Medicare: Physician Payments

This report discusses payments for physicians services under Medicare that are made on the basis of a fee schedule.

Bri Order Code ion IB85007 CRS- 1 ISSUE DEFINITION Medicare's expenditures for physician services increased a t an average annual rate of 20.6% over the 1979-1983 period. As a n interim m e a s u r e . to freeze o n control escalating costs, Congress i n 1 9 8 4 approved a temporary physicians' fees under the program. The freeze period was extended for so-called nonparticipating physicians through Dec. 3 1 , 1986, and lifted for participating physicians effective May 1 , 1986. On Oct. 2 1 , 1986, the President signed into law the Omnibus Budget Reconciliation Act of 1986 (P.L.99-509). This measure contains a number of amendments to Medicare's physician payment provisions. It establishes procedures for s e t t i n g . payment limitations based on so-called "inherent reasonablenessw criteria and provides for a reduction in physician payments for cataract surgery. Further, the law establishes additional incentives for physicians to become participating physicians. On Jan. 5 , 1987, the President transmitted the proposed FY88 budget which included several proposed modifications to physician payment provisions. Total savings attributable to these provisions were estimated at $200 million in FY88. BACKGROUND AND POLICY ANALYSIS Part I 1 Part I of this report describes how Medicare pays physicians. summarizes recent legislation affecting physician payments, including the Deficit Reduztion Act of 1984 (DEFRA) and the Consolidated Omnibus Buaget Reconciliation Act of 1985 (COBRA) and the Omnibus Budget Reconciliation Act of 1986 (OBRA). Part I11 (OBRA) outlines OBRA implementation issces. Part IV summarizes the relevant proposals in the President's budget. Part V outlines the issues which have been identified with the current payment system. Part VI outlines reform options. Part VII lists congressionally mandated reports. I. CURRENT PROGRAM A. Description of Medicare Part B Medicare is a nationwide health insurance program for 29 million aged and nearly 3 million disabled individuals. The program consists of two separate but complimentary types of health insurance. Part A, the Hospital Insurance Program, provides protection against hospital and related institutional costs. Part B , the Supplementary Medical Insurance Program, covers physician services and a range of other health services including outpatient hospital services, physical therapy, diagnostic and x-ray services, and durable medical equipment. Total Medicare outlays were $75.9 billion in FY86; of this amount $49.7 billion were Part A outlays and $26.2 billion were Part B outlays. Of Part B CRS- 2 IB85007 UPDATE-06/24/87 o u t l a y s , 7 2 % (75% of P a r t B e x p e n d i t u r e s f o r services) r e p r e s e n t e d p a y m e n t s f o r p h y s i c i a n s e r v i c e s ($18.8 billion). Approximately 6 % of this figure represents payments for durable medical equipment. T h e Administration e s t i m a t e s t h a t , i n t h e a b s e n c e of legislation payments for physiciansq s e r v i c e s w i l l t o t a l $23.8 billion i n F Y 8 8 (70% of P a r t B o u t l a y s , 7 2 % o f P a r t B benefit p a y m e n t s , a n d 27% of total M e d i c a r e outlays). Medicare payments represented 1 8 % of a l l physicians' i n c o m e s i n 1982. charges on enrollees P a r t B i s f i n a n c e d jointly through m o n t h l y premium ($17.90 i n 1987) a n d from g e n e r a l r e v e n u e s o f t h e Treasury. T h e premium 1, a m o u n t i s updated e v e r y January 1. F o r t h e 5-year period b e g i n n i n g Jan. 1 9 8 4 , e n r o l l e e p r e m i u m s m u s t equal 2 5 % o f t h e estimated c o s t o f c o v e r a g e f o r t h e aged. (The s a m e premiums a r e paid by t h e disabled t h o u g h per capita e x p e n d i t u r e s f o r t h i s g r o u p a r e higher.) Federal general revenues finance benefit p a y m e n t s a n d a d m i n i s t r a t i v e c o s t s n o t f i n a n c e d t h r o u g h premiums. P h y s i c i a n s ' s e r v i c e s c o v e r e d by M e d i c a r e i n c l u d e t h o s e p r o v i d e d by d o c t o r s of m e d i c i n e and o s t e o p a t h y , wherever furnished, including those i n the Also i n c l u d e d under certain o f f i c e , h o m e , h o s p i t a l s and o t h e r institutions. l i m i t e d c o n d i t i o n s a r e services of: dentists (when p e r f o r m i n g certain s u r g e r i e s or t r e a t i n g o r a l infections), podiatrists (for c e r t a i n non-routine f o o t care), o p t o m e t r i s t s (for s e r v i c e s to p a t i e n t s who l a c k t h e n a t u r a l lens of t h e eye), a n d c h i r o p r a c t o r s (for t r e a t m e n t i n v o l v i n g m a n u a l manipulation o f t h e s p i n e , u n d e r specified conditions). "approved" T h e P a r t B program generally pays 8 0 % of t h e " r e a s o n a b l e " o r charge f o r c o v e r e d s e r v i c e s a f t e r t h e beneficiary h a s m e t t h e P a r t B a n n u a l d e d u c t i b l e a m o u n t of $75. T h e beneficiary i s l i a b l e for t h e 2 0 % c o i n s u r a n c e c h a r g e s , p l u s , i n c e r t a i n c a s e s , physicians' charges in excess of the Medicare a p p r o v e d amount. radiology, F i v e s p e c i a l t i e s - - internal m e d i c i n e , g e n e r a l s u r g e r y , of M e d i c a r e o p h t h a l n o l o g y , a n d g e n e r a l practice -- a c c o u n t for over half physician spending. Internal m e d i c i n e a l o n e a c c o u n t s f o r 20%. Medical s e r v i c e s (primarily physicians' visits) a c c o u n t s f o r 37% o f (The r e m a i n i n g 29% i n c l u d e s spending w h i l e surgery a c c o u n t s f o r 34%. d i a g n o s t i c laboratory and x-ray s e r v i c e s , and consultation). Sixty-two percent o f s p e n d i n g i s f o r services d e l i v e r e d i n hospital i n p a t i e n t settings w h i l e 29% i s for s e r v i c e s rendered i n physicians' offices. (The r e m a i n i n g 9 % i n c l u d e s s e r v i c e s r e n d e r e d i n hospital o u t p a t i e n t d e p a r t m e n t s and skilled n u r s i n g facilities.) 57.8% of the F o r t h e a g e d , M e d i c a r e spending a c c o u n t e d for a n e s t i m a t e d per c a p i t a e x p e n d i t u r e s f o r physician s e r v i c e s in 1 9 8 4 ($502 o u t of total $868). Out-of-pocket spending by t h e a g e d a c c o u n t e d f o r $227 (26.1%); p r i v a t e i n s u r a n c e spending represented $117 (or 13.5%) a n d o t h e r g o v e r n m e n t spending $22 (2.5%). Medicare i s a d m i n i s t e r e d by t h e Health Care Financing Administration (HCFA) w i t h i n t h e D e p a r t m e n t of Health a n d H u m a n S e r v i c e s (DHHS). The day-to-day f u n c t i o n s o f reviewing P a r t B c l a i m s a n d p a y i n g b e n e f i t s a r e performed by e n t i t i e s k n o w n a s "carriers." These are generally Blue Shield plans or c o m m e r c i a l i n s u r a n c e companies. B. D e f i n i t i o n o f " R e a s o n a b l e t to r " A p p r o v e d " C h a r g e s CRS- 3 Medicare pays for physician services on the basis of "reasonable charges." Recently, HCFA has begun calling these charges "approved charges.'' A reasonable or approved charge for a service (in the absence of Unusual circumstances) cannot exceed: ---- the actual charge for the service; the physician's customary charge for the service; and the "prevailing charge" for similar services in the locality (set at a level no higher than is necessary to cover the 75th percentile of cu3_tomary charges). Carriers delineate localities which are usually political subdivisions of a State. There are 225 localities nationwide. or economic Prior to 1 9 8 4 , customary and prevailing charge fee screens (i.e., benchmarks against which individual charges are compared) were updated every July 1. The annual update in the prevailing charge screens was subject to a n economic index limitation. This limitation (expressed a s a maximum allowable percentage increase) is tied to an