Medicare's new practice-expense rule takes effect this month, surrounded by controversy over the way Medicare reimburses doctors.
Effective Jan. 1, most physicians who provide services primarily in office settings, such as family practice and internal medicine specialists, will receive increased payments from Medicare. At the same time, physicians who provide services primarily in hospital settings, such as cardiac surgeons and neurosurgeons, will generally receive decreased Medicare payments, with gastroenterologists and pathologists seeing the biggest decreases. The total amount of Medicare reimbursement expected to be shifted to primary-care providers over the next four years is $4 billion, according to the Practice Expense Coalition, which represents specialists.
The new rule, in the making since 1994, has been steeped in controversy.
Primary-care physicians hoped the publication of HCFA's final practice-expense rule would mark the end of the debate, but many specialists remain dissatisfied with the redistribution plan.
A coalition of 11 national specialty societies sued HCFA and HHS in U.S. District Court in Chicago last fall. The coalition charged that the new rule is "unlawful and invalid" because it gives primary-care providers an unfair boost throughout the four-year phase-in of the new rule.
For their part, primary-care providers say they're not asking for brain surgery to be reimbursed at the same level as an office visit, but they do want payment disparities to be reduced.
Because most private payers adopt Medicare's reimbursement rates, specialists say the reduction in reimbursement will have detrimental effects on their ability to provide care.
"The issue really ends up being how soon it becomes financially disadvantageous to treat Medicare patients," says James Bean, M.D., a Lexington, Ky., neurosurgeon. Bean says he expects reimbursements for his five-physician group to be cut about 4% this year. "When the expense of treating Medicare patients exceeds the reimbursement, that's a breaking point. . . . It's going to be close, and that's the point when a decision may have to be made about how many Medicare patients you can accept."
In 1992, Congress implemented a Medicare fee schedule that sets payments to physicians for more than 7,000 services and procedures. Before that, Medicare payments were based on average physician charges. According to HCFA, the fee schedule was created to ensure payments correspond with the actual resources used.
Under the fee schedule, all Medicare payments are broken down into three parts: 54% of the payment is for physicians' work, including the time, effort and intensity involved in the procedure; 41% is for the expense of running their practice, including rent, equipment, supplies and general office overhead (such as utilities); and 5% is for malpractice insurance. Each component is assigned a relative value unit. Then adjustments for local cost differences are made, and the RVUs are multiplied by a conversion factor that translates them into dollars. The current conversion factor is $34.07.
Under the old charge-based practice-expense formula, most primary-care providers received lower payments than their hospital-based peers, which they considered unfair. Primary-care doctors argued surgeons' overhead costs are largely covered by the hospitals in which they operate, while they must pay their own.
In 1994, Congress asked HCFA to design a resource-based relative value scale for the practice expenses, and in 1997, HCFA released the new rule to much resistance and controversy.
Specialists immediately complained they would take an unfair hit under the new rule. Under that proposed rule, which became known as the "bottom-up" approach, dermatologists would see a 20% increase, while gastroenterologists would see a 15% decrease.
Congress then entered the fray and ordered HCFA to abandon that method, delay implementation of the new rule until 1999 and mandate a four-year phase-in.
Then, to appease primary-care providers, Congress took $330 million from surgical procedure reimbursements and redistributed it to some common office procedures in 1998.
This one-year shift in funds became known as the "down payment." Because of budget neutrality requirements, HCFA could not come up with new funds for the primary-care providers and instead had to take money away from the specialists.
When HCFA published its final practice-expense rule last November, specialists were enraged to discover the new relative value scale was based on 1998 charges, which included the onetime down payment. If HCFA uses 1998 as the base year, specialists say, the down payment will continue to be part of the payment formula throughout the four-year transition.
Randy Fenninger, spokesman for the Practice Expense Coalition, says using 1998 charges will cost specialists an additional $495 million over four years. The specialists charge that Congress intended the down payment to be a onetime bonus, and the rule actually should be based on 1991 data. "It is our hope that the court will agree with our interpretation of the statute. It is clear that the base year should be 1991," he says. "We just don't want the down payment to be continued through each year of the transition."
In the final rule, HCFA indicated it would not consider using 1991 data because it is outdated.
Specialists also found fault with the fact that the rule uses data from the American Medical Association to estimate physicians' hourly practice expenses.
Bean says AMA data estimate neurosurgeons' annual practice expenses are $235,000, but according to his calculations, a more realistic estimate is between $285,000 and $300,000.
In the final rule, HCFA acknowledged the data used are not the most accurate or even appropriate. Although the AMA data were "not initially intended to be used to develop practice-expense RVUs, we believe it is the best available source of data on actual multispecialty practice costs. (It) allows us to recognize all staff, equipment, supplies and expenses--not just those that can be tied to specific procedures."
Bob Doherty, senior vice president of the American College of Physicians-American Society of Internal Medicine, says specialists should accept the rule and move on. The physician community has been torn over this divisive issue for too long, he says.
"We all had an opportunity through the rulemaking process to advise HCFA on what our respective positions were," he says. "Specialists had their shot, we had our shot, we all had our shot. HCFA looked at our arguments, and came down and agreed with the interpretation we took. . . . Now it's done; let's move on."