Senate action sets stage for Medicare conference

Look for changes in outpatient payments

After much debate, the Senate finally passed its suggested Medicare reform measures before breaking for the July 4 recess. Now it is up to the Senate and House to hammer out a compromise bill for President Clinton to sign. This process could take until the end of the summer, however.

The Englewood, CO-based Medical Group Management Association (MGMA) says that of the issues addressed in the reform measures, these are the ones with the most potential impact on physician payment:

AAPCC geographic disparity. This refines the adjusted area per capita cost (AAPCC) geographic disparity calculation by establishing a 50/50 local/national blend phased in over five years. The committee also agreed to increase the floor for Medicare managed care payments from the $350 per member per month (PMPM) approved by the House language to $397 PMPM in an effort to attract more managed care risk plans to rural areas.

Single conversion factor. The Finance Committee called for a single conversion factor for implementing the RVU-based physician practice expense formula, eliminating the three separate RVU conversion factors for primary care, surgical services, and all other services in favor of one across-the-board standard.

Anesthesia conversion factor. This sets the conversion factor for anesthesia at 46% of the new single conversion factor. This is consistent with the House language.

Lab fee schedule. This change freezes the current fee schedule, which itself is an extension of the freeze on the inflation update factor for the clinical lab fee schedule. Additionally, the Senate lowers the cap on clinical lab fees to 72% of the median. In effect, physician office labs will have a more difficult time competing with the large reference labs because the payments rates are so low, says MGMA spokesman Dennis Barnhart.

The bill also proposes to move to five regional carriers for lab work submission. However, there is an exception for "independent physician offices." There is also a new proposal for universal coverage and payment policies for clinical lab services. This appears to be an effort to specify the role that the physician should have in documenting the medical necessity of lab work done by reference labs, notes MGMA.

Ambulatory surgery center updates. Includes language changing the ambulatory surgery center inflation updates in 1998 to the consumer price index minus 2%. This is consistent with the House language.

Drugs dispensed in physician practices. Both the House and Senate versions would establish a ceiling of 95% of the average wholesale price on drugs dispensed in physician practices. The Senate language is effective upon enactment of the budget bill, while the House language goes into effect Jan. 1, 1999.

If enacted, MGMA predicts this could result in a major revenue change for oncology practices, for instance, as well as other practices. Expect this change to be hotly debated during the conference.

Changes in hospital outpatient payments. Under current law, Medicare pays for hospital outpatient department services on a cost reporting basis. The House and Senate bills would authorize HCFA to develop and implement a prospective payment system for hospital outpatient department services, effective in 1999.

Such a system would have a direct effect on academic practices, as well as many group practices acquired recently by hospital systems. If implemented, the Congressional Budget Office estimates this measure would produce $7.2 billion in Medicare savings over five years.

Provider sponsored organizations (PSOs). The Senate Finance Committee agreed to federal pre-emption that would benefit large group practices that are affiliated with hospitals and that want to form a PSO. However, neither the Senate nor House bills specify if physicians will be allowed to form PSOs without this formal hospital affiliation.

Graduate medical education (GME). Requires HCFA to study the idea of directly paying GME funds to qualified non-hospital providers such as health plans. This raises the question of whether physician practice plans would be considered "other providers," notes MGMA.