Medicare RVU Dollar Cut Affects Revenues, Access, Pay

Medicare RVU Dollar Cut Affects Revenues, Access, Pay

The 5.4% Medicare RVU dollar’ value cut, from $38.26 in 2001 to $36.20 in 2002, took effect Jan. 1 and had immediate effects on some groups, areas and specialties, especially primary care. For many practices, its impact — including a potential slowdown in pay inflation in “hot” specialties — will be evaluated later as new revenue and profit figures are tallied.

In Congress, after legislative action to reduce the cut to 0.9% failed late last year (PCR 1/02, p. 1), a bill was to be introduced in Congress the last week of January to implement the 0.9% cut soon after the bill is enacted. Richard Trachtman of the American College of Physicians American Society of Internal Medicine says that, with two thirds of each house having supported the earlier bill, the new bill has a good chance of passing.

The cut may be restricting Medicare patients’ access to care. A Washington State Medical Association (WSMA) survey of 195 practices revealed that 88 respondents had decided not to accept new Medicare patients (some well before the RVU cut), and 24 do not accept any Medicare patients, leaving barely 40% of respondents that do accept new Medicare patients. The Seattle area already is well known as one with distinctively low commercial and Medicare reimbursement rates. The pay offered by many groups to recruits in many specialties is below nationally competitive levels.

WSMA Director Tom Curry predicts further deterioration in numbers of groups accepting Medicare patients, and says the survey results may already understate the problem because many groups are reluctant to put on paper that they’re not taking Medicare patients, even in a confidential survey.

The RVU cut’s potential impact on physician pay and benefits is discussed elsewhere in this issue (see articles, pages 3 and 12).

The impact on commercial reimbursement is hard to gauge without a survey. Blue Cross of California said publicly it would not cut physician reimbursements because of the RVU dollar cut — and drew rare praise from the California Medical Association. Blue Cross and Blue Shield of Florida told PCR in late December that its reimbursements were not automatically tied to the Medicare RVU dollar value, and that it would study the situation once the cut took effect.

Jay Mogerman, administrator of five psychiatrist Vine Street Clinic in Springfield, Ill., says most of his group’s commercial reimbursement prices are tied contractually to Medicare pay rates (e.g., “125% of Medicare”). Medicare itself is about 40% of the group’s business, he adds. Many other groups face similar problems.

Physicians are not unique in feeling pain from Medicare reimbursement rate changes. Medicare+Choice managed care plans may get the statutory minimum 2% increase in 2003, certainly not enough to staunch the tide of plans that are leaving the program. And home health faces a scheduled 15% cut in payments later in 2002.

MedPAC Urges New Update System

For the second year in a row, the Medicare Payment Advisory Commission (MedPAC), an official congressional advisory panel, recommended that the current formula for annual updates of the RVU dollar value the formula that produced the 5.4% cut this year after a 4.5% rise last year be scrapped.

If Congress takes MedPAC’s advice — and there’s a much better chance of such action than there was last year because the RVU dollar value cut is so unpopular and may be adding to patient access problems — then gone would be the “sustainable growth rate” update figure and the five or six factors that determined it, such as the percentage change in per capita gross domestic product. Gone too would be the comparison between Medicare physician spending in the base year, 1996, and the year in which each annual update is figured.

On Jan. 16, MedPAC passed three recommendations that it will formally make to Congress on March 1, 2002:

(1) To jettison the old formula.

(2) To have a 2.5% hike in the RVU dollar value for 2003. That would put RVU payment levels in 2003 to physicians and other providers on the Resource Based Relative Value Scale at about 1.3% above the levels in 2000 (absent any RVU procedure value changes). A 2.5% increase probably would not be enough to really slow down the exodus of physicians from Medicare that may occur this year: This recommendation was based on the MedPAC staff’s attempt to apply the new RVU update method (explained below) that the commission will suggest to Congress, using forecasts of medical practice cost data for 2003.

(3) To implement a new payment update methodology. “Formula” is too strong a word because CMS would have substantial discretion in figuring the annual update. Congress may well try to find a more definitive methodology to replace the existing formula.

Cost Data Are Old, Incomplete

MedPAC would give CMS just two factors to consider in setting the annual RVU update. First and most important would be a forecast for the “change in input prices for the coming year.”

Input prices are the costs of operating medical practices. But CMS would not do any surveys of medical practice costs, says Kevin Hayes of the MedPAC staff, let alone in the detail of MGMA and American Medical Group Association cost and financial reports. Instead, CMS would adapt its Medicare Economic Index (MEI) to the needs of revising the RVU conversion factor.

CMS collects no original data to figure the MEI, Hayes says. Instead, it uses labor cost figures (average wage and benefit levels, and monthly and annual per cent changes in those levels) that the Bureau of Labor Statistics (BLS) generates for its labor cost and productivity indexes. BLS derives the labor cost figures from its own and Commerce Department surveys of overall labor market conditions.

At the Jan. 16 meeting, MedPAC proposed improving the MEI data going into the update in several ways:

* Use health specific data, such as BLS information on nurse pay levels, rather than economy wide pay levels.

* Add non labor data, such as the cost of new technology, to the mix of costs considered.

* Project the cost hikes for the year for which the update is prepared.

But even with these improvements, the figures used to compute the RVU factor update still would be:

Outdated. For example, the current labor only MEI is a 10-year moving average! Malpractice premium data, which enters the conversion factor calculation outside the MEI loop, is often five years old, and so obviously would not catch the spike occurring this year:

Incomplete. For instance, there would still be no medical supply or drug cost data in the mix. If chemo therapy drug and pediatric vaccination costs spike up ward 20% or more in a single year — both did in 2000 — that would not be reflected.

