September 2005 | Vol. 23, No. 9

CMS Announces Proposed Payment Update and Policy Changes for Medicare Physician Fee Schedule

The Centers for Medicare & Medicaid Services (CMS) announced in early August that it expects to pay approximately $56.5 billion to 875,000 physicians and other health care professionals in 2006, according to a proposed rule that would update payment rates and revise payment policies under the Medicare Physician Fee Schedule. The proposed rule also would expand Medicare coverage of glaucoma screening; expand access for rural beneficiaries enrolled in Medicare Advantage plans to services of federally qualified health centers (FQHCs); reform payment for multiple imaging procedures performed on a beneficiary at one session; and revise payment for inhalation therapy and end stage renal disease (ESRD) treatment.

The proposed rule indicates that payment rates per service for physicians’ services would be reduced by 4.3 percent for 2006, a reduction required by a statutory formula that takes into account substantial growth in overall Medicare spending in 2004. That is unless Congress gets involved and increases the payment to physicians as they have done for the previous two years.

“The payment reduction shows the need for more effective ways to pay physicians that help them improve quality and avoid unnecessary costs,” said CMS Administrator Mark B. McClellan, MD, PhD  “CMS is working with members of Congress, physician organizations, and other healthcare stakeholders on ways to improve physician payment without adding to overall Medicare costs, if at all possible.  These collaborations build on Medicare’s performance-based payment demonstrations, value-based payment reforms implemented in the private sector, and especially promising measures and reform ideas from leading physician organizations.”

The physician fee schedule specifies payment rates to physicians and other providers for more than 7,000 health care services and procedures, ranging from simple office visits to complex surgery. The fee schedule is updated on an annual basis according to a formula specified by statute.  The formula requires CMS to adjust the update up or down depending on how actual expenditures compare to a target rate, called the sustainable growth rate or SGR. The SGR in turn is calculated based on medical inflation, the projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation.

If actual spending exceeds the target, or SGR, as it did the past several years, then the law requires CMS to reduce the update factor.  The final rule will contain details of the methodology for calculating the SGR.

In addition to updating the Medicare physician fee schedule, the proposed rule will revise a number of other policies affecting Medicare Part B payments.

Consistent with a recommendation to Congress by the Medicare Payment Advisory Commission (MedPAC), CMS is proposing to reduce payments for certain diagnostic imaging procedures to reflect their limited additional costs when they are performed on contiguous body parts in the same session with the patient.  Because these changes are made in a budget neutral manner, these lower payments for multiple diagnostic imaging services will allow higher across-the-board payments for other services under the fee schedule.

Other provisions in the proposed rule address:

• Revising the methodology used to account for the costs of running a physician’s practice.
• Refinements to the payment adjustments for the malpractice costs associated with specific services.
• Revising the list of health services for which those physicians are prohibited from self-referring their patients (the physician self-referral rules) to include diagnostic nuclear medicine services and therapeutic nuclear medicine services.
• Technical refinements to the ASP methodology.

The proposed rule was published in the August 8, 2005 Federal Register.  CMS will accept comments on the proposals until September 30, 2005 and publish a final rule later this year. SVU’s Government Relations Committee Chair Bill Schroedter and regulatory advocacy counsel Bill Sarraille will review the Proposed Rule and SVU will submit its comments on it to CMS by the Sept. 30 deadline.