The proposed Medicare Part B physician fee schedule changes for calendar year 2004 was published in the Federal Register (Proposed rule, 68 FR 49030, August 15, 2003). As you may know, under the current payment update formula, Medicare Part B reimbursement rate is scheduled to fall each year through 2007. For 2007, the payment rate would be about what it was in 1998. This projection, laid out by the Medicare Payment Advisory Commission (MedPAC), shows total Part B spending to increase 4 percent per year between now and 2007. The projected increase in total spending for Part B reimbursements, occurring at the same time the reimbursement rate is scheduled to decrease, will be the result of more services being performed by physicians and other health-care providers. The overall average decrease in Medicare Part B reimbursement is scheduled to be 4.2 percent. Centers for Medicare & Medicaid Services (CMS) believes that for 2004, total Medicare payments under Part B to 900,000 physicians and other health-care providers will be $48.7 billion, up from the $47.9 billion projected for 2003.  

CMS was slightly late in publishing its required proposed physician fee schedule for 2004. Interested parties must review and comment on the proposal by October 7, 2003. Both the House and Senate currently have pending Medicare legislation containing provisions that affect the proposed fee schedule. The House measure would update the present anticipated payment cuts in 2004 and 2005 by increasing the Medicare Part B reimbursement amounts by a minimum of 1.5 percent over 2003. The Senate action would prevent anticipated cuts for 2004 and 2005. You might remember that Congress blocked a projected pay cut for 2003 of 5.4 percent from 2002 reimbursement rates and changed it to a 1.6 percent increase. Very recently, some Washington analysts say that chances for passage of this legislation are poor because, over the summer, feedback from senior citizens indicates their dislike for the proposed legislation. Some Congressmen, including conservative House Republicans, have taken actions that may cause Medicare reform to be halted during this year. On September 24, Senate Majority Leader Bill Frist (R-Tenn.), and House Speaker Dennis Hastert (R-Ill.) set an October 17 deadline for the conference committee to finish its work. The final bill must then be approved by the full House and Senate. Any legislation passed after CMS issues the final physician fee schedule rule would supersede the final rule.       

This proposed rule also includes certain other changes suggested by CMS affecting Medicare Part B payment for physicians and other health-care providers. The resource-based practice expense relative value units (RVUs) would be adjusted. Other changes affecting policy concern the following: 

• Medicare Economic Index (MEI)
• Practice expense for professional component services 
• Definition for diabetes self-management training 
• Supplementary survey data for practice expense 
• Geographic practice cost indices
• Many coding issues 

In addition, the non-physician work pool, the five-year review of anesthesia services, and outpatient therapy services performed "incident to" physician services are discussed. CMS is calling these changes a "refinement.”

The original practice expense RVUs established by 1994 law, to be effective beginning in 1998 (later delayed until January 1, 1999), required budget-neutrality, and so the calculated conversion factor used in pricing procedures did not account, necessarily, for the actual practice expenses including staff, equipment, and supplies used in providing medical services in various settings. In 1999, this methodology was changed to take into account both the Clinical Practice Expert Panel (CPEP) data and the American Medical Association’s (AMA) Socioeconomic Monitoring System (SMS) data in determining practice expenses. CMS is proposing to continue its analysis on how to allocate non-physician work expenses. CMS invites any medical specialty whose services are affected by the current non-physician work pool expense allocation to submit information to be used for more accurately determining practice expense RVUs. It is also proposing a two-year extension (currently to end with 2006 with data submission no later than March 1, 2005) for specialties to submit practice expense data.  

Current methodology allocates all staff, equipment, and supply costs for services with both a professional and technical component (PC and TC) to the technical portion of the service. CMS acknowledges that in certain situations, these costs might actually be direct costs for the PC portion of the service. Certain CPT codes, related to cardiac services, are proposed to change their practice expense RVUs due to the Practice Expense Advisory Committee (PEAC) recommendations. PEAC is a subcommittee of the AMA's Specialty Society Relative Value Update Committee (RUC). PEAC has also begun a workgroup to make recommendations on the refinement of all evaluation and management (E&M) codes. They have already refined over 5,000 CPT codes. With the E&M codes addition, about 87 percent of all physician fee schedule dollars will have been analyzed for refinement. Finally, as a measure to refine the practice expense inputs, CMS has contracted with a consultant to obtain the current prices for most of the supply inputs 

The MEI is a measure of the average increases in the costs of expenses in operating a private medical practice and is used in updating the annual Medicare physician fee schedule conversion factor (MPFS CF). The current base year Geographic Practice Cost Indices (GPCIs, pronounced gypsies) measure relative costs among areas. The GPCIs don't affect total Medicare Part B payments made, but instead distribute payments among areas according to area cost differences. Currently, there are 89 payment areas with 34 states having a single statewide GPCI. Any adjustment to the work and practice expense categories will be delayed until 2005, after tabulations provided by the U.S. Census data are available. For 2004, only the GPCI for malpractice expense will be updated. The forecast of the proposed rebased and revised MEI for 2004 is an increase of 2.5 percent.

CMS proposes to rebase and revise the MEI by changing the base year used to derive the costs for physician practices from 1996 to 2000. They would also change the data sources, cost categories, and price proxies used in the MEI. To match the rebased MEI weights, the following RVU changes are proposed:

• 0.35 percent reduction of the physician work RVU
• 1.15 percent reduction of the practice expense RVU
• 21.7 percent increase in the malpractice RVU

The definition of diabetes relating to the outpatient diabetes self-management training benefit would be revised based upon this proposal by CMS. The revised definition would be used to determine Medicare beneficiary eligibility for medical nutrition therapy for people diagnosed with diabetes. This is an attempt by CMS to streamline beneficiary eligibility requirements, and thereby reduce administrative burdens on health-care providers.

Responding to the American Society of Anesthesiologists concerns regarding CMS' increase in the work values of anesthesia services determined from the five-year review, CMS asked the RUC to continue reviewing anesthesia work values. CMS plans to determine a final recommendation for a change in the anesthesia conversion factor for all anesthesia codes after the RUC information is analyzed. It is expected that RUC will have its work done sometime in 2003. Also regarding anesthesiology, current payment policies for teaching anesthesiologists and teaching certified nurse anesthetists (CRNAs) are different. CMS is seeking comments on the appropriateness of applying the CRNA teaching/resident policy to teaching anesthesiologists.

There are currently no national standards for qualifications of people providing outpatient therapy services incident to physicians' services. Under 42 C.F.R &484.4, CMS policy provides that, in almost all settings, outpatient therapy services can only be done by physical therapists and PT assistants, occupational therapists and OT assistants, and speech and language pathologists. CMS believes the same licensing standard should apply for outpatient therapy services incident to physicians' services and is asking for comments from the public, especially physicians and staff who would be affected by any change.

Concerning billing and payment issues, CMS proposes the following:

• Create special codes that would allow physicians to bill for heart rhythm monitoring technology
• Create new codes that would allow Medicare to align payment for physician oversight dialysis services with frequency of physician visits
• Revise payments for removing benign and malignant skin lesions to reflect the excision size instead of the lesion type

With so much uncertainty regarding the final Medicare physician fee schedule for 2004, it may be wise to calculate the estimated range of monetary effect of the potential changes. Overall, the range could be between the expected 4.2 percent decrease and a House proposed 1.5 percent increase over 2003 reimbursement rates. Using the RVUs per CPT code in the Federal Register report, along with medical practice specific historical procedure mix, would allow the calculation of the possible range of potential monetary impact on an organization. Currently, that is about as close as you can get in budgeting for 2004 Medicare Part B reimbursement.