HCFA publishes rules implementing practice expense changes

New rules go into effect in January

The final rule explaining how the Health Care Financing Admini stration (HCFA) will implement the so-called "down payment" of approximately 10% of Medicare’s new relative value unit (RVU)-based practice expense fee schedule has finally been published.

The new payment schedule is effective Jan. 1, 1998. The changes are a result of a 1993 report to Congress by the Physician Payment Review Commission, which recommended changing the current practice expense formula to an RVU basis, while also raising the reimbursement value of physician evaluation and management services, which HCFA contends are generally underpaid compared to surgical procedures. HCFA originally proposed a specialty-by-specialty change in RVUs in June, but has delayed implementation of these changes with the exception of a 10% down payment, which is a partial implementation of these changes until final revisions are suggested in May 1998.

The new RVU practice expense formula generally increases payments for office-based services and primary care-related services, while reducing RVUs for hospital-intensive and surgical services by roughly the same amount.

However, don’t think this issue is resolved yet. While primary care and internists won this round, most health care policy mavens expect the surgical specialties to work harder than ever this year to convince Congress to limit these new changes in HCFA’s payment formula. Lobbyists for surgical and other specialties hardest hit by the new RVU-based formula are already working to revise the practice expense fee schedule so surgical services are paid more — and office visits less — in 1999 and beyond.

During the conversion debate on the Balanced Budget Act (BBA) bill last summer, it was estimated that institution of the 10% down payment rule would shift $390 million in Medicare practice expense payments from hospital/surgical to office/primary care services. Revised calculations by HCFA, however, put the shift closer to $330 million.

One reason for this drop is that the BBA reduces the practice expense RVU for some services to 110% of their work-related RVUs. Because HCFA’s June 1997 proposed rule also set out two site-of-service RVUs — one if the care is performed in-office, another if it is performed out-of-office — many of these procedures are only reduced under the 110% limit when provided in an out-of-office setting.

The net effect of this shift: Both the aggregate increases in payments for office visits and the total reduction in payments for other services will be a little less than originally estimated, explains Robert Doherty, vice president, government affairs of the Washington, DC-based American Society of Internal Medicine.

Even so, 1998 may still prove to be the best year in the foreseeable future for internists in terms of what they can expect in Medicare reimbursements, predicts Doherty.

Besides finalizing the new practice expense formula payouts for 1998, HCFA’s Oct. 31 Federal Register notice also revealed that the new refined single conversion factor (CF) for 1998 will be $36.69, rather than the previously estimated $37.13.

The single CF combined the three previous separate conversion factors — one each for primary care services, surgical procedures, and other non-surgical services — into one factor.

Although primary care services would have gained more in 1998 had the BBA not been enacted, other nonsurgical services would have gained far less. Since the largest proportion of internists’ revenue comes from the "other nonsurgical services" category, internists fare better under the new single CF than they would have under the separate updates.

Under the new single conversion factor, 1998 payments for primary care services (office, nursing home, home, and emergency room visits) will increase 2.6% compared to 1997 payment rates. Surgery reimbursement loses 10.4%, while other nonsurgical services gain 8.4% instead of the previously estimated 9.7%.

The site-of-service differential also goes into effect Jan. 1. During 1998, HCFA has instructed Medicare carriers to apply the same site-of-service differential policy they applied in 1997: Namely, the practice expense RVUs for a procedure code that is furnished outside the office are reduced by 50%. Approximately 7,000 codes are affected by this new policy. Rather than having carriers calculate the 50% reduction — and coordinate this policy with the reductions due to the 110% limit — HCFA has listed the actual 1998 practice expense RVUs by site of service for these 7,000 codes (which go into effect Jan. 1) in its Oct. 31 Federal Register notice.

Most of the payments for procedures reduced under the 110% limit are surgical services performed in an inpatient setting. Examples of these procedures include certain bronchoscopy codes, some upper GI endoscopy codes, diagnostic sigmoidoscopy (out-of-office only), diagnostic colonoscopy (out-of-office), hemodialysis, cardiovascular stress test (CPT 93018 only), and some Holter monitor codes. (See the chart on p. 3 for examples of more codes affected by this change, or see the Oct. 31 Federal Register.)