Medicare 101: Policy and Process

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Medicare 101 Policy and Process

• ACC Legislative Conference
• September 18, 2006

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Session Objectives

• Provide update on changes in Medicare physician
  payment for 2007
• Explain impact of five year review, new practice
  expense methodology, and DRA imaging cut
• Discuss background of SGR formula and physician
  update for 2007

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Medicare the big picture

• 336 billion spent in 2005
• 2.7 of GDP in 2005
• 7.3 of GDP by 2035

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Medicare Part A

• Inpatient hospital care, nursing home care,
  inpatient rehabilitation, home care, hospice
• Paid for by a dedicated payroll tax
• No premium for most beneficiaries

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Medicare Part B

• Physician services, outpatient hospital, DME,
  some drugs, physical therapy
• Paid for by general revenue and beneficiary
  premiums
• Premiums are set to cover 25 of projected cost

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Part B trends

• Expenditure growth will exceed GDP growth by at
  least 6 over the next decade
• Beneficiary out of pocket costs and premiums will
  grow faster than income

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Part C

• Medicare managed care plans (Medicare Advantage)
• Paid for by Part A and B funding streams

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Medicare Part D

• Prescription drug coverage
• Paid for by general revenue and beneficiary
  premiums

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Medicare physician payment basics

• Payments are based on RVUs for each code
• The pool of RVUs is fixed any changes must be
  budget neutral
• The Medicare conversion factor determines the
  overall level of Medicare payments
• A formula spelled out in the Medicare statute
  determines the annual update to the conversion
  factor

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2007 Physician payment changes

• Five year review of RBRVS
• New practice expense methodology
• DRA cut to in-office imaging

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Five year review of RBRVS

• CMS reviews the RBRVS every five years
• 14 Cardiology procedures were reviewed
• RVUs for two nuclear cardiology services were cut
  wall motion, ejection fraction
• All others remain at same level

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Five year review of RBRVS

• CMS proposed large increases for many evaluation
  and management (EM) services
• For example, 99214 payment will increase from 83
  to 90

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Five year review of RBRVS

• Budget neutrality requirement
• CMS proposed 10 reduction to be applied to all
  work RVUs
• Alternative is 5 reduction in conversion factor
• Impact of budget neutrality options varies by
  service

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Practice expense

• New method will cut Medicare payments to
  cardiology by 4 over four years
• PE RVUS for imaging and other technical component
  procedures decrease
• PE RVUs for EM, interventional, and EP procedures
  increase

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New practice expense formula

• Calculate direct practice expense portion of RVUs
  with a bottom-up approach instead of current
  top-down method
• Eliminate non-physician work pool (NPWP)
• Use supplemental practice expense data from
  cardiology and other specialties.
• Include clinical labor in indirect cost formula

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Top down vs. bottom-up

• Right now, CMS uses a complex algorithm to
  calculate specialty-specific direct and indirect
  practice expense pools
• Pools are based on three data sources
• AMA data on physician practice expenses and work
  hours
• Medicare utilization data
• RUC data on physician time for each code

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Top-down vs. bottom up

• Physicians developed estimates of the direct
  practice expenses for each code
• The formula allocates each specialtys pool to
  its codes based on the direct practice cost
  estimates

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New method for direct expenses

• CMS proposed to calculate direct practice expense
  RVUs only on the direct practice expense inputs
  developed by the PEAC a bottom-up approach.
• Eliminates the need for specialty-specific direct
  practice expense pools and specialty-specific
  direct costs for each code.

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Non-physician work pool

• Services without physician work RVUs (e.g.,
  technical component services) are in
  non-physician work pool (NPWP).
• Practice expense RVUs for NPWP services are based
  on pre-1999 charged-based RVUs.
• NPWP was created because CMS did not have
  adequate data for these services.
• NPWP buffered some of the expected cuts in
  practice expense RVUs for cardiology.

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Eliminate non-physician work pool

• CMS believes data is now adequate to apply
  general methodology to NPWP services.
• In general, this results in cuts for NPWP
  services.
• This change was anticipated. Establishing NPWP
  was always characterized as a stop-gap measure.

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Indirect cost formula

• Current method calculates indirect cost part of
  the RVUs from work RVUs and direct costs
• CMS proposed to include clinical labor costs for
  services without work RVUs

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Supplemental surveys

• Congress required CMS to set up a process for
  specialties to submit supplemental data on
  practices expenses
• Cardiology conducted a survey and submitted data
  showing much higher expenses than the AMA data
• Without this data, the new method would be much
  more harmful to cardiology

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DRA Imaging payment cut

• August NPRM outlines implementation of DRA cap
  on payments for in-office imaging services
• Payment for the technical component of an imaging
  procedure cant be higher than the payment under
  the hospital outpatient prospective payment
  system (HOPPS)

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DRA imaging cut

• DRA will cost cardiology about 132 million in
  2007
• Nuclear cardiology, vascular imaging are the most
  severely affected

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Payment update for 2007

• CMS projects a 5.1 percent cut in the Medicare
  conversion factor for physician services in 2007
• Total impact on cardiology from all changes is a
  7 percent cut in total Medicare payments

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How does CMS determine the update?

• A formula spelled out in the Medicare statute
  determines the annual change
• Known as the Sustainable Growth Rate or SGR
  system
• There are three components
• Sustainable growth rate (SGR)
• Medicare Economic Index (MEI)
• Annual update adjustment factor (UAF)

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SGR

• Put in place to control growth in spending on
  physician services
• Link changes in spending to factors affecting the
  cost of providing services to Medicare
  beneficiaries and to economic growth
• SGR used to set an annual target for spending on
  physician services

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SGR formula

• SGR is the product of four factors
• Change in physician fees
• Change in Medicare fee for service enrollment
• Change in real per capita GDP
• Change in law and regulation affecting spending
  on physician services

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Calculating the annual fee schedule update

• Annual update to the conversion factor is the
  product of
• Medicare Economic Index (MEI)
• Update Adjustment Factor

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Update Adjustment Factor Formula

• .75 Target spending06 Actual spending06
• Actual spending06
• .33 Target spending 96 06 Actual spending96
  06
• Actual spending05 SGR06

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Annual update

• Statute defines a floor and ceiling for the UAF
• UAF cant be more than MEI 3 or less than MEI
  -7
• Final 2007 update MEI 7

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Flaws with UAF

• Setting of target SGR and all its flaws
• Calculation of actual expenditures
• Cumulative aspect of formula

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Sources of spending growth

• Increasing volume and intensity of office visits
• Minor procedures
• Imaging services
• Laboratory tests
• Physician-administered drugs

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ACC Position

• SGR system is fatally flawed
• Cannot account for technological advances and
  expansion of medical knowledge
• Inappropriately linked to GDP
• Including the cost of drugs overstates spending
  that is under physician control
• Cumulative nature of system means the problem can
  only get worse

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Alternatives to SGR

• Annual update linked to MEI?
• Pay for performance?
• New formula to calculate the target?
• Separate targets by region, type of service?

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ACC contacts

• Rebecca Kelly
• Denise Garris Coding and Reimbursement
• Sergio Santiviago Coverage
• Henry McCants Local carriers

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Thank You