Possible Medicare Payment Changes in 2013

November 15th 2012-

Over the next few months, you may begin asking you what is going to happen to Medicare physician payments come January 1, 2013?   This confusion comes about, in large measure, because there are 4 different "events" that are scheduled to occur on or around January 1, 2013 that will affect how much physicians get paid for providing services to Medicare patients. These are:
• Implementation of RVU changes
• Adjustment to the Medicare conversion factor (CF) due to the "SGR"  problem
• GPCI Floor
• Cuts in provider payments due to "sequestration"

1. Implementation of RVU changes

As you know, Medicare uses a Resource-Based Relative Value Scale (RBRVS) system to determine physician payments. This is what is generally referred to as the Fee Schedule. Under RBRVS, each CPT code is assigned a corresponding Relative Value Unit (RVU) that represents a point value for that code. The RVU is composed of three distinct factors:

Factor 1          -           Physician Work Value (pwRVU)
Factor 2          -           Practice Expense Value (peRVU)
Factor 3          -           Malpractice Expense Value (mpRVU)

These values are developed by the AMA and Medical Specialty Societies in conjunction with the Centers for Medicare and Medicaid Services (CMS).

Each factor is unique for that code.

Each of these "values" is further adjusted for geographic variations using something called the Geographic Practice Cost Index (GPCI). The GPCI is also commonly referred to as the "locality adjustment."

All of these factors combine to establish the total Relative Value Unite (RVU) for the code in question.

Every 5 years, CMS undertakes a complete review of the "physician work" component of the RVU and makes adjustments to the codes to reflect those changes. CMS also periodically reviews the overhead and malpractice expense values for each code to determine their on-going validity. The code review looks at such things as, does it take more or less physician work to produce a unit of service; or, have physicians become more efficient over the intervening years?   CMS will also undertake specialized reviews of certain codes or other values it thinks may be misvalued or other changes (such as new technology) that may be affecting the cost of delivering certain services. These reviews can all affect what Medicare ultimately pays for a particular service.

In 2012, CMS and the specialty societies conducted a review on the physician work component of the codes. Because the system seeks to establish "relativity" amongst the various code values, whenever one code goes up in value, it almost always results in some other code - often from a different specialty - going down in value. This internal adjustment is done in order to maintain "revenue neutrality".

These changes - up or down - are independent of anything that is occurring with regard to the Sustainable Growth Rate adjustment or Sequestration.

2. Impact of the SGR

Once the RVU has been established, it is necessary to convert this RVU number into a dollar value. This is done using what is called the Conversion Factor (CF). The CF is the dollar value assigned by the third party payer - in this case Medicare - to each 1 point in value. For 2012, the Medicare Conversion Factor has been $34.0376.

Each year, by law, the Conversion Factor is supposed to be adjusted for medical inflation using the Medicare Economic Index (MEI). However, the law also stipulates that if the growth in total physician payments in the current calendar year increases more than what had been budgeted, physician payments in the next calendar year must be reduced to account for this faster-than-expected growth. This is what is referred to as the Sustainable Growth Rate (SGR) adjustment.

Why is this done?

Several years ago, Congress determined that whenever physician payments did not go up as much as physicians had hoped, providers would order more tests or perform more services (i.e. increase volume) to make up for what they considered unit losses.

In the early '90s, in order to account for this volume adjustment, Congress mandated the use of a formula called the Volume Performance Standard (VPS) to account for this phenomenon. However, shortly after instituting the VPS, it was determined that there were flaws in the formula and in 1997, Congress authorized the development of a new formula for controlling volume growth and they called this the "Sustainable Growth Rate" (SGR) formula.

In the early years of the SGR, it seemed to be working well and physicians were receiving annual increases that appeared to be in line with the actual cost of operating a medical practice. However, in 2002, the SGR formula, for the first time, projected a negative adjustment for the next year - unless Congress intervened to stop it, physicians would get paid less for a service in 2003 than what they got paid to provide the same service in 2002. 

Not surprisingly, Congress intervened to override the formula. By doing this, however, Medicare's expenditures were well above what had been budgeted for the year and by law, Congress was required to make reductions to account for the higher than budgeted physician payments. Congress was reluctant to make those cuts so instead, they issued the legislative equivalent of an IOU and said that they would come up with the money to "pay for" the 2003 SGR fix in 2004.

