What's good about a 5 percent cut in physician payments?

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Medicare Announces Final Rule Setting Physician Payment Rates and Policies for 2007

Starting next year, the Medicare program will pay physicians more for the time they spend talking with Medicare beneficiaries about their health care and will pay for a broader range of preventive services. The changes, which will become effective January 1, 2007, are included in the Medicare Physician Fee Schedule (MPFS) final rule released today by the Centers for Medicare & Medicaid Services (CMS).

CMS projects that it will pay approximately $61.5 billion to over 900,000 physicians and other health care professionals in 2007 as a result of the payment rates and policies adopted in this rule. This new spending figure reflects current law requirements to reduce payment by 5 percent to account for the combined growth in volume and intensity of physician services.

The hallmark of this rule is a stronger emphasis on the physician-patient relationship. The final rule increases significantly the work component for the RVUs (relative value units) for the face-to-face visits (evaluation and management or “E&M services”) during which the physician and patient discuss the patient’s health status and the steps that can be taken to maintain or improve the patient’s health. For example, the work component for RVUs associated with an intermediate office visit, the most frequently billed physician’s service, is increasing by 37 percent. The work component for RVUs for an office visit requiring moderately complex decision-making and for a hospital visit also requiring moderately complex decision-making are increasing by 29 percent and 31 percent respectively. Both of these services rank in the top 10 most frequently billed physicians’ services out of more than 7,000 types of services paid under the physician fee schedule.

The increases in the work component for E&M services are the result of a comprehensive review of the values CMS has placed on the physician work involved in providing a service. Medicare law requires that this review be conducted at least every five years. Consistent with longstanding practice, CMS worked with the Relative Value Update Committee (RUC), which operates under the auspices of the American Medical Association, to review work relative value units for over 400 services. The RUC recommended the proposed E&M increases, and many of the specialty societies commented favorably on them in their comments on the proposed MPFS rule.

The Medicare law includes a statutory formula that will require CMS to implement a minus 5.0 percent update in payment rates for physician-related services. This is slightly less than the 5.1 percent reduction in the proposed rule. This formula compares the actual rate of growth in spending to a target rate, which is based on such factors as the growth in number of Medicare fee-for-service beneficiaries and statutory or regulatory changes in benefits. If the actual rate of spending growth exceeds the target rate, the update is decreased; if it is less, the update is increased. Every year beginning with 2002, in response to rising spending, the statutory update formula would have operated to impose payment cuts. The negative update went into effect in 2002, but for 2003 to 2006, Congress intervened and temporarily suspended the requirements of the formula in favor of specific, statutory updates.

Consistent with requirements of the DRA (Deficit Reduction Act of 2005), the final rule caps payment rates for imaging services under the physician fee schedule at the amount paid for the same services when performed in hospital outpatient departments. The final rule includes a list of codes to which the outpatient prospective payment system (OPPS) cap would apply. The rule also finalizes a policy of reducing by 25 percent the payment for the technical component of multiple imaging procedures on contiguous body parts. CMS will apply the multiple imaging reductions first, followed by the OPPS imaging cap, if applicable.

http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=2044

Final rule (1418 pages):
http://www.cms.hhs.gov/center/physician.asp and click on “CMS-1321-FC and CMS-1317-F”

Comment:

By Don McCanne, MD

As is typical for this administration, this release places a very positive spin on the message that announces a 5 percent reduction in the payment for physician services. For those who believe that they read that payment for an intermediate office visit is increasing by 37 percent, read it again. The 37 percent increase applies only to the work component (physician labor) and not to the practice expenses (office overhead). None the less, there is very positive news in the 1418 pages in the final rule (most of which I confess I have not read).

Although Medicare has been fairly effective in controlling fees, it has not been able to control the increases in frequency and intensity of services. The Sustainable Growth Rate (SGR) makes appropriate adjustments to physician fees based on factors such as demographics, inflation, and newly-authorized benefits. To attempt to control over-utilization, it makes downward adjustments when the frequency and intensity of services increase. This is appropriate when it appears that practice patterns change merely for the purpose of increasing the units for reimbursement. It is especially appropriate when it appears that there is a dramatic increase in high-tech services of no benefit, as has been demonstrated by John Wennberg and Elliott Fisher. The largest single component driving down the SGR-determined rates has been the explosion in the use of expensive imaging services. Another very important factor has been the shift from primary care services to more specialized services, even though primary care services have been proven to provide high-quality care at significantly lower costs.

The good news is that payments are being adjusted upwards to reinforce the primary care infrastructure, and downwards to discourage excessive use of non-beneficial high-tech services. The bad news is that expensive high-tech services that are beneficial may actually end up being under-compensated with these changes. They will certainly take the brunt of the 5 percent reduction. Continual oversight and refinement has to be a perpetual process.

The important point is that, as a social insurance program, Medicare is making every effort to try to achieve the greatest value for our health care dollars as we are ever closer to the spending threshold that we can tolerate. In contrast, the private insurance sector makes every effort to squeeze whatever it can get out of the system short of sacrificing too many patients and their providers. Public administrators who care about the health of patients serve us far better than private administrators who care more about being judged by the success of their business models.