Medicare 101: Medicare 101: Policy and Policy and

ProcessProcessACC Legislative ConferenceACC Legislative Conference

September 18, 2006September 18, 2006

Session ObjectivesSession Objectives

Provide update on changes in Provide update on changes in Medicare physician payment for Medicare physician payment for 20072007

Explain impact of five year review, Explain impact of five year review, new practice expense methodology, new practice expense methodology, and DRA imaging cutand DRA imaging cut

Discuss background of SGR formula Discuss background of SGR formula and physician update for 2007 and physician update for 2007

Medicare – the big Medicare – the big picturepicture

$336 billion spent in 2005$336 billion spent in 2005 2.7% of GDP in 20052.7% of GDP in 2005 7.3% of GDP by 20357.3% of GDP by 2035

Medicare Part AMedicare Part A

Inpatient hospital care, nursing Inpatient hospital care, nursing home care, inpatient rehabilitation, home care, inpatient rehabilitation, home care, hospicehome care, hospice

Paid for by a dedicated payroll taxPaid for by a dedicated payroll tax No premium for most beneficiariesNo premium for most beneficiaries

Medicare Part BMedicare Part B

Physician services, outpatient Physician services, outpatient hospital, DME, some drugs, physical hospital, DME, some drugs, physical therapy…therapy…

Paid for by general revenue and Paid for by general revenue and beneficiary premiumsbeneficiary premiums

Premiums are set to cover 25% of Premiums are set to cover 25% of projected costprojected cost

Part B trendsPart B trends

Expenditure growth will exceed GDP Expenditure growth will exceed GDP growth by at least 6% over the next growth by at least 6% over the next decadedecade

Beneficiary out of pocket costs and Beneficiary out of pocket costs and premiums will grow faster than premiums will grow faster than incomeincome

Part CPart C

Medicare managed care plans Medicare managed care plans (Medicare Advantage)(Medicare Advantage)

Paid for by Part A and B funding Paid for by Part A and B funding streamsstreams

Medicare Part DMedicare Part D

Prescription drug coveragePrescription drug coverage Paid for by general revenue and Paid for by general revenue and

beneficiary premiumsbeneficiary premiums

Medicare physician Medicare physician payment basics payment basics Payments are based on RVUs for each Payments are based on RVUs for each

codecode The pool of RVUs is fixed – any The pool of RVUs is fixed – any

changes must be budget neutralchanges must be budget neutral The Medicare conversion factor The Medicare conversion factor

determines the overall level of determines the overall level of Medicare paymentsMedicare payments

A formula spelled out in the Medicare A formula spelled out in the Medicare statute determines the annual update statute determines the annual update to the conversion factorto the conversion factor

2007 Physician payment 2007 Physician payment changeschanges Five year review of RBRVSFive year review of RBRVS New practice expense methodologyNew practice expense methodology DRA cut to in-office imagingDRA cut to in-office imaging

Five year review of Five year review of RBRVSRBRVS CMS reviews the RBRVS every five CMS reviews the RBRVS every five

yearsyears 14 Cardiology procedures were 14 Cardiology procedures were

reviewedreviewed RVUs for two nuclear cardiology RVUs for two nuclear cardiology

services were cut – wall motion, services were cut – wall motion, ejection fractionejection fraction

All others remain at same levelAll others remain at same level

Five year review of Five year review of RBRVSRBRVS

CMS proposed large increases for CMS proposed large increases for many evaluation and management many evaluation and management (EM) services(EM) services

For example, 99214 payment will For example, 99214 payment will increase from $83 to $90 increase from $83 to $90

Five year review of Five year review of RBRVSRBRVS

Budget neutrality requirementBudget neutrality requirement CMS proposed 10% reduction to be CMS proposed 10% reduction to be

applied to all work RVUsapplied to all work RVUs Alternative is 5% reduction in Alternative is 5% reduction in

conversion factorconversion factor Impact of budget neutrality options Impact of budget neutrality options

varies by service varies by service

Practice expensePractice expense

New method will cut Medicare New method will cut Medicare payments to cardiology by 4% over payments to cardiology by 4% over four yearsfour years

PE RVUS for imaging and other PE RVUS for imaging and other technical component procedures technical component procedures decreasedecrease

PE RVUs for EM, interventional, and PE RVUs for EM, interventional, and EP procedures increaseEP procedures increase

New practice expense New practice expense formula formula Calculate direct practice expense Calculate direct practice expense

portion of RVUs with a “bottom-up” portion of RVUs with a “bottom-up” approach instead of current “top-down” approach instead of current “top-down” methodmethod

Eliminate non-physician work pool Eliminate non-physician work pool (NPWP) (NPWP)

Use supplemental practice expense data Use supplemental practice expense data from cardiology and other specialties.from cardiology and other specialties.