economic index known as the Medicare (MEI), which reflects changes in operating expenses of Economic Index physicians and in earning levels. Because the Deficit Re.duction Act of 1 9 8 4 (DEFRA) froze physicians' fees through Sept. 30, 1985, the annual increases i n the customary and prevailing Subsequent charge screens otherwise slated for July 1, 1 9 8 4 , did not occur. fee screen updates were slated to occur on October 1 -of future years beginning in 1985. However, the increase slated to occur on Oct. 1 , i985, (P.L. 99-107, as was postponed by the Temporary Extension Act of 1985 amended) and the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Under .COBRA, the next update occurred on May 1 , 1 9 8 6 , for participating physicians only. Future updates for all physicians will occur on Jan. 1 of each year beginning in 1987. Prevailing charges applicable for nonparticipating physicians will continue to be less than for participating physicians. C. =Definition of "Assignment" Medicare payments are made either directly to the doctor or to the patient depending upon whether the physician has accepted assignment for the claim. In the case of assigned claims, the beneficiary assigns (i.e., transfers) his right to payment from Medicare to the physician. In return, the physician agrees to accept Medicare's "approvedv or "reasonablew charge determination as payment in full for covered services. The physician bills the program directly and is paid an amount equal to 80% of Medicare's reasonable or approved charge (less any deductible, where applicable). The patient is .liable for the 20% coinsurance. The physician may not charge the beneficiary (nor can he collect from another party such a s a private insurer) more than the applicable deductible and coinsurance amounts. When a physician accepts assignment, the beneficiary is therefore protected against having to pay any difference between Medicare's approved charge and the physi.ciants actual on an charge. In calendar year 1983, approximately 56% of claims were paid assignment basis. In 1984, the figure had risen to 59%. By 1985, the figure the was 69%. This increase was primarily attributable to two factors -- CRS- 4 IB85007 UPDATE-06/24/87 b e g i n n i n g o f t h e p a r t i c i p a t i n g p h y s i c i a n s program o n O c t o b e r 1 a n d the r e q u i r e m e n t t h a t c l a i m s f o r i n d e p e n d e n t l a b o r a t o r y s e r v i c e s b e assigned. new I n t h e c a s e of non-assigned c l a i m s i payment i s m a d e by M e d i c a r e d i r e c t l y t o t h e beneficiary o n t h e b a s i s o f a n y itemized bill paid o r unpaid. The beneficiary i s r e s p o n s i b l e f o r p a y i n g t h e p h y s i c i a n ' s bill. In a d d i t i o n t o is liable for any t h e d e d u c t i b l e a n d c o i n s u r a n c e a m o u n t s , t h e beneficiary d i f f e r e n c e between t h e physician's actual charge and Medicare's approved charge. A physician (except o n e w h o becomes a " p a r t i c i p a t i n g physician") may a c c e p t o r r e f u s e r e q u e s t s f o r a s s i g n m e n t o n a bill-by-bill basis, from different patients a t different times, or from the same patient a t different times. H o w e v e r , h e i s precluded from "fragmenting" b i l l s f o r t h e p u r p o s e o f c i r c u m v e n t i n g r e a s o n a b l e c h a r g e limitations. He must either accept a s s i g n m e n t o r b i l l t h e patient f o r a l l o f t h e s e r v i c e s p e r f o r m e d o n a s i n g l e occasion. A d d i t i o n a l l y , when a physician treats a patient who i s also e l i g i b l e f o r M e d i c a i d , h e i s essentially required to accept assignment. T o t a l r e i m b u r s e m e n t f o r s e r v i c e s provided to t h e s e d u a l e l i g i b l e s i s e q u i v a l e n t t o t h e Medicare-determined r e a s o n a b l e c h a r g e w i t h Medicaid p i c k i n g u p t h e r e q u i r e d d e d u c t i b l e a n d c o i n s u r a n c e amounts. T h e l a w s p e c i f i e s that a physician w h o k n o w i n g l y , w i l l f u l l y , and The repeatedly v i o l a t e s h i s a s s i g n m e n t a g r e e m e n t i s guilty of a misdemeanor. 6 months' penalty f o r c o n v i c t i o n i s a maximum $2,000 fine, up to i m p r i s o n m e n t , o r both. P a r t i c i p a t i n g a n d Nonparticipating P h y s i c i a n s A physician may become a participating physician. A participating physician i s o n e w h o voluntarily enters i n t o a n a g r e e m e n t with t h e S e c r e t a r y to a c c e p t a s s i g n m e n t f o r a l l s e r v i c e s provided to a l l Medicare p a t i e n t s f o r a f u t u r e specified p e r i o d , g e n e r a l l y 1 2 months. T h e f i r s t such period began Oct. 1 , 1964. T h e n e x t period began Oct. 1 , 1985. A s p e c i a l 8-month period F u t u r e 12-month periods will begin o n Jan. 1 of each y e a r b e g a n May 1 , 1966. beginning i n 1987. T h e l a w r e q u i r e s physicians t o sign u p prior t o t h e s t a r t After that t i m e , only n e w p h y s i c i a n s i n a n a r e a of t h e participation period. o r newly licensed physicians may enter i n t o a p a r t i c i p a t i o n a g r e e m e n t u n t i l t h e beginning o f the next d e s i g n a t e d t i m e period. A physician who has signed u p f o r o n e p a r t i c i p a t i o n period i s deemed to h a v e s i g n e d u p f o r f u t u r e p e r i o d s unless he t e r m i n a t e s h i s agreement. A n o n p a r t i c i p a t i n g physician i s a physician w h o h a s n o t signed a v o l u n t a r y A n o n p a r t i c i p a t i n g physician may a c c e p t a s s i g n m e n t p a r t i c i p a t i o n agreement. o n a case-by-case basis. T h e l a w i n c l u d e s a n u m b e r of i n c e n t i v e s t o e n c o u r a g e p h y s i z i a n s to become p a r t i c i p a t i n g physicians. D u r i n g t h e f r e e z e period t h e primary i n c e n t i v e f o r p h y s i c i a n s to p a r t i c i p a t e was t h e a b i l i t y to i n c r e a s e t h e i r billed charges. W h i l e i n c r e a s e s i n billed c h a r g e s did not r a i s e M e d i c a r e p a y m e n t s d u r i n g the f r e e z e p e r i o d , t h e s e c h a r g e s w i l l b e reflected i n t h e c a l c u l a t i o n of future c u s t o m a r y c h a r g e s c r e e n updates. The freeze was lifted for participating p h y s i c i a n s o n May 1 , 1 9 8 6 ; t h e s e physicians r e c e i v e d a n i n c r e a s e of 4.15% in t h e i r maximum a l l o w a b l e prevailing charges. Nonparticipating physicians will During the entire freeze be s u b j e c t t o t h e f r e e z e through Dec. 3 1 , 1986. p e r i o d , n o n p a r t i c i p a t i n g p h y s i c i a n s could n o t r a i s e t h e i r a c t u a l c h a r g e s Thus, there are two a b o v e t h e l e v e l s c h a r g e d d u r i n g April-June 1984. CRS- 5 one for prevailing charge levels applicable for physicians in a locality physicians. participating physicians and a lower one for nonparticipating allowable All physicians will receive a n increase of 3.2% in their maximum prevailing charges, effective Jan. 1 , 1987. In future y e a r s , the percent increase in the ME1 would be applied to the previous prevailing charge for participating and nonparticipating physicians, respectively. There will be a permanent differential in the prevailing charges applicable for nonparticipating versus participating physicians. - - ' 1I The freeze is lifted for nonparticipating physicians effective Jan. 1987. However, these physicians will be subject to a limit o n their actual charges. (This is referred to as the maximum allowable actual charge or MAAC). Nonparticipating physicians, whose actual charge for a service in the preceding year equals or exceeds 115% of the current , y e a r ' s prevailing charge, could increase their actual charges by 1%. Nonparticipating physicians whose actual charge for the preceding year is below 115% of the current year's prevailing charge would be subject to a limit; they could increase their actual charges over a 4-year