Medicare is turning the house of medicine into a house divided against itself.
Three different Medicare payment bases for different procedures practiced by the numerous specialties is pitting primary-care doctors against surgeons, and sometimes against procedure-oriented specialists.
At stake in the battle is a revenue source that represents about one-fifth of all expenditures on physician services.
Primary-care doctors argue, in essence, that surgeons still are paid too much, even though the 4-year-old Medicare fee schedule was partly designed to reward less-costly primary-care services as well as rein in total payments to physicians. Those payments are projected to total about $35.1 billion in the federal fiscal year that ends Sept. 30.
Surgeons contend, however, that the fee schedule also sought to reward doctors when they kept growth of their caseloads below preset limits. Surgeons say they have done that better than have primary-care doctors or procedure-oriented specialists, thus justifying the larger surgical payment base.
Furthermore, the threat to decrease the Medicare surgical payment base, or conversion factor, to make it equal to that of all other services is just one alteration to the fee schedule methodology that could lead to a reduction in surgeons' fees. Two other pending changes also could result in fee cuts.
One change will adjust the way Medicare calculates doctors' compensation for practice overhead costs. The other, a five-year adjustment to the fee schedule, will decrease the value of many types of surgeries and procedures (See related story, p. 54).
The feud has played itself out in two consecutive meetings of the American Medical Association's house of delegates (Dec. 11, 1995, p. 24; July 1, p. 3).
The two sides do agree, however, that the physician fracas benefits only those who are seeking to squeeze their payments-namely, the government and managed-care organizations.
"It's been to the delight of government and managed care that we are shooting at each other," Richard Reiling, M.D., the American College of Surgeons' alternate AMA delegate, told the house of delegates at its June meeting in Chicago.
"I don't think it does any of us any good to continue to have these...fights all the time," Robert Doherty, vice president for governmental affairs and public policy with the American Society of Internal Medicine, said as an AMA committee debated the overhead reimbursement issue.
"Part of the message we're delivering to organized medicine today is, `Let's put this behind us,"' Doherty said.
For hospitals, uncertain Medicare reimbursement can make it tricky to recruit and retain physicians, be they salaried, renting space from the hospital or trying to sell their practices to a hospital system, said James Bentley, senior vice president for policy of the American Hospital Association.
"Every time the economics change, everyone asks themselves, `What does it mean for me and does it change the way I have arranged my world?"' Bentley said.
When Medicare reimbursement changes, it forces hospitals and physicians to re-evaluate payment arrangements, Bentley said.
And no matter how the money is shifted, hospitals are likely to be affected, he said. Hospitals trying to build a network of primary-care doctors may find few available if family practitioners and internists think their Medicare payments are inadequate and seek specialty training.
Likewise, when Medicare nicks pay for surgery and procedures, hospitals that see themselves as specialty contractors for managed-care plans may find their specialists less satisfied with existing arrangements, Bentley said.
To be sure, there are many issues on which all specialties agree, and physician leaders prefer to emphasize those.
"We're saying that there are places where we can agree to disagree," said Nancy Dickey, M.D., chairwoman of the AMA board of trustees. "But there are far more places where we can agree. It's our job to keep those issues in the forefront."
But the AMA house of delegates meeting in June visibly demonstrated the interspecialty split. Primary-care groups sponsored two resolutions that were vigorously opposed by surgeons in one case and surgeons and procedure-oriented specialists in another.
One sought to change AMA policy to call for consolidation of the three conversion factors into one in the calendar year following any Medicare reform legislation. A competing resolution called for rescinding AMA support for a single conversion factor when Congress promises future fee increases for all categories.
To determine Medicare fees, the conversion factors-which are expressed in dollar values-are multiplied by a work-based numerical value assigned to every service or procedure delivered to a Medicare beneficiary. Current conversion factors are $40.80 for surgery, $35.42 for primary-care services and $34.63 for all other procedures.
Balanced-budget legislation passed by Congress last year but vetoed by President Clinton called for an immediate transition to a factor of $35.42 for all services effective Jan. 1, 1996. But the AMA house of delegates, in its December 1995 meeting, adopted a policy calling for a transition of up to three years to a single conversion factor.
