Doctors closer to Medicare pay relief

An administrative change adds new funding as the House passes a Medicare payment fix.

By Markian Hawryluk, amednews staff. July 22, 2002.

Washington -- Physicians won't be too upset that Medicare officials don't think they're as productive as previously assumed.

By downgrading its estimate of physicians' ability to increase their income by being more productive, the Centers for Medicare & Medicaid Services has proposed restoring more than $1 billion in physician Medicare payments through 2005.

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The change was announced just as the House of Representative voted 221-208 to adopt a Medicare reform package that included a prescription drug benefit and a three-year fix of the physician payment update formula. The measure would eliminate deep cuts in Medicare payment rates, setting the update at about 2% for each of the next three years.

The American Medical Association lauded both moves but cautioned that neither represented a full solution to the growing Medicare access problem. The House vote must be followed by Senate action for the payment fix to move forward. And the administrative change in the productivity factor would not be sufficient to avoid a second consecutive year of cuts in physician payment.

In the proposed rule on the physician fee schedule, CMS recommended changing the productivity adjustment factor used to calculate the Medicare Economic Index. The MEI is used to approximate the inflation of the cost of physician supplies and services and is a key portion of the sustainable growth rate formula that influences Medicare's physician payment rates.

The move would change the current estimate of the 2003 pay update from a 5.1% cut to a 4.4% cut. CMS will revise that estimate in November as actual data become available.

The change raises the estimate of the 2003 pay update from a 5.1% cut to a 4.4% cut.

Additionally, the proposed rule would double Medicare payment for administration of some immunizations from $3.98 to about $8. The proposed rates reflect the direct costs of providing the service, including patient counseling. The change is expected to impact pediatric immunization rates as well because many commercial payers base reimbursement on the Medicare fee schedule.

CMS also proposed expanding coverage of telehealth services in 2003 to include psychiatric diagnostic interviews and a new method for adding or removing items from the list of approved telehealth services.

The proposed rule included a host of changes to the relative value scale -- adopting the vast majority of recommendations from the AMA's specialty society relative value update committee.

While the AMA is still studying the overall impact of the proposed rule, it praised the administrative action to change the productivity adjustment.

"CMS has corrected an unrealistic assumption by adopting a smaller productivity adjustment," said Timothy T. Flaherty, MD, an AMA trustee. "In the past, this negative adjustment has led to estimates of practice cost inflation that were far too low."

But Dr. Flaherty said the AMA was disappointed CMS did not make other administrative changes that physician groups had requested. A legal opinion by the agency's former chief counsel, Terry Coleman, concluded that the administration has the legal authority to make modifications that would have added $62 billion in new funding over the next 10 years.

Liability insurance rates are expected to increase an average of 11.3% in 2003.

The groups had sought to correct erroneous estimates used to calculate past spending targets and to exclude outpatient drugs from physician spending totals. Although CMS proposed modification of the way it accounts for increases in drug costs, the agency has not removed those costs from the physician spending pool.

CMS has said it does not have the legal authority to make those changes without congressional action.

The AMA also urged CMS to revise its estimate of increases in professional liability insurance premiums, one of the factors used to determine physician payment rates. Last year, CMS set liability cost increases at 4% in calculating 2002 rates. For 2003 rates, the agency now estimates an average national increase of 11.3%. But Dr. Flaherty said that is still too low.

"While this is a step in the right direction, it does not fully cover the skyrocketing liability costs in some states and specialties," Dr. Flaherty said.

Eyes on the Senate

As for an overall physician payment fix, doctors' hopes now rest with the Senate. Senate majority leader Tom Daschle (D, S.D.) had given the Senate Finance Committee a July 15 deadline to bring a Medicare prescription drug bill to the floor. Daschle said he would bypass the committee if it could not act by that date. At press time, it was not clear whether that bill would include a physician payment provision.

Dr. Flaherty said physicians would have to see whether Senate Democrats could come to an agreement with Republicans on prescription drugs and pass a comprehensive Medicare bill. If not, there is a good chance lawmakers who overwhelmingly supported a payment fix last year would offer it as stand-alone legislation.

Daschle has thrown his support behind a prescription drug bill introduced by Sen. Bob Graham (D, Fla.) that would provide a more generous benefit than the House plan but at a greater cost. Sens. John Breaux (D, La.), Charles Grassley (R, Iowa), and Jim Jeffords (I, Vt.) also have introduced a drug bill that is nearer to the Republican plan. Neither plan is expected to garner the 60 votes needed to stave off a filibuster.

The House bill would increase payments to physicians 6% over the next three years, avoiding the 15% cut in Medicare reimbursement scheduled to go into effect. Under the measure, payment rates in 2006 would revert to the current formula and would have to recoup the additional spending for the previous three years. Physician groups contend that those three years will give Congress time to reassess the physician payment formula and find a longer-term solution.

The bill also includes the Medicare regulatory reform measures passed by the House last year but never considered by the Senate. It also would establish a free initial preventive physical examination for new beneficiaries to be performed within six months of a patient's initial coverage under Medicare Part B.

ADDITIONAL INFORMATION:

Payment changes

Key provisions from the proposed rule on the Medicare physician fee schedule:

Adjust the productivity factor used in calculating the physician payment update.
Make adjustments to the resource-based, practice expense relative value units.
Increase payments for administering certain vaccines.
Expand coverage of telehealth services.
Alter pricing for positron emission tomography.