period so that in the fourth year the actual charge equals 115% of the prevailing charge. The MAAC for a nonparticipating physician whose actual charge for a service in the previous year is less than 115% of the current year prevailing charge is the dollar amount which is th2 greater of: (i) the amount 1% above the physician's (ii) an amount based on a comparison previous year's actual charge; or between the physician's MAAC for the previous year and 115% of the current prevailing charge. Under clause (ii), the MAAC for the current year equals the previous year MAAC increased by a fraction of the difference between 115% of the current year prevailing and the previous year MAAC. The applicable fractions are one-quarter, one-third, one-half and one for 1987, 1 9 8 8 , 1 9 8 9 , and 1 9 9 0 , respectively. For example, if a physician's 1986 MhAC for a service is $100, and 115% of the 1987 prevailing charge amount i s $ 1 2 4 , the 0.25($124 1987 MAAC for that physician for that service is $106 [$lo3 + $100) 1 In addition to the payment provisions, the law includes additional incentives to become participating physicians. These include the publication of directories identifying participating physicians, and the maintenance by carriers of toil-free telephone lines to provide beneficiaries with names of participating physicians. Further, beginning on Oct. 1, 1986, all "Explanation of Medicare Benefits" (EOMB) notices sent to Medicare beneficiaries on unassigned claims must include a reminder of the participating physician and supplier program. The law requires the Secretarx to monitor charges of nonparticipating physicians to determine compliance with the fee freeze and the MAAC limits Nonparticipating physicians who do not comply with the freeze or MAAC limits could be subject to civil monetary penalties or assessments, exclusion for up to 5 years from the Medicare program, or both. Civil monetary penalties may be imposed in amounts up to $2,000 for each violation. The Secretary i s given authority to make restitution to the beneficiary out of the amounts collected for any excess payments by the beneficiary. The restitution amount may not exceed either the excess amount the beneficiary was charged or the amount collected from the physician. The Secretary may not impose the exclusion penalty in the case of a doctor who is the sole physician serving a community or a physician providing essential specialized services which would otherwise be unavailable. Further, the Secretary, in determining whether to bar a physician from the program, i s required to take into account the access of beneficiaries to physician services. CRS- 6 IB85007 UPDATE-06/24/87 H C F A r e p o r t s t h a t f o r the participation period beginning Oct. 1 , 1985, 27.9% of p h y s i c i a n s billing Medicare w e r e p a r t i c i p a t i n g , 32.2% of limited license practitioners i . . c h i r o p r a c t o r s , d e n t i s t s , podiatrists) were For the p a r t i c i p a t i n g , a n d 23% of Medicare s u p p l i e r s w e r e participating. participation period beginning May 1 , 1 9 8 6 , 28.3% of p h y s i c i a n s (including l i m i t e d licensed practitioners) a r e p a r t i c i p a t i n g a n d 19.0% o f s u p p l i e r s a r e p a r t i c i p a t i n g , f o r a n o v e r a l l participation r a t e of 27.1%. E. "Inherent Reasonablenessw Guidelines T h e l a w h a s permitted t h e S e c r e t a r y c e r t a i n f l e x i b i l i t y i n d e t e r m i n i n g r e a s o n a b l e charges. R e g u l a t i o n s issued prior to CQBRA allowed the use of " o t h e r f a c t o r s t h a t may b e f o u n d necessary a n d a p p r o p r i a t e w i t h r e s p e c t to a particular item o r service...in judging w h e t h e r the charge i s inherently reasonable." C O B R A r e q u i r e d t h e Secretary t o p r o m u l g a t e r e g u l a t i o n s w h i c h s p e c i f y explicitly t h e criteria of "inherent r e a s ~ n a b l e n e s s . ~ ~I m p l e m e n t i n g 1 6 , 1986. r e g u l a t i o n s were i s s u e d Aug. P.L. 99-509 further clarified c o n g r e s s i o n a l i n t e n t with r e s p e c t to this authority. By l a w , t h e S e c r e t a r y i s a u t h o r i z e d to establish a p a y m e n t limit for a p h y s i c i a n ' s s e r v i c e b a s e 2 on considerations o t h e r than a c t u a l , c u s t o m a r y , o r prevailing for t h e service. A d e p a r t u r e from t h e standard is appropriate under a number of specified circumstances i n c l u d i n g :he following: -- -- -- Prevailing charges in a locality are significantly in e x c e s s o f o r below prevailing c h a r g e s i n other c o m p a r a b l e l o c a l i t i e s , t a k i n g i n t o a c c o u n t t h e r e l a t i v e c o s t s of f u r n i s h i n g services. Medicare and Medicaid a r e the s o l e or t h e primary s o u r c e s f o r payment. T h e m a r k e t p l a c e i s not truly competitive. -- T h e r e h a v e been i n c r e a s e s in c h a r g e s f o r a s e r v i c e that c a n n o t b e explained by i n f l a t i o n o r technology. -- T h e c h a r g e s d o not r e f l e c t c h a n g i n g t e c h n o l o g y , increased f a c i l i t y with t h a t t e c h n o l o g y , o r c h a n g e s i n a c q u i s i t i o n o r production costs. . -- T h e p r e v a i l i n g charges f o r a s e r v i c e a r e s u b s t a n t i a l l y higher o r l o w e r than than payments by other p u r c h a s e r s in t h e s a m e locality. T h e S e c r e t a r y i s a u t h o r i z e d to m a k e a n a d j u s t m e n t i n p a y m e n t i f i t i s justified o n t h e basis of a n a p p r o p r i a t e c o m p a r i s o n o f r e s o u r c e c o s t s o r charges. An a d j u s t m e n t may be based o n o n e of t h e f o l l o w i n g t y p e s of comparisons: c h a r g e s and r e s o u r c e c o s t s f o r r e l a t e d p r o c e d u r e s , c h a r g e s a n d r e s o u r c e c o s t s f o r a procedure over a period of t i m e , c h a r g e s f o r a p r o c e d u r e i n d i f f e r e n t g e o g r a p h i c a r e a s , and Medicare c h a r g e s a n d a l l o w e d p a y m e n t s f o r a p r o c e d u r e c o m p a r e d to those o f other payors. An a d j u s t m e n t i n prevailing c h a r g e s may be m a d e o n l y i f t h e S e c r e t a r y d e t e r m i n e s t h a t a prevailing c h a r g e a l l o w e d i n a locality i s o u t o f l i n e w i t h prevailing c h a r g e s a l l o w e d i n other . l o c a l i t i e s a f t e r accounting for CRS- 7 IB85007 UPDATE-06/24/87 'differences in practice costs. In determining whether to adjust payment rates, the Secretary would be required to consider the potential impacts on quality, access, and beneficiary liability including the likely affects o n assignment rates, reasonable charge reductions on unassigned claims, and participation rates of physicians. The law specifies procedures the Secretary is required to follow i n the case of a proposed modification in payments based o n inherent reasonableness criteria. If an adjustment is made which results i n a reduction in allowed payments, a special limit on actual charges for nonparticipating physicians would apply. For the first year the reduction is in effect, the maximum the inherently allowable actual charge for the service equals 125% o f reasonable charge level plus one-half of the difference between the physician's actual charge in the preceding period and 125% of the inherently reasonable charge. In the second year, the maximum allowable charge for the service equals 125% of the inherently reasonable charge level. F. Cataract Surgery Cataract surgery involves the removal (by various means) of the natural lens of the eye and replacement of the lens by a prosthetic (artificial) lens. Prosthetic lenses include externally worn contact lenses, eyeglasses, and most commonly, artificial lenses that are surgically implanted in the patient's eye. Cataract extraccions with an intraocular lens implant (IOL) currently account for 9 0 % of all cataract surgeries. On Aug. 1 5 , 1 9 8 6 , the Department issued two proposed Notices