Medicare 101: Policy and Process

1. Medicare 101: Policy and Process ACC Legislative Conference September 29, 2005

2. Session Objectives Update on current issues affecting Medicare physician payment Provide background for tomorrow’s Hill visits Discuss future for Medicare reimbursement for cardiovascular services

3. Major topics Proposed rule for 2006 Medicare Physician Fee Schedule Five year review of RBRVS and other RUC activities Sustainable Growth Rate and 2006 payment cut

4. Medicare physician payment basics Payments are based on RVUs for each code The pool of RVUs is fixed – any changes must be budget neutral Specialties compete for a share of the fixed pool 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

5. Cardiovascular services under the microscope Large share of Medicare physician payments – second only to Internal Medicine High and increasing need for cardiovascular services among Medicare beneficiaries High volume procedures, including imaging Rapidly developing and diffusing new technology

6. Cardiovascular services under the microscope Other physician specialties want to protect Medicare payments for their services CMS looks to high volume procedures for possible savings Achieving fair valuation of new cardiovascular services and maintaining current values of existing services will be challenging

7. Evolving framework for Medicare physician payment Right now, Medicare reimburses any physician with a provider number for any covered service for any covered diagnosis Payment does not vary by qualifications, specialty, or outcome Change is coming – ACC needs to be prepared to lead in this new environment

8. Five year review of RBRVS Medicare statute requires CMS to review RBRVS every five years We are currently involved in the third five year review of the physician work component of the RBRVS CMS relies heavily on AMA/Specialty Society RVS Update Committee (RUC) to recommend changes

9. Five year review of RBRVS ACC and CV organizations asked for only one group of procedures – cardiac MR – to be reviewed CMS recommended that eight other cardiology services be reviewed All are crucial high volume services

10. Five year review of RBRVS ACC, ASE, ASNC, HRS, and SCRM presented recommendations to RUC workgroup in August The full RUC will consider workgroup recommendations and a few unresolved issues later this month CMS will issue a proposed rule for five year review changes in 2006 Any changes will take effect in 2007

11. Proposed 2006 Medicare Physician Fee Schedule CMS issued the proposed rule for the 2006 Medicare Physician Fee Schedule on August 1 Unless Congress intervenes, Medicare physician payments will be cut by 4.3% in 2006 Other provisions result in a mix of increases and decreases for cardiology – with a net 4.5% decrease The impact on individual cardiologists varies by service mix

12. Proposed 2006 Medicare Physician Fee Schedule New method for calculating practice expense RVUs Multiple diagnostic imaging procedure payment reduction Nuclear medicine as a “designated health service” under Stark restrictions on physician referral Sustainable Growth Rate (SGR) and payment cut

13. New practice expense methodology Calculate direct practice expense portion of RVUs with a “bottom-up” approach instead of current “top-down” method Eliminate non-physician work pool (NPWP) and use single methodology for all codes Incorporate supplemental practice expense data from cardiology and other specialties. Phase in new RVUs over four years (2006 – 2009)

14. New practice expense methodology When RBRVS was implemented in 1992, practice expense RVUs were charge-based, not resource based. Congress mandated that Medicare begin to use “resource-based” practice expense RVUs in 1998. Implementation was delayed by a year, then phased-in over four years because of the size of payment cuts to many specialties, including cardiology. The current method for calculating the RVUs is a “top-down” approach.

15. 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

16. New practice expense methodology When RBRVS was implemented in 1992, practice expense RVUs were charge-based, not resource based. Congress mandated that Medicare begin to use “resource-based” practice expense RVUs in 1998. Implementation was delayed by a year, then phased-in over four years because of the size of payment cuts to many specialties, including cardiology. The current method for calculating the RVUs is a “top-down” approach.

17. Top-down vs. bottom-up Direct expense pools allocated to codes based on estimates of clinical staff time, supplies, and equipment used for each code. Indirect expense pools allocated to codes based on direct expenses and physician work RVUs. Specialty-specific costs are weight-averaged based on Medicare utilization.

18. 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

19. 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. AMA and specialty societies did not anticipate this proposal.

20. 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.

21. Indirect costs use supplemental practice expense data Current indirect methodology will be retained. CMS will use supplemental practice expense surveys for those specialties’ indirect cost pools. Cardiology community joined forces to conduct a supplemental practice expense survey accepted by CMS. Survey data was essential to moderating potential cuts to cardiology.

22. Impact on cardiology CMS projects that new practice expense method will reduce total payments to cardiologists by 2.1% when fully implemented. In 2006, the partially implemented RVUs will reduce payments to cardiologists by 0.5%. Impact varies substantially by cardiology specialty area.

23. Impact on cardiovascular specialties

24. Multiple diagnostic imaging procedure discount MedPAC recommended that CMS discount payments for multiple imaging procedures on contiguous body parts. Assumes that when two of more imaging procedures are performed on contiguous body parts, practice expenses are reduced.

25. CMS proposal Create 11 families of diagnostic imaging procedures grouped by modality and body areas If more than one procedure in a family is performed during a single session: Pay 100% of the technical component of the first procedure Pay 50% of the technical component of the second and any additional procedures

26. Impact on cardiology Two designated families include cardiac imaging procedures. However, the cardiac imaging procedures are already bundled by the National Correct Coding Initiative. There is no negative impact for cardiology.

27. ACC concerns about proposal CMS claims that direct practice expense data developed by the PEAC support a 50% reduction. ACC’s analysis of the same data found that the 50% reduction vastly overstates savings from performing multiple procedures. If CMS decided in the future to extend the multiple procedure discount, cardiology could be negatively affected.

28. Nuclear medicine as a DHS Nuclear medicine is not currently affected by the Stark restrictions on physician referral. CMS proposes to add CMS to the definition of radiology services considered “designated health services.” Physicians would be prohibited from referring patients for nuclear medicine services to facilities with which they or a family member have a financial relationship.

29. Nuclear medicine as DHS Exceptions to ban on physician referral In-office ancillary services Designated rural areas CMS acknowledged previous guidance gave physicians a green light to invest in nuclear medicine facilities. Comments requested on grace period or exemption for existing facilities

30. Payment update for 2006 CMS projects an update of -4.3% for the 2006 Medicare Physician Fee Schedule 2006 conversion factor will be about $36.27

31. 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)

32. 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

33. 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

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

35. Update Adjustment Factor Formula .75 × Target spending05 – Actual spending05 Actual spending05 + .33 × Target spending 96 – 05 – Actual spending96 – 05 Actual spending05 × SGR06

36. Annual update Statute defines a floor and ceiling for the UAF UAF can’t be more than +3% or less than -7% Final 2006 update = MEI – 7%

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

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

39. 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

40. ACC Position We appreciate past Congressional intervention to stop payment cuts Congress must act again to prevent a cut in 2006 Fundamental change to SGR system urgently needed Congress should encourage CMS to make administrative changes that are available

41. Conclusions Cardiology will continue to face an unfriendly for attaining favorable reimbursement of cardiovascular services. Distributional issues will be an ongoing challenge, but we can’t get distracted from the bigger challenge… Making the case for devoting more resources to physician services in Medicare