statute requires CMS to review RBRVS
  every five years
• We are currently involved in the third five year
  review of the physician work component of the
  RBRVS
• CMS relies heavily on AMA/Specialty Society RVS
  Update Committee (RUC) to recommend changes

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Five year review of RBRVS

• ACC and CV organizations asked for only one group
  of procedures cardiac MR to be reviewed
• CMS recommended that eight other cardiology
  services be reviewed
• All are crucial high volume services

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Five year review of RBRVS

• ACC, ASE, ASNC, HRS, and SCRM presented
  recommendations to RUC workgroup in August
• The full RUC will consider workgroup
  recommendations and a few unresolved issues later
  this month
• CMS will issue a proposed rule for five year
  review changes in 2006
• Any changes will take effect in 2007

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Proposed 2006 Medicare Physician Fee Schedule

• CMS issued the proposed rule for the 2006
  Medicare Physician Fee Schedule on August 1
• Unless Congress intervenes, Medicare physician
  payments will be cut by 4.3 in 2006
• Other provisions result in a mix of increases and
  decreases for cardiology with a net 4.5
  decrease
• The impact on individual cardiologists varies by
  service mix

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Proposed 2006 Medicare Physician Fee Schedule

• New method for calculating practice expense RVUs
• Multiple diagnostic imaging procedure payment
  reduction
• Nuclear medicine as a designated health service
  under Stark restrictions on physician referral
• Sustainable Growth Rate (SGR) and payment cut

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New practice expense methodology

• Calculate direct practice expense portion of RVUs
  with a bottom-up approach instead of current
  top-down method
• Eliminate non-physician work pool (NPWP) and use
  single methodology for all codes
• Incorporate supplemental practice expense data
  from cardiology and other specialties.
• Phase in new RVUs over four years (2006 2009)

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New practice expense methodology

• When RBRVS was implemented in 1992, practice
  expense RVUs were charge-based, not resource
  based.
• Congress mandated that Medicare begin to use
  resource-based practice expense RVUs in 1998.
• Implementation was delayed by a year, then
  phased-in over four years because of the size of
  payment cuts to many specialties, including
  cardiology.
• The current method for calculating the RVUs is a
  top-down approach.

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Top down vs. bottom-up

• Right now, CMS uses a complex algorithm to
  calculate specialty-specific direct and indirect
  practice expense pools
• Pools are based on three data sources
• AMA data on physician practice expenses and work
  hours
• Medicare utilization data
• RUC data on physician time for each code

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New practice expense methodology

• When RBRVS was implemented in 1992, practice
  expense RVUs were charge-based, not resource
  based.
• Congress mandated that Medicare begin to use
  resource-based practice expense RVUs in 1998.
• Implementation was delayed by a year, then
  phased-in over four years because of the size of
  payment cuts to many specialties, including
  cardiology.
• The current method for calculating the RVUs is a
  top-down approach.

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Top-down vs. bottom-up

• Direct expense pools allocated to codes based on
  estimates of clinical staff time, supplies, and
  equipment used for each code.
• Indirect expense pools allocated to codes based
  on direct expenses and physician work RVUs.
• Specialty-specific costs are weight-averaged
  based on Medicare utilization.

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Non-physician work pool

• Services without physician work RVUs (e.g.,
  technical component services) are in
  non-physician work pool (NPWP).
• Practice expense RVUs for NPWP services are based
  on pre-1999 charged-based RVUs.
• NPWP was created because CMS did not have
  adequate data for these services.
• NPWP buffered some of the expected cuts in
  practice expense RVUs for cardiology

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New method for direct expenses

• CMS proposed to calculate direct practice expense
  RVUs only on the direct practice expense inputs
  developed by the PEAC a bottom-up approach.
• Eliminates the need for specialty-specific direct
  practice expense pools and specialty-specific
  direct costs for each code.
• AMA and specialty societies did not anticipate
  this proposal.

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Eliminate non-physician work pool

• CMS believes data is now adequate to apply
  general methodology to NPWP services.
• In general, this results in cuts for NPWP
  services.
• This change was anticipated. Establishing NPWP
  was always characterized as a stop-gap measure.

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Indirect costs use supplemental practice expense
data

• Current indirect methodology will be retained.
• CMS will use supplemental practice expense
  surveys for those specialties indirect cost
  pools.
• Cardiology community joined forces to conduct a
  supplemental practice expense survey accepted by
  CMS.
• Survey data was essential to moderating potential
  cuts to cardiology.