relating to (see discussion of the establishment of special reasonable charqe limits inherent reasonableness under A above). The first Notice proposed establishment of a limit for cataract extractions with (IOL) implants. Under this Notice, a limit on cataract surgery with IOLs would be phased in over 3 years, so that for services furnished in calendar year 1989 a n 8 thereafter the limit on prevailing charges would be Set at 110% of prevailing charges for cataract surgery without an IOL. (A similar limit, with no phase-in of the period, was contained in the Energy and Commerce Committee version 5300). In proposing the limitation, the 1986 reconciliation bill, H.R. Notice cited data from a variety of sources which indicated that cataract procedures are overpriced. In addition, the Notice noted that HCFA had been advised by opthalmologists that a cataract procedure with a n IOL takes only about five additional minutes. However, the prevailing charge level i s approximately 50% higher than that for cataract surgery without an IOL. The Department's second Notice proposed limits f o r anesthesia services related to cataract surgery. The Congress reviewed the proposed payment limitations for cataract surgery and provided for a different calculation than had been proposed by the Department. UnCer the provisions of P.L.99-509, the maximum allowable prevailing charges, otherwise recognized for participating and nonparticipating physicians performing a cataract surgical procedure, a r e to be reduced by 1 0 % with respect to procedures performed i n 1987. They are to In no be further reduced by 2% with respect to procedures performed in 1988. case may the reduction for a surgical procedure result in a prevailing charge that is less than 75% of the weighted national average of such prevailing charges for such procedure for all localities in the U.S. in 1986. CRS- 8 IB85007 UPDATE-06/24/87 P.L. 9 9 - 5 0 9 r a t i f i e d t h e final r e g u l a t i o n s i s s u e d by t h e D e p a r t m e n t Oct. 7 , 1 9 8 6 , with r e s p e c t to a n e s t h e s i a s e r v i c e s r e l a t e d to c a t a r a c t surgery. T h i s regulation (which i s unchanged f r o m t h e proposed N o t i c e i s s u e d Aug. 15, 1986) s e t s l i m i t s o n r e a s o n a b l e c h a r g e p a y m e n t s f o r a n e s t h e s i a s e r v i c e s f u r n i s h e d by p h y s i c i a n s during c a t a r a c t s u r g e r y and iridectomies (1-e., e x c i s i o n o f a p o r t i o n of t h e iris). T h e r e g u l a t i o n i s e f f e c t i v e Jan. 1, 1987. Under c u r r e n t r e i m b u r s e m e n t r u l e s , c a r r i e r s c a l c u l a t e t h e r e a s o n a b l e c h a r g e f o r a n e s t h e s i a services based o n t h e following: -- -- B a s e u n i t s assigned to t h e s p e c i f i c p r o c e d u r e t h a t r e p r e s e n t t h e value of a l l a n e s t h e s i a s e r v i c e s e x c e p t t h e v a l u e of t h e a c t u a l t i m e s p e n t a d m i n i s t e r i n g t h e anesthesia. Generally carriers a r e a s s i g n i n g a value of e i g h t b a s e u n i t s t o the a n e s t h e s i a services a s s o c i a t e d with c a t a r a c t s u r g e r y procedures. T i m e u n i t s that represent t h e e l a p s e d period o f time f r o m w h e n the a n e s t h e s i o l o g i s t p r e p a r e s the p a t i e n t f o r induction a n d e n d i n g when t h e anesthesiologist is no longer in personal a t t e n d a n c e to the patient. O n e t i m e u n i t i s a l l o w e d f o r each 1 5 m i n u t e interval. - - T h e c a r r i e r may use modifier units that take i n t o a c c o u n t special f a c t o r s such a s a g s o r p h y s i c a l c o n d i t i o n of t h e patient. A physician may a l s o b e reimbursed o n a r e a s o n a b l e c h a r g e b a s i s f o r t h e personal medical d i r e c t i o n that h e f u r n i s h e s to a q u a l i f i e d a n e s t h e t i s t ; t o r e c e i v e such p a y m e n t s , t h e physician may n o t d i r e c t more than f o u r c o n c u r r e n t a n e s t h e s i a p r o c e d u r e s a t a time. T h e regulation a l l o w s n o more than f o u r base u n i t s a s w e l l a s a p p r o p r i a t e t i m e and modifier u n i t s f o r a n e s t h e s i a s e r v i c e s c o n n e c t e d with cataract surgery. T h e r e g u l a t i o n notes that a l m o s t a l l c a t a r a c t s u r g e r y i s n o w being performed on a n a m b u l a t o r y basis. G e n e r a l a n e s t h e s i a i s n o t o r d i n a r i l y used. T h e regulation s t a t e s that most surgery i s d o n e under local anesthesia administered by t h e o p t h a l m o l o g i s t w h i l e t h e a n e s t h e s i o l o g i s t i s r e s p o n s i b l e f o r monitoring t h e p a t i e n t ' s condition. A s i m i l a r l i m i t o f f o u r base units would be a l l o w e d f o r a n i r i d e c t o m y , which i s d e s c r i b e d a s n o m o r e complex than c a t a r a c t surgery. The selection of f o u r base u n i t s a s a limit units r e p r e s e n t s o n e u n i t a b o v e the three unit-s which i s t h e l e a s t n u m b e r of a s s i g n e d t o most s u r g i c a l procedures performed o n a n a m b u l a t o r y basis. The estimated s a v i n g s r e l a t e d to t h e c a t a r a c t s u r g e r y portion o f t h i s r e g u l a t i o n The i s estimated to b e $45 million i n F Y 8 7 r i s i n g t o $105 million i n FY91. s a v i n g s related to i r i d e c t o m i e s would b e u n d e r $1 million in FY87; higher a n n u a l s a v i n g s a r e n o t projected f o r f u t u r e years. The regulation also a l l o w s no m o r e t h a n t h r e e base units f o r each p r o c e d u r e i n t h o s e c a s e s i n which t h e a n e s t h e s i o l o g i s t i s performing more than four concurrent H C F A w a s unable to e s t i m a t e t h e savings attributable to this procedures. p r o p o s a l , but i n d i c a t e d i t would probably n o t b e substantial. 11. RECENT LEGISLATION R e c e n t l e g i s l a t i o n , beginning with t h e e n a c t m e n t of D E F R A in 1984, made CRS- 9 IB85007 UPDATE-06/24/87 'significant m o d i f i c a t i o n s i n t h e physician p a y m e n t p r o v i s i o n s of Medicare. A. P.L. 9 8 - 3 6 9 , t h e D e f i c i t R e d u c t i o n Act o f 1984 (DEFRA) O n J u l y 1 8 , 1 9 8 4 , t h e P r e s i d e n t signed i n t o l a w t h e D e f i c i t R e d u c t i o n Act T h i s legislation f r o z e p h y s i c i a n s ' f e e s u n d e r M e d i c a r e for o f 1984 (DEFRA). t h e 15-month p e r i o d , J u l y 1 , 1 9 8 4 , t h r o u g h Sept. 3 0 , 1985. Therefore, the a n n u a l updating o f c u s t o m a r y a n d prevailing c h a r g e s c r e e n s , o t h e r w i s e s l a t e d f o r J u l y 1 , 1 9 8 4 , d i d n o t occur. Subsequent f e e screen updates were slated N o catch-up would t o o c c u r o n O c t o b e r 1 of f u t u r e y e a r s b e g i n n i n g i n 1985. b e permitted to a c c o u n t for a n y e c o n o m i c i n d e x i n c r e a s e t o t h e p r e v a i l i n g c h a r g e s c r e e n t h a t w o u l d o t h e r w i s e h a v e o c c u r r e d d u r i n g t h e f r e e z e period. T h e l a w a l s o established the concept of participating physicians and The law s p e c i f i e d t h a t t h e f i r s t participation period began Oct. 1 , 1984. provided t h a t participating physicians were s u b j e c t t o t h e 1 5 - m o n t h freeze. T h e y w e r e , h o w e v e r , permitted to i n c r e a s e their billed charges during the f r e e z e period. W h i l e i n c r e a s e s i n billed c h a r g e s would not raise Medicare p a y m e n t s during t h e f r e e z e p e r i o d , these c h a r g e s would b e reflected i n the c a l c u l a t i o n of f u t u r e customary f e e s c r e e n updates. The law included additional incentives for physicians who agreed to become participating physicians. T h e s e included t h e publication o f directo'ries i d e n t i f y i n g participating p h y s i c i a n s and t h e m a i n t e n a n c e by c a r r i e r s o f t o l l f r e e l i n e s t o p