HCFA issues new 1999 RVU-based fee schedule, including 4-year transition

Medical societies sue to have rule declared illegal

Office-oriented practices come out winners while many surgical and hospital-intensive specialities stand to lose big under the final rule for the new relative value-based practice expense formula and 1999 physician fee schedule issued by HCFA in the Nov. 2 issue of the Federal Register.

But if you think this five-year battle is over, don’t hold your breath. As part of this "final" rule, HCFA also declared that the formula for determining Medicare’s new physician fee schedule — which will be based on relative value units (RVUs) — will officially only be considered an "interim" format while being phased in over the next four years.

Meanwhile, HCFA plans to form a new advisory group of physician specialty societies, providers, and other health care interests to help it continue ironing out bugs in the regulation while giving providers a forum to work out their disagreements over how to transfer several hundred million dollars a year in Medicare payments from surgical-based practices to primary care physicians in an attempt to more fairly equalize payments as mandated by Congress.

The final rules make only minor changes from HCFA’s last preliminary June proposal. (For more details on the original proposal, see Physician’s Payment Update, July 1998, pp. 105-108.)

As such, the agency also decided to stay with its so-called "top down" accounting approach that uses actual practice expense data collected by the American Medical Association’s Socioeconomic Monitoring System to determine aggregate specialty practice costs and allocate practice costs to specific procedures.

This top-down approach is generally favored by surgical-based practices, plus such organizations as the Englewood, CO-based Medical Group Management Association, as a more accurate reflection of actual physician costs.

"Most of the physician specialty societies commenting on our proposed general methodology supported the top-down approach. This was echoed by comments by several non-physician organizations, the Association of the American Medical Colleges, and the Medical Group Management Association," HCFA noted in its final rule.

However, other groups, like the Washington, DC-based American College of Physicians-Society of Internal Medicine (ACP-ASIM), contend that this top-down methodology just "perpetuates the habit of basing practice expense payments on actual costs when they are mandated to move to a relative value-based system," says Robert Doughtery, ACP-ASIM’s vice president for governmental affairs.

In determining practice expense costs under its top-down methodology, HCFA has used actual practice expense data by specialty, derived from 1995-97 SMS survey data, to create six cost pools: administrative labor; clinical labor; medical supplies; medical equipment; office supplies; and all other expenses. These data were used to allocate reimbursement to individual practice expense codes.

Maybe the most controversial part of the proposal is HCFA’s decision to count the so-called 1998 fee schedule "down payment" when calculating future payment rates.

Basically, the down payment shifted about $39 million in payments from surgeons to primary care physicians in 1998 as a kind of "make-up" for what are now considered inadequate payments in previous years. Despite strong objections from mostly surgical specialties, HCFA has decided to include this down payment in the base used to figure future fee schedules.

"We consider this a very important issue to our membership," says Randy Fenninger, co-chair of the Practice Expense Coalition, an umbrella group of mostly surgical specialties.

A group of medical societies sued HCFA in U.S. District Court in Illinois to have the base year provision and the entire practice expense transition formula declared illegal. Plaintiffs claimed that including this down payment in the base for determining future physician payment could inflate the amount being transferred from from hospital-intensive practices to office-based physicians from $390 million to nearly $1 billion by 2002.

"HCFA’s transition rule ignores the plain reading of the statute," says Dunbar Hoskins, MD, executive vice president of the Washington, DC-based American Academy of Ophthalmology. "What this action amounts to for ophthalmology is nearly $200 million in physician payments being transferred to primary care which we do not feel Congress intended."

The other plaintiff medical societies are: American Academy of Orthopedic Surgeons, American Association of Neurological Surgeons, American College of Cardiologists, American Gastroenterological Association, American Society for Gastrointestinal Endoscopy, American College of Gastroenterology, American Society of Cataract and Refractive Surgery, Congress of Neurological Surgeons, Outpatient Ophthalmic Surgery Society, and Society for Excellence.

Overall, Medicare fees will rise an average 2.3% next year under the 1999 Medicare schedule.

As mandated by Congress, the practice expense rule must be budget-neutral, meaning it will not increase the amount of money Medicare would have otherwise spent. As such, under the new formula, physicians with office-based practices, such as family practice and internal medicine, will generally see their fees increase. Those with more hospital-intensive practices, like cardiac surgeons and neurosurgeons, will see their payments decrease.

Medicare will spend about $35 billion on physician services in 1999. By the time the RVU rule is fully implemented in 2002, some $390 million in annual payments will have been reallocated from mainly surgical to mostly primary care specialties.

According to HCFA, once the new resource-based system is fully phased in, general surgery will experience a 7% decrease in Medicare payments compared to the old system, while family practice will enjoy a 7% increase. The exact magnitude of the change for any practice will depend on the mix of services they provide and the sites where they are performed.

By the end of the four-year transition period, specialties like cardiac surgery, gastroenterology, neurosurgery, and thoracic surgery are projected to have their Medicare fees dramatically slashed. (See chart on p. 189.) Meanwhile, such practices as dermatology, rheumatology, otolaryngology, and oncology will see their fees rise substantially.

Congress rights a perceived wrong

Congress mandated these changes because it felt the old system unfairly favored physicians with hospital-oriented practices over those with patients making office visits.

Besides the practice expense rule, HCFA’s Nov. 2 announcement also included final implementation of several other regulations contained in the Balanced Budget Act of 1997. According to an analysis by the Medical Group Management Association, these provisions include:

"Incident to" billing rules lifted for some outpatient rehabilitation services. Orthopedic, rehabilitation, and other groups that make extensive use of therapists will benefit from changes to fee schedule rules for physical therapy and occupational therapy. The final rule allows medical groups to bill for services of their physical and occupational therapist employees without meeting the requirements of the "incident to" billing rules, including the direct supervision requirement.

Caps of $1,500 for physical therapy and occupational therapy will not be implemented by the carriers by Jan. 1, 1999, due to year 2000 computer technology issues. Each supplier of therapy is expected to keep track of its own billings and payments. Suppliers are prohibited from billing if the cap is reached. Use of modifiers will be required to identify physical therapy, occupational therapy, and speech pathology services.

The final rule generally follows existing guidelines, with some minor clarifications. The incident-to provisions generally follow the current incident-to rules that apply to physicians. According to HCFA, "The various incident-to requirements are currently interpreted at Section 2050 of the Medicare Carriers Manual. [HCFA] will not amend any of the incident-to requirements at this time."

Payment for telemedicine in rural health professional shortage areas has improved slightly. Groups involved in telemedicine will benefit modestly from implementation of a BBA provision authorizing payment for teleconsultations provided to patients in rural health professional shortage areas. The teleconsultation must be done "live" with the patient, the patient’s physician, and the consulting physician all present (at different locations) at the same time for the examination. Payments for these consultations are split between the referring practitioner and the consultant. While the new benefit is quite limited and the payment rules restrictive, it is a "foot in the door" for telemedicine, says MGMA.

Payment for drugs & biologicals is more restricted. The rule establishes payment guidelines for drugs not paid for on a cost or prospective payment basis. The BBA set payment at the lower of the actual billed amount or 95% of the Average Wholesale Price (AWP). Current regulations provide that for multiple-source drugs, the AWP equals the median AWP of the generic forms of the drug, ignoring the brand-name product on the assumption it is always priced higher. According to HCFA, this is not always the case. As such, under the final rule, "AWP" is now defined as equal to the lower of the median price of the generic AWPs or the lowest-priced brand-name AWP.