In June, the house of delegates voted to bridge the difference between surgeons and primary-care doctors. It called for a policy in which Jan. 1, 1997, would be the beginning of a three-year transition.
Saying they wanted to preserve unity in the house of delegates, primary-care doctors didn't fight the three-year transition when the issue came up for a vote, giving AMA leaders some hope of patching up the interspecialty tiff.
"As we go into the Medicare reform of '97, the house of medicine has to speak with one voice," said Timothy Flaherty, M.D., a member of the AMA's board of trustees. "I think this reinforced that."
But on the conversion factor question, primary-care doctors are claiming victory, as Congress, a congressional advisory panel and the leadership of the AMA all agree that a single conversion factor inevitably should be enacted.
"Nobody's arguing that we shouldn't go back to a single conversion factor," said Douglas Henley, M.D., president of the American Academy of Family Physicians. "They're only arguing whether you (make the transition) one, two or three years."
The more contentious issue that flared at the June AMA meeting was how quickly HCFA should alter the way it reimburses doctors for the practice expenses of serving Medicare beneficiaries. Those expenses-rent, supplies, equipment and staff salaries-represent about 40% of physician revenues.
A 1994 law requires that, beginning in 1998, practice expenses no longer be reimbursed on a historical charge basis, shifting instead to the same resource-based methodology used for work compensation. HCFA is trying to collect the data necessary to develop that reimbursement schedule, called resource-based practice-expense payment.
Practice-expense reimbursement now is based on historical charges and how much of doctors' total income was used to pay for their practice expenses.
The 1992 annual report of the Physician Payment Review Commission, a congressional advisory panel, compared the practice-expense reimbursement rates for various procedures and services under the existing, historical-charge method with estimates of what the payment would have been under a resource-based method.
The report found that historical-charge-based reimbursements for practice expenses related to coronary artery bypass grafts, for example, were nearly 2.5 times what they would have been had the practice expense payments been resource-based.
Nobody is certain how the resource-based practice-expense reimbursement schedule will shift money among specialties. But primary-care doctors believe it will benefit them because they say the bulk of practice costs of surgeons and specialists often are assumed by hospitals.
One study backs up that belief. In its 1993 annual report to Congress, the PPRC estimated the big winners under resource-based practice-expense reimbursement would be family and general practitioners, who would see a 13% increase in total Medicare payments. At the low end, meanwhile, thoracic surgeons could see their total Medicare payments drop 20%, according to the PPRC.
"The changes we're talking about with practice expenses are huge, and that has a lot of people nervous," said Marie Michnich, senior associate executive vice president with the American College of Cardiology. As a result, the debate has become more partisan, she said.
At the June AMA house of delegates meeting, a coalition of specialists and surgeons successfully argued against a primary-care-sponsored policy that called for implementation of resource-based practice-expense compensation in 1998 without delay.
Instead, the house of delegates backed a policy sponsored by the specialty-surgical coalition that asks for a one-year delay in implementation of the resource-based practice-expense reimbursement.
HCFA is surveying 5,000 physician practices on costs, but it won't have complete data in time for a proposed rule that must be published next summer. The rule is expected to explain how payments will change under the new schedule.
That delay in completing the survey has occurred because the White House Office of Management and Budget, concerned about a low response rate, has approved only limited distribution of the surveys to assess the response rate.
HCFA has proposed using other data-such as a Harvard University study based on computer models that was completed in April-as a proxy for the survey.
As a result of the delay in information gathering, the specialty groups argued that implementation should be delayed.
In fact, the specialty and surgery coalition has received legal advice that it would violate HCFA's interpretation of the 1994 Medicare law, as well as the federal Administrative Procedures Act, to issue a proposed rule that uses proxy data in place of the survey findings.
Primary-care doctors have argued to the house of delegates against a delay, saying the survey could yield quality data that can be used in drafting the proposed rule. Furthermore, the primary-care groups say the current historical-charge reimbursement method is unfair to them and there's less data to support it than the resource-based method.
A delay in implementation of the resource-based practice-expense reimbursement appears unlikely. Congress is not expected to consider major Medicare legislation before it adjourns this autumn.
