WASHINGTON WIRE

November 3, 2006
Issue 114

In this issue, you'll find:

CMS Physician Fee Schedule Rule Proposes 5% Payment Cut. Will Congress Act?
Physician Fee Schedule Increases Payments for Face-to-Face Visits and Implements New Benefits
CMS Releases Final Hospital Outpatient Payment Rule
CMS Issues Final Rule on Home Health Services and Certain DME
Congress In Recess Until November 13, 2006

Top Story

CMS Physician Fee Schedule Rule Proposes 5% Payment Cut. Will Congress Act?

On Wednesday, November 1, 2006, the Centers for Medicare and Medicaid Services (CMS) released the final Physician Fee Schedule rule implementing new Medicare payment policies for physician and some outpatient health care services—including a 5.0 percent cut to physician payments for 2007(down from the proposed 5.1%). The Hospital Outpatient Prospective Payment System and Durable Medical Equipment final rules, which cover most other outpatient Medicare services, were also released on Wednesday. They are discussed below.

Although the midterm elections are set to usher in a new Congress, hope remains that a “lame duck” Congress will address the physician payment cut as well as other Medicare priorities

The most significant provision of the final rule is the implementation of a 5.0 percent cut in physician payments that will take effect January 1, 2007. This cut, which has been the subject of ongoing debate in Congress for more than six years, is the result of a statutory formula known as the Sustainable Growth Rate (SGR). The SGR was originally created to provide stable, long term growth in Medicare physician expenditures by tying payment increases to a target growth rate based on overall annual expenditures. Overall payments in 1998 and 1999 exceeded the target, resulting in a payment cut proposed for 2001. Congress overturned scheduled cuts in every year except one. As a result of the repeated increases over the target rate, CMS projects a 5.0 percent cut this year and subsequent cuts in future years.

Speculation is rampant on whether Congress may step in once again this year to spare physicians a cut that many physician groups claim would cause access problems for Medicare beneficiaries. Earlier this year, many health care observers expected a Republican Congress to produce a Medicare package that could be passed either before or shortly after the election in a lame duck session. However, as political pundits are increasingly optimistic about a Democratic takeover in the House of Representatives, expectation for a solution dim. Congress still must return for a lame duck session to pass several appropriations bills or a continuing resolution, but the likelihood of any kind of Medicare package is looking less likely as a Democratic gains loom.

Irrespective of short-term Congressional action, a long term fix to the physician fee schedule—one that provides increases in payment over time without the need for Congressional intervention—is an increasingly expensive proposition for lawmakers of either party. What was a $100 billion physician payment fix back in 2002 now exceeds $200 billion. Other potential amendments to any Medicare proposal, such as payment increases to hospitals, nursing homes, and other industries, are also likely to complicate any debate that moves forward, particularly if the November elections yield a narrow majority for either party.

Health Care News

Physician Fee Schedule Increases Payments for Face-to-Face Visits and Implements New Benefits

Aside from the political impact the Physician Fee Schedule will cause in Congress, there are some significant regulatory changes to how physicians are compensated. The Medicare program will now pay physicians more for the time they spend talking with Medicare beneficiaries about their health care and will pay for a broader range of preventive services.

Specifically, the final rule increases the work component for the RVUs (Relative Value Units) for face-to-face visits, otherwise known as evaluation and management, where physician and patient discuss the patient’s health status and the steps that can be taken to maintain or improve the patient’s health. According to the rule, the work component for RVUs associated with an intermediate office visit, the most frequently billed physician’s service, is increasing by 37 percent. The work component for RVUs for an office visit requiring moderately complex decision-making and for a hospital visit also requiring moderately complex decision-making are increasing by 29 percent and 31 percent respectively. Both of these services rank in the top 10 most frequently billed physicians’ services out of more than 7,000 types of services paid under the physician fee schedule.