Missing market orientation. By saying annual up dates should be based on “input prices,” MedPAC is also saying they should not be based on market value changes. If the market forces a practice to pay 15% more in a year to hire a new radiology fellow, that would not be reflected. In any case, the BLS data used in the MEI do not capture physician pay.

These problems are not surprising given the un stated policies — which MedPAC appears to accept — of gathering data for the update: The gathering must cost nothing, and all data must be from the government.

Productivity Gains Could Cut Payments

The second factor that MedPAC recommends CMS consider in updating the RVU dollar value is productivity. From the probable increase in the RVU dollar value suggested annually by the “input price” analysis above, MedPAC suggests that CMS subtract an “adjustment for growth in multifactor productivity.”

Multifactor productivity is an economy wide (not health sector’) figure. It is a statistical series BLS has published since the early 1980s that captures changes in the efficiency of using all major economic inputs: labor, capital (such as medical equipment), energy and supplies, Hayes explains. BLS’ figures showing labor productivity rising 2% to 4% per year for the last several years have been widely publicized. The broader multifactor productivity index has typically risen about 0.5% per year.

Thus, MedPAC’s suggestion that productivity be subtracted in determining the annual RVU conversion factor amounts to the following statement: The cash income of physicians from Medicare should be reduced each year by the rate of improvement in economy-wide multifactor productivity.

MedPAC offers two ideas to reduce the impact of subtracting productivity: HHS could ignore this item in figuring the update; and the subtraction might be offset by cost hikes stemming from the use of new technology.

Contact MedPAC at (202) 653 7220 or

RELATED ARTICLE: Internal Medicine at a Glance

Core pay range (MGMA 25th and 75th percentiles, 2000): $126,000 to $179,000.

Pay direction: Upward slowly — less than rate of general inflation. MGMA national median pay figure was up about 3% in each of last two years (1998-2000), and nearly flat the three years before that (1995-98). Job market has rough balance between vacancies and job seekers. Recruiters see uptick in demand for IM/FP jobs in last few months.

Number (nationwide): Approximately 110,000 full-time primary care clinical internists.

Entries to and exits from field per year: About 5,000 entrants. No precise data on exits (retirements, switches to administrative work, etc.).

What internists do/subspecialties: Many major nonprimary specialties are considered IM subspecialties: cardiology, neurology, gastroenterology, dermatology, hematology/oncology, endocrinology, pulmonology and others. Each of these fields requires IM residencies before fellowships in the specialty. What might be termed IM-based primary care subspecialties include geriatrics, inpatient (hospitalist) medicine and emergency medicine. Internists diagnose and manage many of the conditions such as diabetes and heart failure that are also handled by the non-primary specialists listed above. Internists in their basic role as PCPs for adults do huge numbers of physicals, treat millions of acute illnesses, and manage or oversee hospital patients with diseases such as pneumonia. Nurse practitioners and physician assistants also treat acute illnesses.

Common reimbursement methods: Full range, from fee-for-service to capitated and other risk-bearing systems. Trend, like throughout health industry, is toward FFS and away from capitation.

Common group structures: Complete range, from small, medium-sized and large single specialty groups, to private, health system and academic multispecialty practices.

Main professional society: American College of Physicians-American Society of Internal Medicine, largest U.S. specialty society (115,000 members), Philadelphia (800) 523-1546, and Washington, D.C. (800) 338-2746,

RELATED ARTICLE: Pathologists Find Way to Minimize Impact of RVU Cut

Pathologists have protected themselves partially from cash flow declines stemming from the 5.4% cut in the Medicare RVU dollar value in 2002 by pushing for higher RVU procedure values.

The College of American Pathologists (CAP) says it presented practice expense data to CMS since 1999 to engineer overall Medicare reimbursement rates probably about 20% higher than they would have been had CMS’s own data on pathology practice expenses been the only input.

The changes in RVU procedure values from 2001 to 2002 for one high volume procedure code — 88305, surgical pathology — highlight what CAP was able to do. The professional component (PC) for this code fell 3.5% in 2002; coupled with the 5.4% dollar cut, that’s an 8.7% reduction. But the RVU procedure value for the technical component (TC) of this code went up 27% in 2002! That’s still a 20% dollar increase after the 5.4% cut. Overall, the 88305 code will earn at least 5.7% more even after the cut.

Pathologists are not immune from the 5.4% cut. AMA’s Center for Health Policy Research predicts that pathologists’ overall Medicare reimbursement will fall 4% this year, the result of RVU procedure value hikes partially offsetting the dollar value cut. But for the three year period from 1999 through 2002, AMA predicts that pathologists’ Medicare reimbursement rates will rise 6%. That compares very favorably with the 13% cut over the same time frame that Medicare predicted in 1999. CMS made that prediction using data it had then to project the phase in years of the Resource Based Relative Value Scale.

Pathologists also were not immune from the cuts that the RBRVS phase in made in PC RVU procedure values for many specialties. CAP largely left alone the RVU reductions on the PC side. But CAP believed that CMS’s TC values back in 1999 were consistently and substantially too low and, through patient presentation of data, it largely prevailed in its contentions.

Other benefits from the pathologists’ campaign for higher TC reimbursement are:

* A practice expense credit of $66.50 for each hour a pathologist practices for Medicare patients.

* CMS’s adoption of most of CAP’s recommendations for RVU TC values for 10 new procedure codes introduced in 2002.

* A two year moratorium on a CMS attempt to bar independent labs (often owned by pathologists) from billing Medicare separately for TC when the testing services are covered in an overall hospital DRG.

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