Implementation of a Resource-based
Practice Expense Methodology to Calculate Practice Expense Relative
Values for the Medicare Fee Schedule
Regulatory Summary - June 8, 1998
Association of American Medical Colleges
Medicare Program: Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 1999 (Federal
Register, June 5)
A. Practice Expense Methodology and Revised Practice Expense
Relative Value Units
HCFA is working under a legislative mandate (Section 121
of the Social Security Act Amendments of 1994) to implement
a resource-based system to calculate the practice expense
component of the fee schedule by January 1, 1999. These policy
changes are intended to correct inequities in physician payment.
Last year, as a result of intensive advocacy efforts by the
medical community, Congress adopted a four year transition
period to the new system as a provision of the Balanced Budget
Act (BBA) of 1997. The practice expense component accounts
for approximately 41 percent of the total fee schedule payment.
The new methodology proposed by HCFA is a "top-down"
approach that would start with an aggregate amount of practice
costs for each specialty derived from the American Medical
Association's Socioeconomic Monitoring System (SMS) data.
These data are used to calculate the average practice expense
generated for every hour worked by a physician in a given
specialty. The total pool of expenses for a specialty is derived
by multiplying the average practice expense per hour by the
total number of physician hours worked by that specialty to
treat Medicare patients. The total practice expense data by
specialty would then be allocated to six cost pools (administrative,
clinical, supply, equipment, office, all other). HCFA then
would allocate these cost pools to individual procedure codes
listed in CPT. This new method attempts to recognize all specialty
practice costs, and not just those linked to a specific procedure.
Originally, HCFA proposed to allocate practice costs using
a "bottom-up" approach in a proposed rule issued
last year. This method took estimates developed by expert
panels to assign direct practice costs (medical equipment,
support staff salaries, and rent) to specific services. These
estimates were then extrapolated to all services. The approach
was criticized by physicians as significantly flawed for not
capturing certain costs associated with furnishing a service,
although it is a second option still being proposed by HCFA
in the rule.
Both the "top down" and "bottom-up" methodologies
are fully described in the rule. Addendum C of the rule contains
the revised practice expense relative value units (PE-RVUs)
for all services paid under the fee schedule.
The AAMC has completed a preliminary impact analysis of the
revised PE-RVUs on 26 member practice plans. The results of
this analysis will be incorporated into the AAMC's official
letter of comment to HCFA and available on the AAMC web site.
B. Other Policy Changes
In addition to the practice expense proposal, the rule also
includes several other policy changes that relate to physician
services:
1. Medical Direction for Anesthesia Services
HCFA proposes to adopt the consensus criteria for the medical
direction of anesthesia services by a physician as developed
by the American Society of Anesthesiology (ASA) and the American
Association of Nurse Anesthetists (AANA). The proposed provision
would:
- provide that the physician either perform the pre-anesthesia
examination and evaluation or review one performed by another
qualified individual;
- no longer require the physician to be present during
induction and emergence (except for teaching physicians
supervising residents);
- require that the physician monitor the course of anesthesia
at intervals medically indicated by the nature of the procedure
and the patient's condition.
2. Separate Payment for Physician Interpretation of an
Abnormal Pap Smear
HCFA proposes to provide separate payment for physician interpretation
of an abnormal Pap smear in all settings. The Pap smear may
be furnished by a hospital or an independent laboratory. The
independent laboratory could bill for the complete service,
i.e. technical and professional components. For hospital patients,
the interpretation usually is furnished and billed by the
pathologist who can bill the professional component.
3. Rebasing the Medicare Economic Index
Since 1972, the Medicare Economic Index (MEI) has been used
to determine payment for physician services under Medicare
Part B. The current MEI represents a weighted sum of annual
price changes for various inputs needed to produce physician
services, primarily, physician net income (wages and salaries)
and practice expenses, such as, support staff salaries, office
expenses, medical supplies, equipment, malpractice insurance,
and other professional expenses. The index has not been updated
since 1989.
One major difference in updating the expenses to include
in the revised MEI is that employee physician compensation
will be included in updated MEI category of physician income.
Further, employee physician work time will be included in
the physician work relative value units (RVUs) for each service.
Since revenue associated with physician time is the single
largest cost component in the MEI (54.5 percent), selection
of a price proxy for physician wage and salary costs is a
major determinant of the rate of change in the MEI. For this
component, HCFA proposes to use a compilation of three valid
data sources: 1) the 1996 AMA Socioeconomic Monitoring System
Survey, 2) the March 1997 Bureau of Labor Statistics (BLS)
Employment Cost Index, and 3) the 1992 Bureau of the Census
Asset and Expenditure Survey aged to 1996. No one data source
was able to provide all the data required to develop a price
proxy for wages. Other data sources were used to develop additional
weights for the updated expense categories of the MEI.
The result of the rebasing will be a 0.3 percent increase
in 1996 to the physician's earnings weight, with an offsetting
decrease in the physician's practice expense weight.
