Medicare Payments May Go Down, Even With Increase

Despite the fact that the original Medicare physician payment cut of 10% was averted and changed to a 0.5% increase, some providers may still see their reimbursement levels decrease from last year. While legislation was passed to temporarily fix the Sustainable Growth Rate (SGR) through June 2008, this did not impact other factors that also influence Medicare reimbursement.

Budget neutrality adjustor

The Medicare fee schedule includes an 11% budget neutrality adjustor to all work relative value units (RVUs). This is a separate payment reduction from the 10% cut to the SGR and was not affected by the Medicare package passed in January. Work RVUs account for 50% of the total payment associated with a specific service.

In 2008, due to significant increases in work RVUs for anesthesia services as a result of the five-year review, all work RVUs are being cut in order to maintain budget neutrality. Under federal law, any changes to RVUs are required to be done in a budget-neutral manner, meaning they cannot result in more than $20 million in increased expenditures in one year. Therefore, the Centers for Medicare and Medicaid Services (CMS) has applied this separate budget neutrality adjustor to all work RVUs for all codes in the Medicare fee schedule.

Changes to practice expense methodology

The methodology Medicare uses to calculate the practice expense (PE) RVU portion of the physician fee schedule is in the second year of a four-year transition process. The PE RVUs include both direct costs (e.g., clinical staff, equipment, and supplies) as well as indirect costs (e.g., administrative staff and office space) associated with a code. The new methodology calculates direct cost RVUs based on the actual costs of the resources required to provide each service or procedure adjusted for budget neutrality. Indirect costs will be allocated based on direct costs and physician work. PE RVUs account for approximately 45% of the total payment associated with a specific service.

CMS is implementing the changes to the new PE RVUs 25% at a time, which means Medicare reimbursement will likely continue to be reduced in 2009 and 2010. This will occur despite any future efforts by Congress regarding the SGR and conversion factor.

Geographic practice cost indices

Also affecting Medicare reimbursement are the geographic practice cost indices (GPCI). GPCIs are adjustments applied to the work, practice expense, and malpractice RVUs to account for geographic variations in the costs of practicing medicine in different parts of the country. CMS is required to review and adjust GPCIs at least every three years. The 2008 Physician Fee Schedule includes updated and budget-neutralized GPCIs. This too may result in lower reimbursement for some physicians, though to a lesser extent than the two factors discussed previously.

Currently the work GPCI cannot be lower than 1.0. This provision was set to expire for 2008, but it was extended as part of the recent Medicare legislation and will remain in place through June 2008. However, for some parts of the country, the GPCI index for work, practice expense, or malpractice may have decreased or increased, affecting reimbursement rates.