The Medicare physician fee schedule relies on a complex interplay of prospective cost-containment tools and retrospective analysis of growth patterns to determine physician fees in a given year and how much fees should rise in the future. The various caps, limits and constraints on fees and payment growth are what make the physician reimbursement system so contentious.
From the time it was implemented, the fee schedule made explicit its goal of rewarding less expensive primary care as one tool to keep Medicare costs in check.
But surgeons and specialists say that when the federal government seeks savings from physician payments, it takes money away from the specialties without a corresponding increase in generalists' income.
"The family practitioners and the internists never got the raise they expected," said Gregory Slachta, M.D., the American Urological Association's delegate to the AMA.
Furthermore, the way the government constrains spending growth also affects relations between the specialties.
Each category of service-surgery, primary care and nonsurgical procedures-must keep the growth in volume of Medicare beneficiaries they treat below a limit called the volume performance standard, or VPS.
The VPS is based on historical growth patterns, adjusted to factor in Medicare Part B enrollment patterns, changes in the law and other factors.
When a category exceeds the VPS in a given year, the law punishes that category by reducing the annual update to that category's conversion factor two years later. If it keeps its growth below the VPS, the conversion factor update is greater.
To discourage unnecessary services, the law builds in an automatic deduction from the VPS of 4 percentage points from historical growth patterns.
That arbitrary reduction, combined with slow expenditure growth in recent years, means that in some coming years physician caseloads actually will have to shrink from one year to the next in order to satisfy the VPS. That makes it unlikely that conversion factors will continue their generally unabated rise.
In fact, the Congressional Budget Office projects declining conversion factors for all categories in coming years (See chart, p. 52).
"When you create a ceiling on the work you can do, you've created a pie that can't grow," Slachta said. "The government somewhat pitted us against each other. It's either out of our pocket or their pocket."
Surgeons have fared best under an update system that rewards slow volume growth. The substantially higher conversion factors that exist for surgical services-now 15.2% higher than primary care and 17.8% higher than all other nonsurgical services-reflect how the system has benefited surgeons.
But many experts believe that surgeons so far have lucked into the slow volume growth. For instance, the PPRC's 1994 annual report cites a decline in the number of cataract lens replacement surgeries as having "a substantial impact" on surgical growth patterns. That decline occurred at about the same time as the current payment system took effect.
Cataract lens replacement accounted for about 3.7% of all Medicare expenditures in 1993 and about 18.8% of all surgery expenditures, according to the PPRC report. After growing an average of 7.4% a year between 1986 and 1992, cataract lens replacement surgery cases dropped 7% between 1992 and 1993, and Medicare expenditures for cataract surgery dropped 9.3% during that same time, the report said.
That growth pattern occurred because new techniques in the 1980s made cataract lens replacement surgery simpler, safer and more convenient, causing a huge rise in the number of such cases. But soon, the number of potential lens transplant patients had "largely been depleted," according to the PPRC, leading to the decline in the 1992-1993 period.
The same quirks in the payment system that have benefited surgeons, meanwhile, also have worked perversely to keep the primary-care conversion factor lower, in opposition to the fee schedule's original intent.
During the same period that cataract lens replacement surgery volume rose and then fell, nearly all the primary-care services known as "evaluation and management" services rose steadily in both number and expenditures.
Although primary-care volume shrank in 1993 while surgery grew 6.7%, primary-care volume outpaced surgery in 1994 and 1995 and is projected to do so this year, according to the CBO.
After 1996, however, the CBO's projections show some reversal in that trend, with primary-care volume growing more than surgery in only one of the next 10 years.
That has caused some to speculate that surgeons will welcome a single conversion factor once growth trends cause their conversion factor to fall close to that of primary care. According to CBO projections, the gap between surgical and primary-care conversion factors will drop from $5.38 now to just 67 cents in 2000, 65 cents in 2001 and 2002, and 63 cents in 2003.
"Just as surgeons had a positive upswing, their downswing is just as great," said Randy Teach, Washington representative for the Medical Group Management Association.
Likewise, some believe that although the early years of the fee schedule have been tumultuous, as physicians become accustomed to the various components of the payment system they will stop fighting over money and allow the wounds to heal.
"It's been pretty wrenching, getting all these pieces in place," Michnich said. "But I think we're coming out of the other end of that."