Office-intensive specialties stand to gain

Speculation for one-year delay rampant

[Editor’s note: The following article is a reprint of our June 17 fax bulletin on HCFA’s proposed changes to the practice expense component of Medicare’s Resource-Based Relative Value Scale. If you did not receive this fax bulletin, please call Managing Editor Francine Wilson at (404) 262-5416 and give her your fax number.]

Specialties that provide more office-based services remain the big winners — and hospital-intensive practices the big losers — under a working copy of HCFA’s revised Resource-Based Relative Value Scale (RBRVS) Medicare payment formula obtained by Physician’s Payment Update. This revised practice expense rule was published in the June 18 edition of the Federal Register.

The range of magnitude between losers and winners, however, has been reduced somewhat compared to HCFA’s original January practice expense proposal. (See chart below for estimated RVU changes by specialty.)

For example, cardiologists were originally projected to have cuts ranging from 20% to 25% in the original four options released in a preliminary report by the Washington, DC-based American Society of Internal Medicine. The June 18 HCFA report shows a 17% anticipated cut to cardiologists.

Practice expenses represent one of the three components of the RBRVS Medicare payment schedule for physicians, representing 41%. The other two components are physician work (54%) and malpractice costs (5%). HCFA’s revamping of the practice expense component has been hotly debated among physician groups since last year because of the potential for huge shifts in net income.

Now that the wait is over, specialty groups will likely have a lot to say about the latest round of proposed numbers.

According to HCFA sources, office-oriented specialties like optometry, podiatry, dermatology and family practice would see their annual Medicare income jump between 12% to 13% under its revised practice expense criteria. (See chart below for estimated changes in physician net income by specialty.) Meanwhile, more hospital-intensive physicians such as surgeons, cardiologists and gastroenterologists could see their estimated annual Medicare income plummet between 9% to 20% if this proposal is implemented.

Additionally, HCFA plans to eliminate its current policy of systematically reducing practice expense relative value units (RVUs) by 50% for physician services routinely furnished in a doctor’s office when they are provided in a hospital setting in favor of a new set of two-tier practice expense RVUs — office and facility — affecting some 7000 procedure codes. (Editor’s note: Readers can access information on each of these codes at American Health Consultants’ Web site: Look in the site’s Special Coverage section.)

Although the practice expense revamping has generated much discussion since it was originally proposed, the debate is far from over. HCFA has a required 60-day comment period on the proposal. It has the right to revamp the practice expense numbers again based on these comments.

While the new practice expense regulations must be implemented by Jan. 1 by law, word in Washington is a deal has been struck for Congress to push back the official implementation date by one year to Jan. 1, 1999.

Also, rather than institute these changes all at once, Congress is expected to instruct HCFA to design a three-year phase-in program in order to reduce the financial trauma on those physician specialties taking the hardest hits in their Medicare fee schedules. (See chart above for a comparison of various congressional recommendations for implementation of these proposals.)

One of the most difficult — and controversial — aspects of developing a resource-based physical practice expense formula has been how to allocate indirect costs, especially when comparing office versus hospital-based services. As HCFA’s proposed regulation acknowledges, "there is not a single, universally accepted approach for allocating indirect practice costs to individual procedure codes."

After evaluating several options, HCFA finally decided to allocate indirect costs based on direct practice expenses — cost of non-physician administrative and clinical labor, medical equipment and medical supplies. "From a cost accounting standpoint, this method is appealing because it allocated indirect costs based on the variables that are expected to drive indirect costs," argues HCFA.

Typically, direct costs include items such as salaries, rent or mortgage, while indirect costs typically include depreciation, employee benefits and allocated costs of other departments (for more background on this issue, see Physician’s Payment Update, April 1997, p. 52).

Besides practice expense, HCFA’s June 18 proposal recommends changes in a number of areas, including:

• conditions for payment for physician pathology services/clinical consultations;

• compensation equivalents used to determine the reasonableness of professional service costs incurred by providers for patients in a hospital or skilled nursing facility;

• new definition for a diagnostic testing facility independent of a hospital or physician’s office;

• level of physician supervision required for payment of diagnostic tests;

• payments to participating and nonparticipating suppliers;

• increases in work relative value units for global surgical services.