r c v i d e b e n e f i c i a r i e s with n a m e s of participating physicians. increase T h e l a w specified that n o n p a r t i c i p a t i n g physicians could n o t t h e i r billed c h a r g e s d u r i n g t h e 15-month f r e e z e period over the amounts c h a r g e d f o r the s a m e services d u r i n g the Apr. 1 , 1 9 8 4 , through J u n e 3 0 , 1 9 8 4 , period. F o r e x a s p l e , if during that period a physician charged $22 for a s e r v i c e and X e d i c a r s ' a r e a s o n a b l e c h a r g e was $ 2 0 , he c o u l d S i l l t h e beneficiary the 20% c o i n s u r a n c e ($4) plus (if h e did n o t a c c e p t a s s i g n m e n t o n t h i s claim) the $2 in excess of t h e r e a s o n a b l e charge. During the freeze p e r i o d , t h e n o n p a r t i c i p a t i n g physician's f e e i s f r o z e n a t $ 2 2 -- he c q n n o t r a i s e h i s c h a r g e s to b e n e f i c i a r i e s in a n a t t e m p t to c i r c u m v e n t t h e freeze. T h e l a w r e q u i r e d t h e Secretary to m o n ~ t o r c h a r g e s of nonparticipatin,g p h y s i c i a n s and s p e c i f i e d penalties for those w h o f a i l e a to c o m p l y w i t h the freeze. T h e l e g i s l a t i o n a u t h o r i z e d p a y m e n t s from t h e P a r t B t r u s t f u n d t o c a r r i e r s of n o l e s s than $ 8 million in F Y 8 4 and $ 1 5 m i l l i o n i n F Y 8 5 to e n a b l e them to meet t h e i n c r e a s e d c o s t s of a c t i v i t i e s required under t h e n e w law. B. Temporary Extensions During 1985 and early 1985, the Congress considered several alternative p r o p o s a l s to modify a n d extend t h e physician payment p r o v i s i o n s o f DEFRA. B o t h t h e H o u s e - p a s s e d a n d Senate-passed reconciliation bills contained r e l a t e d p r o v i s i o n s , t h o u g h t h e bill w a s n o t e n a c t e d u n t i l Apr. 7 , 1986. D u r i n g c o n s i d e r a t i o n of r e c o n c i l i a t i o n l e g i s l a t i o n t h e r e w a s c o n c e r n t h a t t h e f r e e z e on n o n p a r t i c i p a t i n g p h y s i c i a n s would expire and then be r e i n s t i t u t e d s h o r t l y thereafter. T o avoid this situation, Congress approved which extended the f e e t h e Emergency E x t e n s i o n Act of 1 9 8 5 (P.L. 99-107), f r e e z e provisions through Nov. 1 4 , 1985. Subsequently i t approved four a m e n d m e n t s t o t h a t A c t , further e x t e n d i n g t h e f r e e z e p r o v i s i o n s , a s follows: P.L. P.L. o P.L. o P.L. 0 0 C. P.L. 99-155 99-181 99-189 99-201 ---- -- extended extended extended extended through through through through Dec. Dec. Dec. Mar. 14, 18, 19, 14, 1985. 1985. 1985. 1986. 9 9 - 2 7 2 , C o n s o l i d a t e d O m n i b u s B u d g e t R e c o n c i l a t i o n A c t o f 1 9 8 5 (COBRA) 7 , 1 9 8 6 , t h e P r e s i d e n t signed i n t o l a w P.L. 99-272, the O n Apr. C o n s o l i d a t e d O m n i b u s Budget R e c o n c i l i a t i o n Act o f 1985. This bill represented t h e culmination of l e g i s l a t i v e a c t i v i t y o n t h e P r e s i d e n t ' s F Y e 6 p r o p o s a l s f o r Medicare a n d c e r t a i n o t h e r programs. -budget -As noted, this legislation makes several significant modifications t o the Medicare physician payment provisions. Under C O B R A , t h e existing payment p r o v i s i o n s w e r e extended through April 1986. I n April 1 9 8 6 , physicians w e r e g i v e n a n o p p o r t u n i t y t o c h a n g e t h e i r p a r t i c i p a t i o n s t a t u s f o r t h e 8-month period beginning May 1 , 1986. Future update and p a r t i c i p a t i o n c y c l e s will begin o n Jan. 1 of each y e a r , beginning i n 1987. P h y s i c i a n s c o v e r e d under participation a g r e e m e n t s on May 1 , 1 9 8 6 , r e c e i v e d updates i n t h e i r customary and prevailing charges. Physicians who participated i n F Y 6 5 S u t a r e n o t participating f o r the period beginning May Far physicians participating 1 , 1 9 6 6 , had t h e i r customary eharges updated. during n e i t h e r p e r i o d , the existing f r e e z e o n customary and prevailing c h a r g e s w a s extended through Dec. 3 1 , 1986. T h e f r e e z e o n a c t u a l c h a r g e s w a s extended f o r a l l nonparticipating p h y s i c i a n s f o r t h e same period. m r,.e h c u s t o m a r y a n d prevailing c h a r g e s c r e e n c?dates a p p l i e d o n May 1 , 1 9 6 6 , a r e those which would have o c c ~ r r e don Oct. 1 , 1 9 6 5 , e x c e p t f o r p o s t p o n e n t s provided f o r under temporary extension legislation. To compensate participating physicians for t h e d e l a y , t h e Medicare Economic Index was increased by o n e percentage point increase. T h i s i n c r e a s e w a s n o t built permanently i n t o t h e prevailing c h a r g e leveis. (See m o d i f i c a t i o n contained i n P . L . 9 9 - 5 0 9 , discussed Selow.! CCSRA provided t h a t , beginning Jan. 1 , 1 9 6 7 , n o n p a r t i c i p a t i n g p h y s i c i a n s would be s u b j e c t to the prevailing c h a r g e l i m i t s applied to participating physicians d u r i n g t h e preceding p a r t i c i p a t i o n period. (See m o d i f i c a t i o n contained i n P.L. 9 9 - 5 0 9 , discussed below.) The law required publication of directories (rather than a single directory, a s previously required) i d e n t i f y i n g p a r t i c i p a t i n g physicians. In a d d i t i o n , t h e "Explanation of Medicare B e n e f i t s " (EOMB) n o t i c e s s e n t t o b e n e f i c i a r i e s i s r e q u i r e d , f o r n o n a s s i g n e d c l a i m s , to i n c l u d e a r e m i n d e r of t h e p a r t i c i p a t i n g p h y s i c i a n a n d supplier program. COBRA a l s o provided f o r t h e e s t a b l i s h m e n t o f a n i n d e p e n d e n t P h y s i c i a n P a y m e n t R e v i e w Commission. T h e mission and ongoing duties a r e to make r e c o m m e n d a t i o n s regarding Medicare p h y s i c i a n payments. The Commission members w e r e a p p o i n t e d o n J u n e 1 1 , 1986. The law also required the Secretary, with the advice of the Commission, t o d e v e l o p a r e l a t i v e v a l u e s c a l e (RVS) f o r p h y s i c i a n payments (see P a r t IV f o r a d i s c u s s i o n o f RVSs). T h e S e c r e t a r y i s r e q u i r e d to c o m p l e t e t h e d e v e l o p m e n t of t h e R V S a n d r e p o r t to C o n g r e s s o n i t s d e v e l o p m e n t by J u l y 1 , 1987. The r e p o r t i s t o i n c l u d e r e c o m m e n d a t i o n s c o n c e r n i n g i t s potential a p p l i c a t i o n to Medicare on or after Jan. 1 , 1988. (See P.L. COBRA also includes the following payment for physician services: -- -- D. 99-509 modification.) additional provisions relating to The law has permitted the Secretary certain flexibility in determining reasonable charges. Regulations allowed the use of "other factors that may be found necessary and appropriate with respect to a specific item or service... i n judging whether the charge is inherently reasonable." COBRA required the Secretary to promulgate regulations which specify explicitly the criteria of "inherent reasonableness." COBRA made technical corrections with respect to the calculation of customary charges for certain former hospital-compensated physicians. -- COBRA required the Secretary to provide for separate payment amount determinations for cataract eyeglasses and cataract contact lenses and for the professional services related to them. The Secretary is to apply inherent reasonableness guidelines in determining the reasonableness of charges for such eyeglasses and lenses. -- COBRA denied Medicare payment for assistants-at-surgery in a cataract operation unless prior approval is obtained from the peer review organization (PRO) or Medicare carrier. Such assistants cannot bill Medicare or the beneficiary for services which do not receive prior approval; nor can the primary physician bill for such services. COBRA further required the Secretary to report to Congress by Jan. 1 , 1 9 8 7 , recommendations and guidelines regarding other surgical procedures for which an assistant-at-surgery is not generally medically necessary. Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509) On Oct. 1 7 , 1 9 8 6 , the Conference Committee issued its report o n H.R. 5300. On the same date, the measure passed the House and the Senate. The bill was signed into law by the President on Oct. 21, 1 9 8 6 , as the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509). Title IX of this law contains Medicare provisions, including several amendments to the physician payment requirements. The following is a summary of the major physician payment provisions included in the law. 1. Payment Provisions Under current law, a fee freeze went into effect July 1984; the freeze was lifted for participating physicians May 1 , 1986. It will be lifted for nonparticipating physicians Jan. 1 , 1987. Annual incr.eases (except during the freeze period), in prevailing charges are limited by the Medicare Economic Index (MEI), which reflects general inflation and changes in physicians office practice costs. The law includes a number of amendments to the physician payment provisions, a s follows: 2. -- B e g i n n i n g i n 1 9 8 7 , a l l participating a n d a l l nonparticipating physicians will receive an i n c r e a s e i n their prevailing c h a r g e l e v e l s , a b o v e t h o s e i n e f f e c t f o r t h e p r e v i o u s period equal t o 3.2%. In 1988 and future years, p r e v a i l i n g c h a r g e s would b e i n c r e a s e d by t h e p e r c e n t a g e i n c r e a s e i n t h e MEI. -- T h e o n e p e r c e n t a g e p o i n t i n c r e a s e o v e r t h e MEI, which w a s a l l o w e d f o r participating p h y s i c i a n s f o r t h e period beginning May 1 , 1 9 8 6 , i s built i n t o t h e b a s e f o r f u t u r e calculations. -- T h e S e c r e t a r y c o u l d n o t retrospectively r e v i s e t h e c a l c u l a t i o n o f t h e ME1 (as had been r e c o m m e n d e d by t h e Administration). T h e S e c r e t a r y i s r e q u i r e d t o c o n d u c t a study of t h e ME1 to e n s u r e t h a t t h e i n d e x r e f l e c t s e c o n o m i c changes in a n a p p r o p r i a t e a n d e q u i t a b l e manner. T h e S e c r e t a r y i s precluded from c h a n g i n g t h e methodology used to d e t e r m i n e t h e ME1 u n t i l c o m p l e t i o n of t h e study. -- Nonparticipating physicians hlill be s u b j e c t t o a l i m i t o n their a c t u a l c h a r g e s when t h e f r e e z e i s l i f t e d Jan. 1 , 1987. (This i s referred t o a s t h e maximum a l l o w a b l e a c t u a l c h a r g e o r MAAC). Nonparticipating physicians, whose actual charge f o r a s e r v i c e i n t h e preceding y e a r e q u a l s o r exceeds 1 1 5 % of t h e c u r r e n t y e a r ' s prevailing c h a r g e , c o u l d i n c r e a s e their a c t u a l c h a r g e s by 1%. Nonparticipating physicians w h o s e a c t u a l c h a r g e f o r t h e preceding year i s below 1 1 5 % of t h e c u r r e n t y e a r ' s prevailing c h a r g e would b e s u b j e c t to a l i m i t ; they could i n c r e a s e their a c t u a l c h a r g e s over a 4-year period s o that i n t h e f o u r t h year t h e a c t u a l c h a r g e e q u a l s 1 1 5 % of t h e prevailing charge. C a r r i e r s a r e required to p r o v i d e each n o n p a r t i c i p a t i n g physician with a l i s t o f MAACs f o r t h e p r o c e d u r e s most c o m m o n l y provided by t h e physician a t t h e beginning of each year. -- By J u l y 1 , 1 9 8 9 , t h e Secretary i s r e q u i r e d , a f t e r appropriate notice and.consultation, to consolidate t h e p r o c e d u r e c o d e s contained i n t h e H C F A C o m m o n P r o c e d u r e C o d i n g System (HCPCS) f o r payment purposes. Incentives for Participation The l a w makes the following additional changes to encourage physicians become p a r t i c i p a t i n g physicians: -- A l e t t e r i s t o be s e n t a n n u a l l y to each b e n e f i c i a r y , in the beneficiary's social security check, reminding b e n e f i c i a r i e s of t h e participating p h y s i c i a n program a n d o f f e r i n g a copy o f t h e p a r t i c i p a t i n g to physician directory. The letter i s t o indicate t h a t a f r e e copy would b e s e n t o n request. -- Carriers a r e required to implement programs to r e c r u i t a n d r e t a i n p h y s i c i a n s as p a r t i c i p a t i n g physicians. C a r r i e r s a r e a l s o r e q u i r e d to implement programs to familiarize beneficiaries w i t h t h e p a r t i c i p a t i n g physician program a n d a s s i s t them i n l o c a t i n g p a r t i c i p a t i n g physicians. An i n c e n t i v e pool, equal t o 1 % o f t o t a l p a y m e n t s t o c a r r i e r s f o r c l a i m s processing w i l l be a v a i l a b l e t o reward c a r r i e r s f o r t h e i r s u c c e s s in increasing the percentage of participating p h y s i c i a n s i n t h e carrier's s e r v i c e area. -- A -- -- physician i s r e q u i r e d to r e f u n d o n a timely b a s i s a n y beneficiary p a y m e n t s c o l l e c t e d i n c o n n e c t i o n w i t h a non-assigned claim when t h e s e r v i c e i s d e t e r m i n e d by a peer r e v i e w o r g a n i z a t i o n o r c a r r i e r to b e medically unnecessary. A refund would n o t b e r e q u i r e d if: (1) t h e physician d i d n o t k n o w , a n d could n o t reasonably be expected t o h a v e k n o w n , t h a t t h e s e r v i c e would be f o u n d u n n e c e s s a r y ; o r ( 2 ) t h e beneficiary w a s i n f o r m e d i n a d v a n c e t h a t Medicare payment would n o t be made. Where the actual charge fcr a nonassigned elective s u r g i c a l p r o c e u r e e x c e e d s $ 5 0 0 , t h e physician i s required to d i s c l o s e to the i n d i v i d u a l i n w r i t i n g , t h e estimated c h a r g e , t h e estimated a p p r o v e d c h a r g e , t h e excess of t h e p h y s i c i a n ' s a c t u a l c h a r g e o v e r the a p p r o v e d c h a r g e , a n C t h o a p p l i c a b l e c o i n s u r a n c e amount. The wrltten e s t i m a t e may n o t b e used a s e v i d e n c e i n a c i v i l suit. H o s p i t a l s a r e require? to m a k e a v a i l a b l e t h e appropriate participating physician d i r e c t o r y , a n d w h e r e r e f e r r a l i s m a d e to a n o n p a r t i c i p a t i n g p h y s i c i a n , i n f o r m t h e beneficiary of t h e fact. W h e r e v e r p r a c t i c a b l e , t h e h o s p i t a l must identify a p a r t i c i p a t i n g physician from whom t h e patient c a n r e c e i v e t h e n e c e s s a r y services. I n h e r e n t R e a s o n a b l e n e s s ; P a y m e n t s f o r C a t a r a c t Surgery. COBRA r e q u i r e d t h e S e c r e t a r y t o p r o m u l g a t e r e g u l a t i o n s w h i c h specify explicitly t h e c r i t e r i a of " i n h e r e n t r e a s o n a b l e n e s s u f o r d e t e r m i n i n g M e d i c a r e payments t o p h y s i c i a n s ; t h e A d m i n i s t r a t i o n proposed to a p p l y inherent reasonableness guidelines to cataract procedures in order to reduce Medicare the payments f o r t h e s e services. P.L. 9 9 - 5 0 9 a u t h o r i z e s t h e S e c r e t a r y u n d e r i n h e r e n t r e a s o n a b l e n e s s a u t h o r i t y , t o e s t a b l i s h a payment l e v e l f o r p h y s i c i a n services based o n c r i t e r i a o t h e r than t h e a c t u a l , c u s t o m a r y , a n d p r e v a i l i n g c h a r g e f o r t h e service. The law specifies criteria and procedures for a d j u s t i n g p a y m e n t levels. T h e S e c r e t a r y i s r e q u i r e d t o r e v i e w , by Oct. 1, 1987, the inherent reasonableness of payments for 1 0 of the most costly procedures paid f o r u n d e r P a r t B. T h e l a w r e d u c e s by 1 0 % the prevailing charges for cataract surgical p r o c e d u r e s performed i n 1 9 8 7 ; i n 1 9 8 8 , t h e prevailing c h a r g e i s r e d u c e d by 2%. I n n o c a s e could t h e r e d u c e d prevailing c h a r g e l e v e l b e l o w e r t h a n 7 5 % of t h e n a t i o n a l a v e r a g e prevailing charge. 