2007: What’s New?

1. 2007: What’s New? Bobbi Buell Version 1.0 January, 2007

2. Disclaimer (from CMS) “This presentation was current at the time it was printed or downloaded. This presentation was prepared as a tool to assist providers and is not intended to grant rights or impose obligations. Although every reasonable effort has been made to assure the accuracy of the information within these pages, the ultimate responsibility for the correct submission of claims and response to any remittance advice lies with the provider of services. The Centers for Medicare & Medicaid Services (CMS) employees, agents, and staff make no representation, warranty, or guarantee that this compilation of information is error-free and will bear no responsibility or liability for the results or consequences of the use of this presentation. This publication is a general summary that explains certain aspects..implementation, but is not a legal document. This presentation was current at the time it was printed or downloaded. This presentation was prepared as a tool to assist providers and is not intended to grant rights or impose obligations. Although every reasonable effort has been made to assure the accuracy of the information within these pages, the ultimate responsibility for the correct submission of claims and response to any remittance advice lies with the provider of services. The Centers for Medicare & Medicaid Services (CMS) employees, agents, and staff make no representation, warranty, or guarantee that this compilation of information is error-free and will bear no responsibility or liability for the results or consequences of the use of this presentation. “ From the CMS NPI Power Point That goes ditto for me! I

3. Session Objectives • Provide update on changes in Medicare physician payment for 2007 • Show impact of new reimbursement changes • Explain all applicable coding changes • Update information about Evaluation & Management Services • Discuss optimal strategies for 2007.

4. Medicare – the big picture • $336 billion spent in 2005 • 2.7% of GDP in 2005 • 7.3% of GDP by 2035

5. 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---this means patients will be paying more and more. Beneficiary out of pocket costs and premiums will grow faster than income. • Expenditure growth will exceed GDP growth by at least 6% over the next decade

6. Part B Patient Costs 2007 • Part B･Deductible: $131 / year • Standard Premium: $93.50 / month from $88.50 • Income-Adjusted for wealthier beneficiaries Income-related monthly adjustment amounts Single = Less than or equal to $80,000 = $0.00 = $93.50 Joint Return= Less than or equal to $160,000 =$0.00 = $93.50 Single =Greater than $80,000 and less than or equal to $100,000 = $12.50 = $106.00 Joint =Greater than $160,000 and less than or equal to $200,000 = $12.50 = $106.00 Single =Greater than $100,000 and less than or equal to $150,000 = $31.20 = $124.70 Joint = Greater than $200,000 and less than or equal to $300,000 = $31.20 = $124.70 Single= Greater than $150,000 and less than or equal to $200,000 = $49.90= $143.40 Joint = Greater than $300,000 and less than or equal to $400,000 = $49.90= $143.40 Single = Greater than $200,00 = $68.60 = $162.10 Joint = Greater than $400,000 = $68.60 = $162.10

7. Part C • Medicare managed care plans (Medicare Advantage) • Paid for by Part A and B funding streams. • Expected that more people will join over the next decade, but estimates were not reached when Part D kicked in.

8. Part C Eligibility • Medicare Advantage Eligibility • Must be enrolled in Medicare Parts A & B; enrollees are still in the Medicare program, • Must continue to pay the Part B premium ($93.50 / month in 2007), • Must live in the plan’s service area, • Must not have end-stage renal disease (ESRD) at time of enrollment

9. Medicare Part D • Prescription drug coverage • Paid for by general revenue and beneficiary premiums • More out of pocket costs for beneficiaries • More coverage for cancer • More unpaid work for practices, but most practices are not bogged down.

10. Medicare physician payment basics • Payments are based on RVUs for each code • The pool of RVUs is fixed – any changes must be budget neutral--we had one of the few exceptions in 2004-2005. • 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 and that has been a disaster.

11. How RVUs Are Used • 3 inputs go into the total RVUs • Work = Face-to-face physician time, plus intensity of work • Practice expense = practice expense relative to other procedures (with no intensity of expense) • Malpractice insurance costs (< 5%) = malpractice risk • Equation is ((W*WGPCI)+(PE*PEGPCI)+(M*MGPCI)) times the conversion factor = Fee Schedule Allowable for all codes except labs and drugs • This year there is a budget neutrality withhold that changes the equation.

12. Just This Year…Medicare ONLY • There is a budget neutrality factor of 10.1%… • Steps to calculate your payment: • ((WRVU*0.8994(ROUND))*WGPCI)+(PE*PEGPCI)….etc. • Work RVU X 0.8994 • Round this result to two places using the EXCEL formula • Apply this as the WORK RVU in the formula on the preceding page.