Beginning January 1, Medicare will expand its preventive services benefits, as provided for in the Deficit Reduction Act of 2005 (DRA). Medicare will pay for preventive ultrasound screening for abdominal aortic aneurysms (AAA) for at-risk beneficiaries as part of the “Welcome to Medicare” physical. AAA is a weakening in the wall of the large artery that takes blood from the heart to the body. The rule also expands the number of beneficiaries who qualify for bone mass measurement due to long term steroid therapy. For these beneficiaries, the rule reduces the dosage required for eligibility by one-third, from an average of 7.5 milligrams per day of prednisone for at least three months to 5.0 milligrams. Finally, the final rule exempts the colorectal cancer screening benefit from the Part B deductible, eliminating a potential financial barrier to using the benefit.

The final rule adopts a new methodology for determining practice expense (i.e. office overhead) RVUs, as in the proposed rule, but will phase in the changes over a four year period. This methodology is purported by CMS to be more transparent than the existing methodology, allowing physician specialties and other stakeholders to predict the effects of proposals to improve accuracy of practice expense payments.

This rule also codifies in regulation a DRA provision that adds diabetes outpatient self-management training and medical nutrition therapy services to the list of covered and separately payable services included in the Federally Qualified Health Center benefit, making these services more available to beneficiaries in underserved areas.

Consistent with requirements of the DRA, the final rule caps payment rates for imaging services under the physician fee schedule at the amount paid for the same services when performed in hospital outpatient departments. The final rule includes a list of codes to which the outpatient prospective payment system (OPPS) cap would apply. The rule also finalizes a policy of reducing by 25 percent the payment for the technical component of multiple imaging procedures on contiguous body parts. CMS will apply the multiple imaging reductions first, followed by the OPPS imaging cap, if applicable.

The final rule also includes further guidance on how drug manufacturers should address particular issues related to their reporting requirements. In 2005, as required by the Medicare Modernization Act, CMS implemented a new method of paying for Part B drugs, such as those administered by a physician in the office. This new methodology is based on the manufacturer’s average sales price (ASP), plus six percent. The rule finalizes manufacturer reporting requirements and addresses a number of technical ASP issues such as the treatment of bona fide service fees in the context of the ASP calculation and the definition of nominal sales.

The final rule will be published officially next week in the Federal Register, but can be viewed at: http://www.cms.hhs.gov/physicianfeesched/downloads/
1321-fc.pdf?agree=yes&next=Accept. The rule will be effective for services on or after January 1, 2007.

CMS Releases Final Hospital Outpatient Payment Rule

On Wednesday, November 2, 2006, CMS released the final Medicare Hospital Outpatient Prospective Payment Systems (OPPS) rule for 2007.

For services paid under the OPPS, the rule included a 3.4 percent mark basket update and, taking other factors into account, hospital outpatient departments will receive an average 3 percent increase in Medicare payments.

The rule implements a quality reporting requirement for the outpatient setting, tying payment increases to such reporting beginning in 2008. Specifically, hospitals will be required to report consistent measures on patient satisfaction in order receive a full update increase.

The final rule also changes the conditions for participation of critical access hospitals (CAH) to allow an on site registered nurse to perform emergency medical screening as qualified medical personnel.

The final rule is posted at www.cms.hhs.gov/
HospitalOutpatientPPS/01_overview.asp.

CMS Issues Final Rule on Home Health Services and Certain DME

Also on Wednesday, November 2, 2006, CMS released the Home Health Prospective Payment System (HH PPS).

The regulation includes a 3.3 percent increase for Medicare payment rates for home health services for 2007 for those providers who submit quality data using the Outcome and Assessment Information Set (OASIS) data. Those home health agencies not submitting quality data will receive a 1.3 percent payment increase.

The rule also implements a provision in the Deficit Reduction Act of 2005 (DRA) that requires suppliers to transfer the title of oxygen equipment supplied under Medicare to the beneficiary after 36 months; thereby eliminating Medicare rental payments and beneficiary coinsurance payments after this time period.

The final rule is posted at www.cms.hhs.gov/HomeHealthPPS/
downloads/CMS1304Fdisplay.pdf.

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Congress In Recess Until November 13, 2006

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