4. Implementation of Balanced Budget Act (BBA) of 1997
Provisions
Payment for Drugs and Biologicals
Before January 1, 1998, drugs and biologicals not paid on
a cost or prospective payment basis were paid based on the
lower of the estimated acquisition cost (EAC) or the national
average wholesale price (AWP). BBA 97 established payment
for drugs not paid on a cost or prospective payment basis
at the lower of the actual billed amount or 95 percent of
the AWP, effective January 1, 1998. This regulation implements
the new payment policy provision. More significantly, HCFA
is proposing also to allow the AWP to equal the lower of the
median price of either the generic AWP or the lowest brand
name AWP.
Private Contracting with Medicare Beneficiaries
Effective January 1, 1998, BBA permits certain physicians
and practitioners (nurse practitioners, physician assistants,
other non-physician providers) to contract privately with
Medicare beneficiaries if the physicians and practitioners
file an affidavit with the Medicare carrier opting-out of
Medicare for two years.
This proposed rule provides regulations to the operating
policies HCFA has already issued to Medicare carriers to implement
the private contracting provision. The rule also proposes
ancillary policies that HCFA believes are necessary to clarify
definitions of terms such as emergency and urgent care services,
legal representative and beneficiary; the required elements
that must appear in the contract between the provider and
the beneficiary; the required elements that must appear in
the affidavit that the provider must file with Medicare to
opt-out; procedures for resolving potential disputes, contract
termination, payment terms, and many other conditions. Frequently
asked questions and answers about this provision are also
included in this section of the rule.
Some of the contract and affidavit specifications that HCFA
is proposing include:
- the contract be in sufficiently large type to ensure
that beneficiaries are able to read it;
- physicians (and patients) retain copies of private contracts
during the opt-out period in order to resolve potential
disputes about whether a valid contract was signed;
- the affidavit acknowledge that the physician recognize
that the terms of the affidavit apply to all Medicare-covered
items and services furnished to the beneficiary regardless
of any payment arrangement in which the physician participates;
- the affidavit acknowledge that a physician who has previously
signed a Medicare participation agreement understands that
such agreement is terminated on the effective date of the
affidavit; and
- the physician may terminate the opt-out within 90 days
of the effective date of the affidavit if they follow certain
steps.
The complete details of the private contracting provision
may be found in the rule.
Payment for Outpatient Rehabilitation Services
The BBA changed Medicare policy for outpatient rehabilitation
services. This regulation implements the following changes
required by BBA:
- Outpatient rehabilitation services will be paid using
the physician fee schedule beginning January 1, 1999. (Facility
charges for these services will be paid under a new, prospective
payment system currently under development by HCFA.) This
provision will apply to outpatient physical therapy, occupational
therapy, and speech-language pathology services covered
under Part B when furnished by: rehabilitation agencies,
public health agencies, clinics, skilled nursing facilities
(SNFs), home health agencies (to patients not homebound),
hospitals, and other entities under an arrangement with
any of these providers. These services may continue to be
billed directly when provided personally by a physician,
or "incident to" a physician's service when services
are furnished by a therapist, or by an independent therapist
in private practice. Providers are instructed to use the
appropriate codes established for outpatient rehabilitation
services.
- Beginning January 1, 1999, two annual per beneficiary
limits of $1500 will be used; one limit for outpatient physical
therapy services (including speech-language services), and
a separate limit for outpatient occupational therapy services.
These limits will include all outpatient therapy services
except for services furnished by hospital outpatient
departments.
Payment for Services of Certain Nonphysician Practitioners
and Services Furnished Incident to their Professional Services
BBA authorizes, effective January 1, 1998, nurse practitioners,
physician assistants, clinical nurse specialists and certified
nurse-midwives to bill the Medicare program directly for services
furnished provided in any delivery setting (except rural health
clinics and Federally qualified health centers), regardless
of whether the settings are located in rural and urban areas,
but only if the facility or other providers of services do
not charge or are not paid any amounts with respect to the
furnishing of the same service. (A hospital or clinic may
continue to bill a technical or facility fee but not a professional
fee for the same service.)
The rule specifies the billing requirements for services
furnished by physician assistants independently and incident
to the services of a physician. (See Section 410.74 of the
rule for complete details.) The rule also proposes a revised
definition of physician collaboration that is applicable to
nurse practitioners and clinical nurse specialists services.
Alternatively, physicians may continue to bill for the services
furnished by these nonphysician practitioners incident to
a physician's professional services. The rule reiterates Medicare's
incident to billing policy for those services performed by
a nurse practitioner under the direct supervision of a physician
and billed by that physician in his/her name. Members are
encouraged to review Section 410.75 (Nurse Practitioner Services)
for complete details.
Contacts
Denise Dodero, Sr. Director, Health Care Affairs
AAMC Health Care Affairs
ddodero@aamc.org
(202) 828-0493
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