13. 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 or Medicare Boomerang • There are three components • Sustainable growth rate (SGR) • Medicare Economic Index (MEI) • Annual update adjustment factor (UAF)

14. 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

15. 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

16. Calculating the annual fee schedule update • Annual update to the conversion factor is the product of: • Medicare Economic Index (MEI) • Update Adjustment Factor

17. Update Adjustment Factor Formula .75 × Target spending06 – Actual spending06 Actual spending06 + .33 × Target spending 96 – 06 – Actual spending96 – 06 Actual spending05 × SGR06

18. Annual update • Statute defines a floor and ceiling for the UAF • UAF can’t be more than MEI +3% or less than MEI -7% • Final 2007 update = MEI – 7%

19. Flaws with UAF • Setting of target – SGR and all its flaws • Calculation of actual expenditures • Cumulative aspect of formula

20. Sources of spending growth • Increasing volume and intensity of office visits • Minor procedures • Imaging services • Laboratory tests • Physician-administered drugs

21. Here’s the deal… • SGR system is fatally flawed • Cannot account for technological advances and expansion of medical knowledge • Inappropriately linked to GDP • Including the cost of Part B drugs overstates spending that is under physician control • Cumulative nature of system means the problem can only get worse without a permanent fix…that’s why we have Band-Aids like this year and last year.

22. Alternatives to SGR • Annual update linked to MEI? • Pay for performance? 2007 PVRP is a start for this! • New formula to calculate the target? • Separate targets by region, type of service • Watch for a discussion this Spring when MedPac goes to Congress with recommendations!

23. This Year’s SGR Fix • The fix is in! • A freeze next year of the Conversion Factor (stays at $37.8975)---but allowables are NOT frozen. • A 1.5% reporting sweetener after July 1 for reporting PVRP quality measures, if you report for = or > 80% of reportable services. But, you will see no payment until 2008. • A PVRP measure for Oncology will be the revised disease status codes from 2006. • GPCI floor will be reinstated to support rural areas. • Establishes a fund to promote payment ‘stability’ in 2008. • Increases payment for ESRD of 1.6%.

24. This Year’s SGR Fix • Extends the treatment of certain physician pathology services for technical component. • Extends MMA rate for brachytherapy. Allows brachytherapy to be paid at hospital costs for another year. • Clarifies the payment process under CAP--post-payment review process. • Requires reporting of hemoglobin and hematocrit as ‘quality indicators’ for cancer anti-anemia drugs in 2008. • Providers will be paid for administration of Part D vaccines in their offices in 2007. • Extends the Recovery Audit Contractor Audits beyond test states.

25. 2007 Physician payment changes • Five year review of RBRVS • New practice expense methodology • DRA cut to in-office imaging

26. 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

27. E&M Is Better?

28. Five year review of RBRVS • Budget neutrality requirement • CMS instituted 10% reduction to be applied to all work RVUs as we saw previously. • Alternative was 5% reduction in conversion factor • Impact of budget neutrality options varies by service due to weight of the work RVUs, but 70% of all physician services are reduced in 2007.

29. Practice expense • New method will cut Medicare payments to Oncology by an estimated 5-7% over five years depending upon what codes you use • PE RVUS for drug administration, imaging and other technical component procedures decrease • PE RVUs for EM increase

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

31. 2007 Drug Administration

32. MEDICARE 2007 PART B Other components • Multiple imaging codes-TC component reduced by 50% was proposed for multiple imaging in related families--will be a reduction of 25% 2007 in -TC • These codes must fall into the same “family” • MRI, MRA, CT, CTA, Ultrasound • Hard on physicians that own their own equipment/free-standing imaging • DRA Reduction: certain imaging codes’-TC will be compared with imaging APCs and will be reduced to the HOPD level • Multiple imaging reduction taken first; then the DRA Reduction • Huge reductions seen estimated by some Oncology practices (35-40%).

33. 2007 Medicare Payments for Office-Administered Drugs • Payments for drugs based on 106% of manufacturer’s average sales price (ASP + 6%) • Manufacturers report the ASPs for their drugs to the Centers for Medicare & Medicaid Services (CMS) within 30 days after the end of each calendar quarter • Payment amounts for multiple-source drugs are determined by weighting each drug’s ASP by its sales volume for each NDC within the category.

34. 2007 Medicare Payments for Office-Administered Drugs • Payments are adjusted quarterly with 2-quarter lag • For example, payment amounts for July-September quarter are based on ASPs for January-March quarter. This hurts if any sizable price increase is taken by a manufacturer. • New drugs are paid at 106% of wholesale acquisition cost (WAC) until ASP data are collected, usually 2-3 quarters.

35. Principal Problems with ASP $ • “Underwater” drugs • Some drugs are not available to some physicians at the Medicare payment amount • No way to account for it in a cost outlier system. • Price increases not reflected for 2-3 quarters which • may cause payment amount to be less than the current drug price • other costs are not covered, e.g. supplies, handling, sales tax, etc. • Prompt Pay Discount given to wholesalers taken out of ASP. • Drug admin payment and coding rules do not cushion the blow as was projected.