That never happened and the following year physician payments were once again higher than budgeted and the SGR formula once again called for a reduction.

Over the past 8 years, the SGR formula has consistently resulted in a cut in physician fee schedule payments and Congress has consistently intervened to prevent the annual SGR related cuts from taking place and Congress has also consistently issued additional "legislative IOUs" to the Medicare Trust Fund promising that it would "pay for" the accumulated cost of these annual "fixes" the following year. To date, the cumulative cost of these annual Medicare IOUs amounts to several hundred million dollars.

For Calendar Year 2012, the MEI adjustment should have been an across-the-board increase of .6%. However, because the growth in Medicare Part B spending increased much more than had been budgeted, the MEI increase was eliminated. In addition, to "pay for" the accumulated SGR related fix from previous years, the SGR related cuts in physician fee schedule payments are now estimated to be 26.5% on January 1, 2013.

The Medicare Physician Fee Schedule Conversion Factor for 2012 has been $34.0376. Unless Congress intervenes to prevent the SGR cut from taking place, the projected Medicare CF for 2013 is $24.8441.

3. GPCI and the GPCI Floor

Current law requires CMS to develop Geographic Practice Cost Indices (GPCIs) to measure resource cost differences among localities compared to the national average. There is a separate GPCI developed for each of the components that make up the RVU - physician work, practice expense and malpractice.  

For example, the work GPCI is designed to adjust for the relative costs of physician labor by locality. The basic premise is that because physicians in Dubuque, Iowa do not earn the same amount as physicians in the same specialty who practice in New York City, there needs to be a methodology to account for these geographic differences. The work is the same, but local factors affect the cost of that work (physician compensation, local office space costs, local malpractice expense costs).

Although there has been a general acknowledgement that there are cost differences from locality to locality around the country, many Members of Congress have objected to the GPCIs that apply in their areas arguing that it artificially (and in some cases arbitrarily) drives down Medicare payments for certain providers making it difficult to attract and retain physicians in these so-called "low-cost" areas. Sometimes the GPCI for an area would result in a payment lower than the Fee Schedule amount because the GPCI is less than one.

As a consequence, a statutory "floor" was put in place so that no locality adjustment would result in lower payments than the fee schedule amount. Providers in high-cost areas could still get higher payments due to a GPCI above one, but no region would have a GPCI below one.

The law authorizing the GPCI floor is set to expire on December 31, 2012. As with the SGR, unless Congress votes to extend the current GPCI floor, then the GPCI formula would be used to adjust provider payments around the country. Those providers whose payments have been shielded from a GPCI that is less than one, would see their Medicare fee schedule payments go down.

CMS did not propose any changes to the data or methodology used to calculate the work GPCI for CY 2013. However, 2013 is the final year of the current methodology and CMS does intend to propose revisions next year (CY 2014).

4. Sequestration Related Reductions

The fouth and final factor hanging over physician fee schedule payments for 2013 is the sequestration order Congress and the President authorized as part of the Budget Control Act (BCA) agreement enacted in 2011.

Under the BCA, if Congress and the President failed to agree on long-term cuts in federal spending totaling $1 Trillion, then across-the-board cuts in virtually every federal program were authorized to take effect on January 2, 2013. The amount of the across-the-board cuts would be an amount sufficient to reduce long-term spending by approximately $1 trillion.

Congress and the President failed to reach an agreement on spending reductions therefore triggering the sequestration process called for in the BCA.

According to the Office of Management and Budget, in order to achieve the budget reductions called for in the BCA, virtually ALL federal programs - defense and non-defense - will have to experience a reduction in their budgets for 2013 of approximately 8%.

Although Medicare spending is covered by the BCA agreement, Congress and the President did agree to place a cap on the percentage reduction that could be applied to Medicare. By law, the BCA related reduction cannot exceed 2% of total Medicare expenditures. However the law also stipulates that the spending reductions must come from reductions in provider payments (physicians, hospitals, skilled nursing facilities, etc.) and cannot come from reductions in Medicare benefits or increases in beneficiary out-of-pocket expenditures.

Unless Congress intervenes to prevent the sequestration related cut from taking place, there will be a 2% reduction in provider payments on January 2, 2013.

Source HBMA