4. R e c o m m e n d a t i o n s f o r R e l a t i v e Value S c a l e COBRA r e q u i r e d t h e S e c r e t a r y , with t h e a d v i c e of t h e n e w l y established (RVS) f o r P h y s i c i a n P a y m e n t C o m m i s s i o n , to d e v e l o p a r e l a t i v e v a l u e s c a l e physician payments. T h e l a w d e f e r s t h e d a t e t h e S e c r e t a r y i s r e q u i r e d to r e p o r t o n t h e R V S t o J u l y 1 , 1989. T h e p o t e n t i a l a p p l i c a t i o n d a t e of t h e R V S T h e law further requires the i s deferred u n t i l a f t e r Dec. 3 1 , 1989. S e c r e t a r y , i n m a k i n g r e c o m m e n d a t i o n s f o r a p p l i c a t i o n o f a n R V S to: (1) d e v e l o p and a s s e s s a n a p p r o p r i a t e i n d e x t o r e f l e c t justifiable geographic variations in practice cost$ without exacerbating the geographic maldistribution of physicians; and (2) a s s e s s the advisability and f e a s i b i l i t y o f d e v e l o p i n g a n a p p r o p r i a t e a d j u s t m e n t to a s s i s t i n a t t r a c t i n g a n d r e t a i n i n g p h y s i c i a n s in medically u n d e r s e r v e d areas. T h e S e c r e t a r y i s to d s v e l o p a n interim g e o g r a p h i c i n d e x by J u l y 1 , 1 9 8 7 , a n d c o l l e c t d a t a f o r r e f i n i n g t h e i n d e x by Dec. 3 1 , 1989. R a d i o l o g y , Anesthesiology and P a t h o l o g y S e r v i c e s S t u d y 31, T h e Secretary i s required t o study and r e p o r t to C o n g r e s s by July 1 9 8 7 , concerning t h e design a n d r m p l e m e n t a t i o n of a p r o s p e c t i v e p a y m e n t System for payment under P a r t B f o r r a d i o l o g y , a n e s t h e s i o l o g y , a n C p a t h o l o g y (RAP) s e r v i c e s f u r n i s h e d to hospital inpatients. T h e r e p o r t i s to i n c l u d e d a t a , f r o m a r e p r e s e n t a t i v e s a m p l e , showing f o r d i s c h a r g e s c l a s s i f i e d within total reasonable each diagnosis-related group (DRG), the d i s t r i b u t i o n of Charges a n 8 c o s t s for each i n p a t i e n t discharge. 1 1 1 . Implementation of O B R A I n December 1 9 8 6 , t h e D e p a r t m e n t issued i n s t r u t i o n s to Medicare carriers pertaining to i m p l e m e n t a t i o n o f t h e p a r t i c i p a t i n g physician p a y m e n t a n d t h e maximum a l l o w a b l e a c t u a l c h a n g e s (MAAC) p r o v i s i o n s of OBRA. On Dec. 24, 1 9 8 6 , t h e American Medical Association f i l e d a l a w s u i t i n t h e U.S. District C o u r t for the Northern D i s t r i c t of T e x a s c o n c e r n i n g i m p l e m e n t a t i o n o f t h e OBRA provisions. I t requested a preliminary i n j u n c t i o n t o d e l a y the d e a d l i n e beyond Jan. 1 , 1 9 8 7 f o r signing u p a s a participating physician. A temporary r e s t r a i n i n g o r d e r w a s granted o n Dec. 3 1 , 1987. On Jan. 2 0 , 1 9 8 7 , t h e c o u r t dissolved the t e m p o r a r y restraining order. Subsequently, the Department notified c a r r i e r s t h a t physicians had u n t i l Jan. 3 0 , 1 9 8 7 , t o d e c i d e w h e t h e r t o participate i n 1987. P a y m e n t would be m a d e a c c o r d i n g to t h e r e q u i r e m e n t s of l a w ( i - e . , n o n p a r t i c i p a t i n g physicians a r e s u b j e c t to a prevailing charge l e v e l equal to 9 6 % of that f o r participating p h y s i c i a n s , e f f e c t i v e Jan. 1, 1987). IV. P r e s i d e n t ' s F Y 8 8 Budget On Jan. 5 , 1987, the President transmitted the proposed F Y 8 8 Budget which included several proposed modifications to physician payment provisions. Total savings attributable to these provisions were estimated at $200 million i n FY88. The following outlines these provisions. A. Prospective Payment of Radiology, Anesthesiology, and Pathology Services Provided by Physicians to Hospital Inpatients (so-called RAP proposal) Under current l a w , payments are made reasonable charges per unit of service. to physicians on the basis of. The budget proposal would modify the mechanism used to pay for radiology, anesthesiology, and pathology (RAP) services provided to hospital inpatients. Medicare would pay a n average rate per discharge for all RAP services associated with the diagnostic category. The fee-for-service payment methodology has been characterized as inherently inflationary. As a result several alternative payment methodologies are being studied. One alternative which has been examined is that of making pre-determined payments b y diagnosis-related groups (DRGs) for physician services provided to hospital inpatients. However, a number of concerns have been raised with respect to implementation of this approach (see discussion of DRG approach, Part VII, B below). It has been suggested that it may be approp.riate to institute payment reforms for a more narrowly defined classification' of services. RAPS have been selected for several reasons including their close connection with hospitals and the fact that Competitive forces do not operate with respect to utilization cf RAP services since patients d o not generally select their RAP provider. The specifics of the Administration proposal are not currently available. A number of questions could be raised with regard to its implementation including how will the payment amount be calculated; to whom will the payment be made; how will beneficiary cost-sharing charges be calculated; and will there be limits on charges that physicians will be able to bill patients in excess of the recognized payment amount. Over half of the members of both House of Congress are cosponsors of resolutions (H.Con.Res. 30, S.Con.Res. 1 5 , and S.Con.Res. 56) opposing this approach. B. Additional Physician Payment Reforms The Budget included the following additional reform Proposals: -- Reduce prevailing charges for cataract surgery by a n additional 13% in FY88 (OBRA provided for a 10% reduction in FY87 and 2% i n FY88); -- Establish customary charges for new physicians a t approximately 80% of the prevailing charge; (they are currently set a t 75% of customary changes); -- ' P r o v i d e reductions for physicians charges that are overpriced compared with other procedures; charges t h a t vary excessively from o n e l o c a t i o n to a n o t h e r ; and global surgical fees that d o not reflect recent r e d u c t i o n s i n hospital l e n g t h s o f s t a y ; a n d -- P l a c e l i m i t s o n prevailing c h a r g e s f o r c e r t a i n m e d i c a l o r s u r g i c a l s e r v i c e s (excluding v i s i t s o r consultations) wher.e t h e r e i s a l a r g e d i s p a r i t y b e t w e e n t h e c h a r g e s o f s p e c i a l i s t a n d non-specialist. V. C U R R E N T SYSTEM I S S U E S T o t a l Medicare o u t l a y s r o s e a t a n a v e r a g e a n n u a l r a t e o f 18.2% over the FY79-FY83 period. P a r t A o u t l a y s i n c r e a s e d a t a n a v e r a g e r a t e of 17.3% w h i l e 20.6% over the same P a r t B o u t l a y s i n c r e a s e d a t a n a v e r a g e a n n u a l r a t e of period. For a number of years, Part A outlays received the most attention both because o f t h e r e l a t i v e s i z e o f t h e P a r t A program ($49.7 billion in and because of the potential F Y 8 6 compared t o $26.2 billion f o r P a r t B ) exhaustion of the Part A Hospital Insurance trust fund (the p r o j e c t e d exhaustion d a t e of t h e P a r t A t r u s t fund i s currently 1996). Part B is "currently financefl" through e n r o l l e e premiums a n d F e d e r a l g e n e r a l revenues. T h e Part B t r u s t f u n d will not technically g o broke b e c a u s e premium amounts a n d general r e v e n u e c o n t r i b u t i o n s a r e a u t o m a t i c a l l y i n c r e a s e d each year. However, the rapid cost increases and the resulting impact on the Federal budget have caused increasing concern. S i n c e a p p r o x i m a t e l y t h r e e - q u a r t e r s o f P a r t B o u t l a y s a r e f o r physician s e r v i c e s , t h e primary