36. RBRVS And Private Payers • Need to examine every aspect and component of RBRVS • Year of Fee Schedule • RVUs • Use of GPCIs • Conversion Factor • Use of Budget Update • Drug Payment • Additional Fees • Protocol Picture • Off-label Laws In Your State

37. Oncology Quality Demonstration Projects (2005-2007) • 2005 Demonstration Project • Paid with intravenous chemotherapy • Measures level of nausea/vomiting/ fatigue pain • $130.00/day • 2006 Demonstration Project • Paid with office visits (99212-99215) • Question about where in treatment; whether treatment is on NCCN/ASCO guidelines; and stage of disease. • $23.00/day • 2007 No Demonstration Project • Code changes released 11/1/2006

38. G-code Changes 1/1/2007 • Codes for the focus of the visit (G9050-G9055) were re-classified to coverage code “I”: This means that, as of 1/1/2007, these codes are not covered by Medicare. • Codes for adherence to clinical guidelines (G9056-G9062) were re-classified to coverage code “I”: Again, it seems that Medicare as of January 1, 2007 will not cover these codes. • Codes for disease status (G9063-G9130) had a pricing change to price “00” meaning they will not be paid in 2007. • Several long descriptors for disease status were changed or swapped, along with some additions. • These codes will be used in the PVRP starting in July.

39. Hospital Outpatient Prospective Payment (APCs) Elements of the payment system • Unit of payment – the individual service • Can bill for multiple services on same day • Classification system – ambulatory payment classification (APC) groups • Relative weights • Single value for each APC that reflects relative costliness of that service compared to others, based on median costs • Exception: New technology APCs • Conversion factor – transforms relative weight into payment

40. Hospital OutpatientProspective Payment Base payments • Base payment covers the hospital’s costs of providing the service (physician paid separately) • Base payment built on total cost-based payment-including coinsurance-in 1996 • 60 percent of payment is adjusted by the hospital wage index • Updated annually using hospital market basket

41. Hospital Outpatient Payment • For Medical Oncology • Drug payments are weird • Pass-through for 2-3 years paid at ASP plus 6% • Drugs over $50 after pass-through are paid at ASP plus 6% (until 1/1/2007) and then $55 is the threshold. • Many drugs bundled in with no payment • Spending on drugs is about 8% of HOPPS expenditures (according to MedPac) • Drug administration has traditionally been paid at a PER VISIT (not per hour) rate, which will change in 2007 • Hospital-based Medical oncologists get paid at a reduced professional fee for Evaluation & Management based on a site of service differential

42. BUT Hospitals OPDs Are Different • Structurally • Hospital OPDs are well-diversified portfolios of services-surgery, nuclear medicine, radiation, physical therapy, etc • Hospital OPDs are part of an inpatient facility where revenues may come from the inpatient side • Hospital OPDs are often part of large purchasing organizations which may decrease losses on unpaid drugs and supplies

43. Hospital OPDs Are Different • Medicare • Co-payments are a larger piece of the revenue stream and are not just 20%, which is not frequent in Oncology. • Outlier payments for high loss cases • 340B price breaks for Disproportionate Share Hospitals • Exemption for cancer hospitals

44. Hospital OPDs Are Different • Private Payers • Better negotiating leverage based on community profile and size • Better negotiating leverage based on higher headcount of professional managers • Many payers still pay on charge-based systems with drugs at AWP • Hospitals have not allowed Medicare to become the standard of payment for outpatients.

45. Medicare Outpatient PPS 2007 • Drugs • Separately paid drug threshold would rise from $50 to $55. This does not include anti-emetics. • Separately paid drugs would be paid at ASP plus 6%, not ASP plus 5% as proposed. • Pass through drugs would be paid the rate established by the Competitive Acquisition Program, generally ASP plus 6%

46. Medicare Outpatient PPS 2007 • Drug Administration • Second and subsequent hours will be paid. Payments for services by the hour rather than by the visit. • New APCs with new rates. • CPT codes will be used instead of C-codes. • But, hospitals will receive a boost in all APCs with a 3.4% increase in the inflation rate rate for all APCs

47. Medicare OPPS 2007 • Evaluation & Management Codes for Clinic Visits • Five levels using CPT codes, not G-codes. • Refining these levels. • Imaging will not have second and following procedures reduced. • Future increases tied to Quality Measures reporting starting in 2009.

48. HOPD Drug Admin 2007 Source: CMS-1506P 8/8/2006

49. Coverage with Evidence Development • CMS moving towards more coverage with their own trials… • Coverage with Evidence Development (CED) policies: • Coverage of drugs, devices, and other technologies when provision of the service is accompanied by data reporting or collection that benefits CMS. • Examples include FDG-PET Registry and coverage of colorectal cancer drugs in off-label uses when provided as part of an approved clinical trial. • CMS states intent to use data to inform permanent coverage decisions in cases where the current trial structure does not provide enough information about beneficiaries or beneficiary access.

50. Off-Label Drug Coverage • By statute, Medicare must cover off-label uses of drugs used in anticancer chemotherapy regimens if the uses are supported by citations in: • U.S. Pharmacopoeia – Drug Information (“USPDI”) • American Hospital Formulary Service • AMA Drug Evaluations (Defunct) • CMS may also change the list of approved compendia as appropriate for identifying medically accepted indications • And, they should!