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CMS ANNOUNCES PROPOSED CHANGES TO PHYSICIAN FEE SCHEDULE METHODOLOGY

The Centers for Medicare & Medicaid Services (CMS) today issued a notice proposing changes to the Medicare Physician Fee Schedule (MPFS) that will improve the accuracy of payments to physicians for the services they furnish to Medicare beneficiaries.  The proposed notice includes substantial increases for “evaluation and management” services, that is, time and effort that physicians spend with patients in evaluating their condition, and advising and assisting them in managing their health.  The changes reflect the recommendations of the Relative Value Update Committee (RUC) of the American Medical Association. 

“It’s time to increase Medicare’s payment rates for physicians to spend time with their patients,” said CMS Administrator Mark McClellan, M.D., Ph.D.  “We expect that improved payments for evaluation and management services will result in better outcomes, because physicians will get financial support for giving patients the help they need to manage illnesses more effectively.”

The proposed notice addresses two components of physician payments under the MPFS: (1) a comprehensive review of physician work relative value units (RVUs), as well as (2) a proposed change in the methodology for calculating practice expenses.  Other changes in physician payment policy will be addressed in a separate proposed rule to be published at a later date.  CMS will respond to public comments on both sets of proposals and announce final policies in a final rule to be issued in early November.  The changes will apply to payments for services furnished to Medicare beneficiaries beginning with 2007.

These are the largest revisions ever proposed for services related to patient evaluation and management.  For example, the work component for RVUs associated with an intermediate office visit, the most commonly billed physician’s service, will increase 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 will increase 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 proposed notice revises work RVUs for over 400 services to better reflect the work and time required of a physician in furnishing the service, which can include not just procedures performed, but also the services involved in evaluating a patient’s condition, and determining a course of treatment (known as “evaluation and management” services).  Work RVUs account for approximately $35 billion in MPFS payments, representing more than 50 percent of overall Medicare payments under the fee schedule. 

Medicare law requires that CMS impose a budget neutrality adjustment if changes in RVUs will cause an increase or decrease in overall fee schedule outlays of more than $20 million, compared with what they would have been in the absence of the changes.  CMS estimates that the proposed work RVU changes would increase expenditures by approximately $4.0 billion.  CMS is proposing to create a separate budget neutrality adjuster that can be applied just to the work RVUs for Medicare purposes, without changing the number of work RVUs assigned to a particular service.  This would preserve the integrity of the existing work RVU structure, which is often adopted by other payers.

CMS is also proposing changes to the way Medicare calculates the practice expense portion of physician fee schedule payments.  Practice expenses include both the direct costs associated with a procedure (e.g., non-physician personnel, and supplies), as well as indirect costs (e.g., office rents), which are then allocated to specific services.  The practice expense RVUs do not include the costs of malpractice premiums, which are accounted for separately in the fee schedule.  Practice expenses account for approximately $30 billion in MPFS payments, representing about 45 percent of overall Medicare payments under the fee schedule.

The proposed change would make the practice expense methodology more transparent and easier to understand, would make it consistent across procedures and would utilize data that has been collected by specialty societies and reviewed by the AMA RUC.  In the notice, CMS is proposing to:

• Adopt a “bottom-up” methodology for calculating direct costs.  This involves using procedure-level data for clinical staff times, supplies and equipment that have been previously reviewed by the RUC;

• Modify the methodology used to calculate indirect practice expenses;

• Utilize practice expense survey data for eight specialties: allergy/immunology, cardiology, dermatology, gastroenterology, radiology, radiation oncology, urology and independent diagnostic testing facilities; and

• Eliminate an exception to the current methodology, the so-called nonphysician work pool that has been used to calculate practice expense RVUs for services without physician work RVUs, and instead price these services using the standard practice expense methodology.

To ease the implementation of the change in the practice expense methodology for physician practices and to ensure continued beneficiary access to services, CMS is proposing a four-year transition to the new practice expense RVUs.

Medicare pays more than 980,000 physicians and nonphysician practitioners under the MPFS, which establishes payment rates for over 7,000 services performed in physicians’ offices, hospitals and other settings.  The MPFS was first implemented in 1992 and was designed to base physician payment on the relative resources ‑ including physician work, practice expense and malpractice premium components ‑ involved in furnishing each service.  The Medicare law requires the fee schedule to be updated annually and, in addition, requires Medicare to perform a review of the RVUs to adjust for changes in medical practice, coding changes, new data on RVU components and new procedures at least once every five years.

The proposed notice will appear in the June 29 Federal Register.  Comments will be accepted until August 21, 2006.  CMS responses to public comments on the proposals in this notice will be combined with those for the upcoming MPFS notice of proposed rulemaking in a final MPFS rule scheduled for publication this fall.  If adopted, the RVU revisions in this proposed notice would be fully implemented for services to Medicare beneficiaries on or after January 1, 2007, while the practice expense revisions would be phased in over a four-year period.

Note: For more information, see the CMS website at:www.cms.hhs.gov/PhysicianFeeSched/

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