Include clinical labor in indirect cost Include clinical labor in indirect cost formulaformula

Top – down vs. bottom-upTop – down vs. bottom-up

Right now, CMS uses a complex Right now, CMS uses a complex algorithm to calculate specialty-algorithm to calculate specialty-specific direct and indirect practice specific direct and indirect practice expense “pools”expense “pools”

Pools are based on three data sources:Pools are based on three data sources: AMA data on physician practice expenses AMA data on physician practice expenses

and work hoursand work hours Medicare utilization dataMedicare utilization data RUC data on physician time for each codeRUC data on physician time for each code

Top-down vs. bottom upTop-down vs. bottom up

Physicians developed estimates of Physicians developed estimates of the direct practice expenses for each the direct practice expenses for each codecode

The formula allocates each The formula allocates each specialty’s pool to its codes based on specialty’s pool to its codes based on the direct practice cost estimatesthe direct practice cost estimates

New method for direct New method for direct expensesexpenses CMS proposed to calculate direct CMS proposed to calculate direct

practice expense RVUs only on the practice expense RVUs only on the direct practice expense inputs direct practice expense inputs developed by the PEAC – a “bottom-developed by the PEAC – a “bottom-up” approach.up” approach.

Eliminates the need for specialty-Eliminates the need for specialty-specific direct practice expense specific direct practice expense pools and specialty-specific direct pools and specialty-specific direct costs for each code.costs for each code.

Non-physician work poolNon-physician work pool Services without physician work RVUs Services without physician work RVUs

(e.g., technical component services) are (e.g., technical component services) are in non-physician work pool (NPWP).in non-physician work pool (NPWP).

Practice expense RVUs for NPWP Practice expense RVUs for NPWP services are based on pre-1999 charged-services are based on pre-1999 charged-based RVUs.based RVUs.

NPWP was created because CMS did not NPWP was created because CMS did not have adequate data for these services.have adequate data for these services.

NPWP buffered some of the expected NPWP buffered some of the expected cuts in practice expense RVUs for cuts in practice expense RVUs for cardiology.cardiology.

Eliminate non-physician Eliminate non-physician work poolwork pool CMS believes data is now adequate CMS believes data is now adequate

to apply general methodology to to apply general methodology to NPWP services.NPWP services.

In general, this results in cuts for In general, this results in cuts for NPWP services.NPWP services.

This change was anticipated. This change was anticipated. Establishing NPWP was always Establishing NPWP was always characterized as a stop-gap characterized as a stop-gap measure.measure.

Indirect cost formulaIndirect cost formula

Current method calculates indirect Current method calculates indirect cost part of the RVUs from work cost part of the RVUs from work RVUs and direct costsRVUs and direct costs

CMS proposed to include clinical CMS proposed to include clinical labor costs for services without work labor costs for services without work RVUsRVUs

Supplemental surveysSupplemental surveys

Congress required CMS to set up a Congress required CMS to set up a process for specialties to submit process for specialties to submit supplemental data on practices expensessupplemental data on practices expenses

Cardiology conducted a survey and Cardiology conducted a survey and submitted data showing much higher submitted data showing much higher expenses than the AMA dataexpenses than the AMA data

Without this data, the new method would Without this data, the new method would be much more harmful to cardiologybe much more harmful to cardiology

DRA Imaging payment DRA Imaging payment cutcut

August NPRM outlines August NPRM outlines implementation of DRA cap on implementation of DRA cap on payments for in-office imaging servicespayments for in-office imaging services

Payment for the technical component Payment for the technical component of an imaging procedure can’t be of an imaging procedure can’t be higher than the payment under the higher than the payment under the hospital outpatient prospective hospital outpatient prospective payment system (HOPPS)payment system (HOPPS)