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Impact on cardiology

• CMS projects that new practice expense method
  will reduce total payments to cardiologists by
  2.1 when fully implemented.
• In 2006, the partially implemented RVUs will
  reduce payments to cardiologists by 0.5.
• Impact varies substantially by cardiology
  specialty area.

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Impact on cardiovascular specialties
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Multiple diagnostic imaging procedure discount

• MedPAC recommended that CMS discount payments for
  multiple imaging procedures on contiguous body
  parts.
• Assumes that when two of more imaging procedures
  are performed on contiguous body parts, practice
  expenses are reduced.

25
CMS proposal

• Create 11 families of diagnostic imaging
  procedures grouped by modality and body areas
• If more than one procedure in a family is
  performed during a single session
• Pay 100 of the technical component of the first
  procedure
• Pay 50 of the technical component of the second
  and any additional procedures

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Impact on cardiology

• Two designated families include cardiac imaging
  procedures.
• However, the cardiac imaging procedures are
  already bundled by the National Correct Coding
  Initiative.
• There is no negative impact for cardiology.

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ACC concerns about proposal

• CMS claims that direct practice expense data
  developed by the PEAC support a 50 reduction.
• ACCs analysis of the same data found that the
  50 reduction vastly overstates savings from
  performing multiple procedures.
• If CMS decided in the future to extend the
  multiple procedure discount, cardiology could be
  negatively affected.

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Nuclear medicine as a DHS

• Nuclear medicine is not currently affected by the
  Stark restrictions on physician referral.
• CMS proposes to add CMS to the definition of
  radiology services considered designated health
  services.
• Physicians would be prohibited from referring
  patients for nuclear medicine services to
  facilities with which they or a family member
  have a financial relationship.

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Nuclear medicine as DHS

• Exceptions to ban on physician referral
• In-office ancillary services
• Designated rural areas
• CMS acknowledged previous guidance gave
  physicians a green light to invest in nuclear
  medicine facilities.
• Comments requested on grace period or exemption
  for existing facilities

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Payment update for 2006

• CMS projects an update of -4.3 for the 2006
  Medicare Physician Fee Schedule
• 2006 conversion factor will be about 36.27

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How does CMS determine the update?

• A formula spelled out in the Medicare statute
  determines the annual change
• Known as the Sustainable Growth Rate or SGR
  system
• There are three components
• Sustainable growth rate (SGR)
• Medicare Economic Index (MEI)
• Annual update adjustment factor (UAF)

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SGR

• Put in place to control growth in spending on
  physician services
• Link changes in spending to factors affecting the
  cost of providing services to Medicare
  beneficiaries and to economic growth
• SGR used to set an annual target for spending on
  physician services

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SGR formula

• SGR is the product of four factors
• Change in physician fees
• Change in Medicare fee for service enrollment
• Change in real per capita GDP
• Change in law and regulation affecting spending
  on physician services

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Calculating the annual fee schedule update

• Annual update to the conversion factor is the
  product of
• Medicare Economic Index (MEI)
• Update Adjustment Factor

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Update Adjustment Factor Formula

• .75 Target spending05 Actual spending05
• Actual spending05
• .33 Target spending 96 05 Actual spending96
  05
• Actual spending05 SGR06

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Annual update

• Statute defines a floor and ceiling for the UAF
• UAF cant be more than 3 or less than -7
• Final 2006 update MEI 7

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Flaws with UAF

• Setting of target SGR and all its flaws
• Calculation of actual expenditures
• Cumulative aspect of formula

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Sources of spending growth

• Increasing volume and intensity of office visits
• Minor procedures
• Imaging services
• Laboratory tests
• Physician-administered drugs

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ACC Position

• SGR system is fatally flawed
• Cannot account for technological advances and
  expansion of medical knowledge
• Inappropriately linked to GDP
• Including the cost of drugs overstates spending
  that is under physician control
• Cumulative nature of system means the problem can
  only get worse

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ACC Position

• We appreciate past Congressional intervention to
  stop payment cuts
• Congress must act again to prevent a cut in 2006
• Fundamental change to SGR system urgently needed
• Congress should encourage CMS to make
  administrative changes that are available

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Conclusions

• Cardiology will continue to face an unfriendly
  for attaining favorable reimbursement of
  cardiovascular services.
• Distributional issues will be an ongoing
  challenge, but we cant get distracted from the
  bigger challenge
• Making the case for devoting more resources to
  physician services in Medicare