Medicare 101: Medicare 101: Policy and Policy and

ProcessProcessACC Legislative ConferenceACC Legislative Conference

September 29, 2005September 29, 2005

Session ObjectivesSession Objectives Update on current issues affecting Update on current issues affecting

Medicare physician payment Medicare physician payment Provide background for tomorrow’s Provide background for tomorrow’s

Hill visitsHill visits Discuss future for Medicare Discuss future for Medicare

reimbursement for cardiovascular reimbursement for cardiovascular servicesservices

Major topicsMajor topics Proposed rule for 2006 Medicare Proposed rule for 2006 Medicare

Physician Fee SchedulePhysician Fee Schedule Five year review of RBRVS and other Five year review of RBRVS and other

RUC activitiesRUC activities Sustainable Growth Rate and 2006 Sustainable Growth Rate and 2006

payment cutpayment cut

Medicare physician Medicare physician payment basics payment basics Payments are based on RVUs for each codePayments are based on RVUs for each code The pool of RVUs is fixed – any changes The pool of RVUs is fixed – any changes

must be budget neutralmust be budget neutral Specialties compete for a share of the fixed Specialties compete for a share of the fixed

poolpool The Medicare conversion factor determines The Medicare conversion factor determines

the overall level of Medicare paymentsthe overall level of Medicare payments A formula spelled out in the Medicare A formula spelled out in the Medicare

statute determines the annual update to the statute determines the annual update to the conversion factorconversion factor

Cardiovascular services Cardiovascular services under the microscopeunder the microscope Large share of Medicare physician Large share of Medicare physician

payments – second only to Internal payments – second only to Internal MedicineMedicine

High and increasing need for High and increasing need for cardiovascular services among Medicare cardiovascular services among Medicare beneficiariesbeneficiaries

High volume procedures, including imagingHigh volume procedures, including imaging Rapidly developing and diffusing new Rapidly developing and diffusing new

technologytechnology

Cardiovascular services Cardiovascular services under the microscopeunder the microscope Other physician specialties want to Other physician specialties want to

protect Medicare payments for their protect Medicare payments for their servicesservices

CMS looks to high volume procedures CMS looks to high volume procedures for possible savingsfor possible savings

Achieving fair valuation of new Achieving fair valuation of new cardiovascular services and cardiovascular services and maintaining current values of existing maintaining current values of existing services will be challengingservices will be challenging

Evolving framework for Evolving framework for Medicare physician Medicare physician paymentpayment Right now, Medicare reimburses any Right now, Medicare reimburses any

physician with a provider number for physician with a provider number for any covered service for any covered any covered service for any covered diagnosisdiagnosis

Payment does not vary by Payment does not vary by qualifications, specialty, or outcomequalifications, specialty, or outcome

Change is coming – ACC needs to be Change is coming – ACC needs to be prepared to lead in this new prepared to lead in this new environmentenvironment

Five year review of Five year review of RBRVSRBRVS Medicare statute requires CMS to Medicare statute requires CMS to

review RBRVS every five yearsreview RBRVS every five years We are currently involved in the third We are currently involved in the third

five year review of the physician work five year review of the physician work component of the RBRVScomponent of the RBRVS

CMS relies heavily on AMA/Specialty CMS relies heavily on AMA/Specialty Society RVS Update Committee Society RVS Update Committee (RUC) to recommend changes(RUC) to recommend changes

Five year review of Five year review of RBRVSRBRVS ACC and CV organizations asked for ACC and CV organizations asked for

only one group of procedures – only one group of procedures – cardiac MR – to be reviewedcardiac MR – to be reviewed

CMS recommended that eight other CMS recommended that eight other cardiology services be reviewedcardiology services be reviewed

All are crucial high volume services All are crucial high volume services

Five year review of Five year review of RBRVSRBRVS ACC, ASE, ASNC, HRS, and SCRM ACC, ASE, ASNC, HRS, and SCRM

presented recommendations to RUC presented recommendations to RUC workgroup in Augustworkgroup in August

The full RUC will consider workgroup The full RUC will consider workgroup recommendations and a few unresolved recommendations and a few unresolved issues later this monthissues later this month

CMS will issue a proposed rule for five CMS will issue a proposed rule for five year review changes in 2006year review changes in 2006

Any changes will take effect in 2007Any changes will take effect in 2007

Proposed 2006 Medicare Proposed 2006 Medicare Physician Fee SchedulePhysician Fee Schedule CMS issued the proposed rule for the 2006 CMS issued the proposed rule for the 2006

Medicare Physician Fee Schedule on Medicare Physician Fee Schedule on August 1August 1

Unless Congress intervenes, Medicare Unless Congress intervenes, Medicare physician payments will be cut by 4.3% in physician payments will be cut by 4.3% in 20062006

