2007 Physician Fee Schedule Analysis

CMS released its final physician fee schedule ("PFS") and hospital outpatient department ("HOPD") rules for 2007 last week. The rules implement the imaging cuts found in the Deficit Reduction Act, but the PFS final rule ("PFS rule") excludes several ultrasound codes not initially excluded in the PFS proposed rule. The two rules implement a new abdominal aortic aneurysm ("AAA") screening benefit and announce the respective updates for the PFS and HOPD payment rates. Following is a synopsis of the qualitative analysis of the rules that may be of primary importance to SVU members. Additionally included is an excel spreadsheet with a quantitative, code-by-code impact analysis.

PFS Final Rule

Most importantly from an ultrasound perspective, the PFS rule implements the imaging payment caps and the AAA benefit found in the Deficit Reduction Act ("DRA").

Imaging Provisions of the Deficit Reduction Act

As required by section 5102(b)(1) of the DRA, CMS will cap the technical component of the PFS payment amount for the 2007 year (prior to geographic adjustment) by the 2007 HOPD payment amount (prior to geographic adjustment). CMS will then apply the PFS geographic adjustment to the capped payment amount.

In determining the Current Procedural Terminology ("CPT") and alpha-numeric Healthcare Common Procedure Coding System ("HCPCS") codes that fall within the scope of "imaging services" defined by the DRA provision, CMS states that "imaging services provide visual information regarding areas of the body that are not normally visible, thereby assisting in the diagnosis or treatment of illness or injury." CMS considered the CPT 7XXXX series codes for radiology services and then added in oth er CPT codes and alpha-numeric HCPCS codes that describe imaging services. Then the agency excluded the following services:

• Nuclear medicine services that were either non-imaging diagnostic or treatment services;
• Codes for unlisted procedures;
• Mammography services;
• Radiation oncology services that were not imaging or computer-assisted imaging services;
• HCPCS codes for imaging services that are not separately paid under the OPPS; and,
• Any service where the CPT code describes a procedure for which fluoroscopy, ultrasound, or another imaging modality is either included in the code whether or not it is used or is employed peripherally in the performance of the main procedure.

We estimate the overall DRA effect on ultrasound in the physician setting at $234 million, with approximately $159 million from vascular ultrasound codes and approximately $75 million for echocardiography color flow.

CMS Excludes Certain Ultrasound Codes

A variety of public comments requested that CMS exclude specific codes from the implementation of the DRA imaging provisions. Those requests were largely denied by CMS, citing the definition for imaging found in the DRA. However, CMS did agree with one of our arguments that five specific ultrasound codes should be excluded on the basis they provide no image, resulting in an estimated $23,000,000 in restored payments. See the table below, with information from estimates taken from the Lewin Report:

Multiple Imaging Payment Reduction & Interaction with DRA Cuts

Please note that this does not at this point in time, the multiple imaging payment reduction DOES NOT affect any noninvasive vascular codes. As discussed in the PFS proposed rule, CMS will maintain a 25 percent reduction for multiple imaging procedures and will forgo the planned progression to a 50 percent reduction, in light of the DRA cuts to imaging. Noting that it continues to study this issue, CMS has decided to calculate payments by applying the multiple procedure reduction prior to the application of the HOPD cap in acknowledgement of arguments that the HOPD schedule may at least implicitly already include a reduction for multiple imaging procedures. Non-obstetrical ultrasound procedures involving the chest, abdomen and pelvis (codes 76604, 76700, 76705, 76770, 76775, 76778, 76831, 76856 and 76857) are covered by the multiple payment reduction. An illustration of the multiple procedure reduction is below, as represented in the PFS rule:

AAA Screening Benefit

The PFS rule implements the AAA benefit found in the DRA. Unfortunately, consistent with the statute, CMS did not include quality standards for providers of the benefit. The PFS rule establishes a definition for "eligible beneficiary," with three primary criteria for eligibility:

• Beneficiary has received a referral for an ultrasound screening as a result of an initial preventive physical examination;
• Has not been previously furnished such a covered ultrasound screening examination under the Medicare program; and
• Is included in at least one of the following risk categories:
  • Has a family history of an AAA.
  • Is a man age 65 to 75 years who smoked at least 100 cigarettes in his lifetime.
  • Is an individual who manifests other risk factors that are described in a benefit category recommended by the U.S. Preventive Services Task Force regarding an AAA that has been determined by the Secretary through the National Coverage Determination ("NCD") process.