DRA imaging cutDRA imaging cut

DRA will cost cardiology about $132 DRA will cost cardiology about $132 million in 2007million in 2007

Nuclear cardiology, vascular Nuclear cardiology, vascular imaging are the most severely imaging are the most severely affectedaffected

Payment update for 2007Payment update for 2007

CMS projects a 5.1 percent cut in CMS projects a 5.1 percent cut in the Medicare conversion factor for the Medicare conversion factor for physician services in 2007physician services in 2007

Total impact on cardiology from all Total impact on cardiology from all changes is a 7 percent cut in total changes is a 7 percent cut in total Medicare payments Medicare payments

How does CMS determine How does CMS determine the update?the update? A formula spelled out in the Medicare A formula spelled out in the Medicare

statute determines the annual changestatute determines the annual change Known as the Sustainable Growth Known as the Sustainable Growth

Rate or SGR systemRate or SGR system There are three componentsThere are three components

Sustainable growth rate (SGR)Sustainable growth rate (SGR) Medicare Economic Index (MEI)Medicare Economic Index (MEI) Annual update adjustment factor (UAF)Annual update adjustment factor (UAF)

SGRSGR

Put in place to control growth in Put in place to control growth in spending on physician servicesspending on physician services

Link changes in spending to factors Link changes in spending to factors affecting the cost of providing affecting the cost of providing services to Medicare beneficiaries services to Medicare beneficiaries and to economic growthand to economic growth

SGR used to set an annual target for SGR used to set an annual target for spending on physician servicesspending on physician services

SGR formulaSGR formula

SGR is the product of four factorsSGR is the product of four factors Change in physician feesChange in physician fees Change in Medicare fee for service Change in Medicare fee for service

enrollmentenrollment Change in real per capita GDPChange in real per capita GDP Change in law and regulation affecting Change in law and regulation affecting

spending on physician servicesspending on physician services

Calculating the annual fee Calculating the annual fee schedule updateschedule update Annual update to the conversion Annual update to the conversion

factor is the product of:factor is the product of: Medicare Economic Index (MEI)Medicare Economic Index (MEI) Update Adjustment FactorUpdate Adjustment Factor

Update Adjustment Factor Update Adjustment Factor FormulaFormula.75 × Target spending.75 × Target spending0606 – Actual – Actual

spendingspending0606

Actual spendingActual spending0606

++

.33 × Target spending .33 × Target spending 96 – 0696 – 06 – Actual – Actual spendingspending96 – 0696 – 06

Actual spendingActual spending0505 × SGR × SGR0606

Annual updateAnnual update

Statute defines a floor and ceiling Statute defines a floor and ceiling for the UAFfor the UAF

UAF can’t be more than MEI +3% or UAF can’t be more than MEI +3% or less than MEI -7%less than MEI -7%

Final 2007 update = MEI – 7% Final 2007 update = MEI – 7%

Flaws with UAF Flaws with UAF

Setting of target – SGR and all its Setting of target – SGR and all its flawsflaws

Calculation of actual expendituresCalculation of actual expenditures Cumulative aspect of formulaCumulative aspect of formula

Sources of spending Sources of spending growthgrowth Increasing volume and intensity of Increasing volume and intensity of

office visitsoffice visits Minor proceduresMinor procedures Imaging servicesImaging services Laboratory testsLaboratory tests Physician-administered drugsPhysician-administered drugs

ACC PositionACC Position

SGR system is fatally flawedSGR system is fatally flawed Cannot account for technological Cannot account for technological

advances and expansion of medical advances and expansion of medical knowledgeknowledge

Inappropriately linked to GDPInappropriately linked to GDP Including the cost of drugs overstates Including the cost of drugs overstates

spending that is under physician controlspending that is under physician control Cumulative nature of system means the Cumulative nature of system means the

problem can only get worseproblem can only get worse

Alternatives to SGRAlternatives to SGR

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

service?service?

ACC contactsACC contacts

Rebecca Kelly Rebecca Kelly Denise Garris – Coding and Denise Garris – Coding and

ReimbursementReimbursement Sergio Santiviago – CoverageSergio Santiviago – Coverage Henry McCants – Local carriersHenry McCants – Local carriers

Thank YouThank You