Other provisions result in a mix of Other provisions result in a mix of increases and decreases for cardiology – increases and decreases for cardiology – with a net 4.5% decreasewith a net 4.5% decrease

The impact on individual cardiologists The impact on individual cardiologists varies by service mixvaries by service mix

Proposed 2006 Medicare Proposed 2006 Medicare Physician Fee SchedulePhysician Fee Schedule New method for calculating practice New method for calculating practice

expense RVUsexpense RVUs Multiple diagnostic imaging Multiple diagnostic imaging

procedure payment reductionprocedure payment reduction Nuclear medicine as a “designated Nuclear medicine as a “designated

health service” under Stark health service” under Stark restrictions on physician referralrestrictions on physician referral

Sustainable Growth Rate (SGR) and Sustainable Growth Rate (SGR) and payment cutpayment cut

New practice expense New practice expense methodologymethodology Calculate direct practice expense portion Calculate direct practice expense portion

of RVUs with a “bottom-up” approach of RVUs with a “bottom-up” approach instead of current “top-down” methodinstead of current “top-down” method

Eliminate non-physician work pool (NPWP) Eliminate non-physician work pool (NPWP) and use single methodology for all codesand use single methodology for all codes

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

Phase in new RVUs over four years (2006 Phase in new RVUs over four years (2006 – 2009) – 2009)

New practice expense New practice expense methodologymethodology When RBRVS was implemented in 1992, practice When RBRVS was implemented in 1992, practice

expense RVUs were charge-based, not resource expense RVUs were charge-based, not resource based.based.

Congress mandated that Medicare begin to use Congress mandated that Medicare begin to use “resource-based” practice expense RVUs in 1998.“resource-based” practice expense RVUs in 1998.

Implementation was delayed by a year, then Implementation was delayed by a year, then phased-in over four years because of the size of phased-in over four years because of the size of payment cuts to many specialties, including payment cuts to many specialties, including cardiology.cardiology.

The current method for calculating the RVUs is a The current method for calculating the RVUs is a “top-down” approach.“top-down” approach.

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

New practice expense New practice expense methodologymethodology When RBRVS was implemented in 1992, practice When RBRVS was implemented in 1992, practice

expense RVUs were charge-based, not resource expense RVUs were charge-based, not resource based.based.

Congress mandated that Medicare begin to use Congress mandated that Medicare begin to use “resource-based” practice expense RVUs in 1998.“resource-based” practice expense RVUs in 1998.

Implementation was delayed by a year, then Implementation was delayed by a year, then phased-in over four years because of the size of phased-in over four years because of the size of payment cuts to many specialties, including payment cuts to many specialties, including cardiology.cardiology.

The current method for calculating the RVUs is a The current method for calculating the RVUs is a “top-down” approach.“top-down” approach.

Top-down vs. bottom-upTop-down vs. bottom-up Direct expense pools allocated to codes Direct expense pools allocated to codes

based on estimates of clinical staff time, based on estimates of clinical staff time, supplies, and equipment used for each supplies, and equipment used for each code.code.

Indirect expense pools allocated to Indirect expense pools allocated to codes based on direct expenses and codes based on direct expenses and physician work RVUs.physician work RVUs.

Specialty-specific costs are weight-Specialty-specific costs are weight-averaged based on Medicare utilization.averaged based on Medicare utilization.

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

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

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

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

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

apply general methodology to NPWP apply general methodology to NPWP services.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 measure.characterized as a stop-gap measure.

Indirect costs use Indirect costs use supplemental practice supplemental practice expense dataexpense data Current indirect methodology will be Current indirect methodology will be

retained.retained. CMS will use supplemental practice CMS will use supplemental practice

expense surveys for those specialties’ expense surveys for those specialties’ indirect cost pools.indirect cost pools.

Cardiology community joined forces to Cardiology community joined forces to conduct a supplemental practice expense conduct a supplemental practice expense survey accepted by CMS.survey accepted by CMS.

Survey data was essential to moderating Survey data was essential to moderating potential cuts to cardiology.potential cuts to cardiology.

Impact on cardiologyImpact on cardiology CMS projects that new practice CMS projects that new practice

expense method will reduce total expense method will reduce total payments to cardiologists by 2.1% payments to cardiologists by 2.1% when fully implemented.when fully implemented.

In 2006, the partially implemented In 2006, the partially implemented RVUs will reduce payments to RVUs will reduce payments to cardiologists by 0.5%.cardiologists by 0.5%.

Impact varies substantially by Impact varies substantially by cardiology specialty area. cardiology specialty area.