Payment for the AAA screening benefit will commence through a new payment code (G0389) that will be reimbursed at the same rate as CPT code 76775 ( Ultrasound, retroperitoneal ( e.g. , renal aorta modes), B-scan and/or real time with image documentation; limited) , which contains 1.50 RVUs. With a 2007 conversion factor (including the negative physician update) of 35.9848, the PFS payment for G0389 is expected to be $79.17, which is generally perceived as being reasonable. This service would be subject to the DRA imaging rule however as the HOPD APC payment for this service would be $95.93, the PFS payment will apply to Part B providers. The AAA benefit will be added to the list of services for which the beneficiary deductible does not apply.

Conversion Factor Issues

CMS released its PFS rule with a substantial increase in the work component for the relative value units ("RVUs") for face-to-face visits (known as evaluation and management or "E&M services.") Reflecting that change, the intermediate office visit-the most frequently billed service-will see an increase of 37 percent for the work component for the associated RVUs. Similarly, the work components for RVUs associated with two other most frequently billed services-office visit requiring moderately complex decision-making and hospital visit requiring moderately complex decision-making-will increase by 29 percent and 31 percent, respectively.

To make that change approximately budget neutral, as required by law, CMS will apply a 10.1 percent reduction to all work RVUs to offset the increases outlined above. Given that the technical component of ultrasound procedures does not contain any work RVUs, sonographers will not be directly affected by this approach. We had asked CMS not to include technical component services in undertaking the budget methodology adjustment for the E&M work RVU changes.

Additionally, CMS, as required by statute, has calculated a physician update of -5.0 percent, which is slightly more favorable than in the proposed rule. It initially estimated a physician update of -5.1 percent. In past years, Congress has intervened to prevent a negative physician update. Some will advocate doing so again this year, although the chances of action are uncertain during the post-election, lame duck session beginning next week.

New Standards for IDTFs

The Office of Inspector General for HHS reviewed CMS payments to IDTFs from 2003 to 2004 and discovered about $71,000,000 in improper payments, reportedly because of poor or missing documentation or lack of medical necessity. Other data indicates that, particularly in California, the number of IDTFs is increasing substantially faster than the growth in the Medicare population, yet the utilization rate at other sites of service remains constant. Accordingly, CMS has issued new standards with which IDTFs must comply or face revocation of billing privileges.

IDTFs must comply with each of these 11 standards by January 1, 2007:

• Operate its business in compliance with all applicable Federal, State, and local licensure and regulatory requirements for the health and safety of patients;
• Provide complete and accurate information on its enrollment application as stated in the "Requirements for Providers and Suppliers to Establish and Maintain Enrollment final rule" published in the April 21, 2006 Federal Register (71 FR 20754). Any change in enrollment information must be reported to the designated fee-for-service contractor on the Medicare enrollment application within 30 calendar days;
• Maintain a physical facility on an appropriate site. For the purposes of this standard, a post office box or commercial mailbox is not considered a physical facility. The physical facility, including mobile units, must contain space for equipment appropriate to the services designated on the enrollment application, facilities for hand washing, adequate patient privacy accommodations, and the storage of both business records and current medical records within the office setting of the IDTF, or IDTF home office, not within the actual mobile unit;
• Have all applicable testing equipment available at the physical site, excluding portable equipment. A catalog of portable equipment, including equipment serial numbers, must be maintained at the physical site. In addition, portable equipment must be made available for inspection within two business days of an inspection request. The IDTF will be required to maintain a current inventory of the equipment (including serial/registration numbers), provide this information to the designated fee-for-service contractor and notify the contractor of any changes in equipment;
• Maintain a primary business phone under the name of the business. The primary business phone must be located at the designated site of the business, or within the home office of mobile IDTF units. The telephone number or toll free numbers must be available in a local directory and through directory assistance;
• Have a comprehensive liability insurance policy of at least $300,000 per location that covers both the place of business and all customers and employees of the IDTF. The policy must be carried by a nonrelative-owned company and list the serial numbers of any and all diagnostic equipment used by the IDTF, whether the equipment is stationary, in a mobile unit, or at the beneficiary's residence;
• Agree not to directly solicit patients, which includes, but is not limited to, a prohibition on telephone, computer, or in-person contracts. The IDTF will accept only those patients referred for diagnostic testing by an attending physician, who is furnishing a consultation or treating a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary's specific medical problem. NPPs may order tests as set forth in §410.32(a)(3);
• Answer beneficiaries' questions and respond to their complaints;
• Openly post these standards for review by patients and the public;
• Disclose to the government, any person having ownership, financial or control interest, or any other legal interest in the supplier at the time of enrollment or within 30 days of a change;
• Have its testing equipment calibrated and maintained per equipment instructions and in compliance with applicable manufacturers suggested maintenance and calibration standards;
• Have technical staff on duty with the appropriate credentials to perform tests. The IDTF must produce the applicable Federal or State licenses and certifications of the individuals performing these services;
• Have proper medical record storage and be able to retrieve medical records upon request from CMS or its designated fee-for-service contractor within 2 business days; and
• Permit CMS, including its agents or designated fee-for-service contractors, to conduct unannounced, on-site inspections to confirm the IDTF's compliance with these standards. The IDTF is required to provide access, during regular business hours, to CMS and beneficiaries, as well as maintain a visible sign posting the normal business hours of the IDTF.

CMS states that if, at any time, an IDTF fails to meet any of the above standards, its billing privileges will be revoked. Additionally, multi-state entities must maintain documentation that its supervising physician and technicians are licensed and certified in each applicable state. CMS has established that an IDTF supervising physician, as listed in the Medicare enrollment application, may not supervise more than three IDTF sites.

In addition to establishing specific performance standards for IDTFs, CMS defines the "point of the actual delivery of service" as the correct "place of service" on the claim form. Accordingly, the IDTF would bill the designated Medicare carrier for the applicable place of service, as opposed to the home location of the IDTF. However, when a diagnostic test contains a home-based and facility-based element ( e.g . interpretation), the IDTF's fixed location of service would be listed as the "place of service."

HOPD Final Rule

On the same day it issued the PFS rule, CMS released the final version of its rule for Medicare payment for hospital outpatient services ("HOPD rule"). CMS expects that the rule will result in payments of an estimated $32.5 billion to hospitals, which reflects a 3.4 percent update (or a 3.0 percent increase in payments when other factors are included.)

Assignment of Payment Code and Rate for the AAA Benefit

The HOPD rule implements for hospitals the AAA provision of the DRA discussed more fully in the PFS rule and specifically establishes a new code for that procedure. Recognizing the provisions of the DRA relating to the AAA screening benefit, CMS will limit reimbursements to individuals exhibiting certain characteristics, as illustrated above.

As outlined in the PFS rule, Ultrasound screening for abdominal aortic aneurysm will be included in the initial preventive physical examination and will be added to the list of services for which the beneficiary deductible does not apply.

Consistent with the PFS rule, CMS assigned HCPCS code G0389 (Ultrasound, B-scan and/or real time with image documentation; for abdominal aortic aneurysm (AAA) screening) to be reported on or after January 1, 2007, to describe an ultrasound screening test for AAA. Payment for G0389 will be made at the same level as CPT code 76775 (Ultrasound, retroperitoneal ( e.g ., renal aorta modes), B-scan and/or real time with image documentation; limited), which is assigned to APC 0266 (Level II Diagnostic and Screening Ultrasound). The payment rate for APC 0266 is $95.93 for CY 2007.

DC1 891698v.4 November 16, 2006 01:52 PM