Impact on cardiovascular Impact on cardiovascular specialtiesspecialties

Change in Medicare

Payments In 2005 to 2006

Change in Practice

Expense RVUs 2005 to 2009

EchoEcho -4.1% 1.4%EPEP -2.7% 4.6%NuclearNuclear -5.8% -4.9%InvasiveInvasive -2.7% 3.1%GeneralGeneral -4.3% -0.3%

Multiple diagnostic Multiple diagnostic imaging procedure discountimaging procedure discount MedPAC recommended that CMS MedPAC recommended that CMS

discount payments for multiple discount payments for multiple imaging procedures on contiguous imaging procedures on contiguous body parts.body parts.

Assumes that when two of more Assumes that when two of more imaging procedures are performed imaging procedures are performed on contiguous body parts, practice on contiguous body parts, practice expenses are reduced. expenses are reduced.

CMS proposalCMS proposal Create 11 families of diagnostic Create 11 families of diagnostic

imaging procedures grouped by imaging procedures grouped by modality and body areasmodality and body areas

If more than one procedure in a family If more than one procedure in a family is performed during a single session:is performed during a single session: Pay 100% of the technical component of Pay 100% of the technical component of

the first procedurethe first procedure Pay 50% of the technical component of the Pay 50% of the technical component of the

second and any additional proceduressecond and any additional procedures

Impact on cardiologyImpact on cardiology Two designated families include Two designated families include

cardiac imaging procedures.cardiac imaging procedures. However, the cardiac imaging However, the cardiac imaging

procedures are already bundled by the procedures are already bundled by the National Correct Coding Initiative.National Correct Coding Initiative.

There is no negative impact for There is no negative impact for cardiology.cardiology.

ACC concerns about ACC concerns about proposalproposal CMS claims that direct practice CMS claims that direct practice

expense data developed by the PEAC expense data developed by the PEAC support a 50% reduction.support a 50% reduction.

ACC’s analysis of the same data found ACC’s analysis of the same data found that the 50% reduction vastly that the 50% reduction vastly overstates savings from performing overstates savings from performing multiple procedures.multiple procedures.

If CMS decided in the future to extend If CMS decided in the future to extend the multiple procedure discount, the multiple procedure discount, cardiology could be negatively affected.cardiology could be negatively affected.

Nuclear medicine as a Nuclear medicine as a DHSDHS Nuclear medicine is not currently affected Nuclear medicine is not currently affected

by the Stark restrictions on physician by the Stark restrictions on physician referral.referral.

CMS proposes to add CMS to the CMS proposes to add CMS to the definition of radiology services considered definition of radiology services considered “designated health services.”“designated health services.”

Physicians would be prohibited from Physicians would be prohibited from referring patients for nuclear medicine referring patients for nuclear medicine services to facilities with which they or a services to facilities with which they or a family member have a financial family member have a financial relationship. relationship.

Nuclear medicine as DHSNuclear medicine as DHS Exceptions to ban on physician referralExceptions to ban on physician referral

In-office ancillary servicesIn-office ancillary services Designated rural areasDesignated rural areas

CMS acknowledged previous guidance CMS acknowledged previous guidance gave physicians a green light to invest gave physicians a green light to invest in nuclear medicine facilities.in nuclear medicine facilities.

Comments requested on grace period Comments requested on grace period or exemption for existing facilitiesor exemption for existing facilities

Payment update for 2006Payment update for 2006 CMS projects an update of -4.3% for CMS projects an update of -4.3% for

the 2006 Medicare Physician Fee the 2006 Medicare Physician Fee ScheduleSchedule

2006 conversion factor will be about 2006 conversion factor will be about $36.27$36.27

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 spending0505 – Actual – Actual

spendingspending0505

Actual spendingActual spending0505

++.33 × Target spending .33 × Target spending 96 – 0596 – 05 – Actual – Actual

spendingspending96 – 0596 – 05

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

than -7%than -7% Final 2006 update = MEI – 7% Final 2006 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

ACC PositionACC Position We appreciate past Congressional We appreciate past Congressional

intervention to stop payment cutsintervention to stop payment cuts Congress must act again to prevent a Congress must act again to prevent a

cut in 2006cut in 2006 Fundamental change to SGR system Fundamental change to SGR system

urgently neededurgently needed Congress should encourage CMS to Congress should encourage CMS to

make administrative changes that are make administrative changes that are availableavailable

ConclusionsConclusions Cardiology will continue to face an Cardiology will continue to face an

unfriendly for attaining favorable unfriendly for attaining favorable reimbursement of cardiovascular services.reimbursement of cardiovascular services.

Distributional issues will be an ongoing Distributional issues will be an ongoing challenge, but we can’t get distracted challenge, but we can’t get distracted from the bigger challenge…from the bigger challenge…

Making the case for devoting more Making the case for devoting more resources to physician services in resources to physician services in Medicare Medicare