f o c u s h a s been on w a y s t o c u r b these expenditures. I n i t i a l l y , consideration w a s given to r e f i ~ i n g t h e e x i s t i n g ' r e i m b u r s e m e n t system. However, more recently attention has turned to c o n s i d e r a t i o n of a l t e r n a t i v e payment methodologies. and COBRA, M e d i c a r ~ ~ s basic D e s p i t e t h e c h a n g e s made by D E F R A fee-for-service payment system h a s remained relatively unchanged since the program's inception. P a y m e n t s a r e m a d e , s u b j e c t to c e r t a i n l i m i t a t i o n s , for each service rendered. It, has been suggested t h a t both t h e i n d i v i d u a l p r i c e s a n d the unit of payment (i.e., t h e i n d i v i d u a l service) a r e i n f l a t i o n a r y a n d permit certain distortions. T h e system h a s a l s o been criticized for f a i l i n g to provide a d e q u a t e protection f o r t h e elderly against rising physicians' fees. A. P r i c e s f o r I n d i v i d u a l S e r v i c e s As noted i n P a r t I , Medicare pays f o r i n d i v i d u a l s e r v i c e s o n t h e b a s i s o f " a p p r o v e d w o r " r e a s o n a b l e " charges. R e a s o n a b l e c h a r g e s c a n n o t exceed the physician's c u s t o m a r y c h a r g e o r t h e prevailing c h a r g e f o r t h e s e r v i c e i n t h e comnunity. A n n u a l i n c r e a s e s in recognized prevailing charge levels a r e s u b j e c t t o t h e economic index limitation (which i s e x p r e s s e d as a percentage). P h y s i c i a n s ' f e e s generally h a v e increased a t a f a s t e r r a t e t h a n t h e economic index. Between 1 9 7 3 a n d 1 9 8 4 , t h e e c o n o m i c i n d e x j n c r e a s e d by 1 0 6 % w h i l e physician f e e s , a s measured by t h e physician s e r v i c e s c o m p o n e n t o f t h e Consumer P r i c e I n d e x (CPI), increased 157%. T h u s each y e a r a n i n c r e a s i n g percentage of physicians' customary c h a r g e s a r e l i k e l y to exceed the index-adjusted prevailing charge. I n these c a s e s , t h e index-adjusted prevailing c h a r g e l e v e l s a r e d e t e r m i n i n g t h e a p p r o v e d p a y m e n t amounts. It is estimated that a s i g n i f i c a n t n u m b e r , t h o u g h l e s s than one-half of p h y s i c i a n s t c h a r g e s a r e s u b j e c t t o t h e economic i n d e x limitation. The index-adjusted prevailing charge levels are serving, in many Pocalities, as de facto fee schedules. F e e schedules are set payment amounts for each service. (For example, if the f e e schedule amount is $20 for a n initial brief office visit, this is the amount paid for the visit regardless of the p h y s i c i a n q s charge.) The de facto fee schedules, which vary considerably throughout the country, reflect and lock into place historical imbalances in charging patterns. Many feel that the payment imbalances in the current system have encouraged physicians to locate in high-income areas, to choose specialty over primary care practice, to treat patients in hospitals rather--than outpatient settings and to perform surgical rather than medical procedures. The following are some of the major problems which have been cited: -- General Practitioner/S~ecialist Differential. Considerable variation exists in fees recognized by the program for certain medical services performed by physicians in general practice versus fees for similar services performed by specialists. For example, the prevailing charge for a routine follow-up office visit may be $25 for a general practitioner and $30 for a specialist. In the 1 9 8 4 fee screen year (i.e., July 1 , 1983, through June 3 0 , 1984), Medicare carriers recognized specialty reimbursement differentials in all areas of t3e country except for Florida, the area of Kansas served by Blue Shield of Kansas, North Dakota, South Dakota and the area of New York served by Blue Shield of Western New York. The specialist/generalist differential recognized by Medicare and many private insurers was originally intended to reflect the fact that specialists may provide a different type or higher quality of service. However, there is concern that these fee differentials may not be warranted and may have encouraged increased specialization. Further, these differentials mean that Medicare is paying significantly more for what many feel are comparable services. For example, in fee screen year 1954, the mean prevailing charge for specialists was 16% higher than that for generalists for a "brief follow-up hospital visit" and 24% higher for a "brief follow-up office visit." Neither Medicare nor the medical community generally has established a single uniform definition for the A recent report by the General term specialist. Accounting Office (GAO/HRD-84-94, Sept. 27, 1984) reviewed how carriers establish prevailing rate structures and identified several problems areas. It stated that H C F A had given little guidance to the carriers in determining whether specialty recognition was warranted for particular procedures, and in turn, the carriers had conducted little or no analyses. The report cited wide differences in the way carriers recognize physician specialties in establishing prevailing rates. Some carriers did not recognize any specialties and had only one prevailing rate for a particular procedure; others developed prevailing charges for each specialty individually; while still others combined numerous specialties into several prevailing rate groups. The report noted that the use of more than one prevailing r a t e could lead to significant variations among specialties. F o r example, for the f e e screen year beginning J u l y 1 , 1 9 8 1 , t h e a n prevailing rate f o r a " C O n ~ ~ l t a t i Orequiring comprehensive history" in an urban a r e a of Massachusetts ranged from $40.00 f o r a general practitioner to $89.50 f o r a cardiologist o r pulmonary disease specialist. T h e G A O report a l s o reviewed t h e practice of "self-designation" -- i.e,, a physician may classify himself a s specialist without necessarily being board certified (i-e., certified by the specialty organization a s having met certain training and competency requirements). In a review of three carriers, i t was noted that approximately one-half of the physicians who. self-designated specialties were not board certified i n that specialty and about one-fourth of the physicians who designated subspecialties in internal medicine were not even board-certified in internal medicine. -- Geographic Variations. Significant variations exist by geographic area in physicians' f e e s recognized by Medicare for the same service. Differences occur between urban and rural a r e a s , among the States and between various regions. For e x a m p l e , a n analysis of f e e screen year 1 9 8 4 data showed that f o r a brief follow-up hospital visit (one of the most frequently billed services) the prevailing charge ranged from $8.30 in o n e locality i n Wisconsin to $50 i n New York C i t y , a difference of 500%. Such differentials a r e not totally justified by cost-of-living differences. They a l s o reflect historical charge patterns. -- Failure of Prices to Fall a s Pricing Patterns Change. Physicians' charges for new procedures are generally set a t a high level reflecting the fact that n e w procedures may initially require special skills and a substantial amount of a physician's time. However, the charge accepted for a new procedure becomes the base for future increases. Physicians generally do not lower their charges even though increased experience, higher volume, and.technologica1 changes have actually lowered costs. An example of such charging patterns which i s frequently cited i s that of coronary artery bypass surgery which i s now a frequently performed procedure (50,000 under Medicare in 1982) but one whose charges have remained relatively high. -- Variations by Place of Performance. Physicians' services provided i n a n inpatient hospital setting a r e generally associated with higher reimbursement levels. F o r example, i n f e e screen year 1 9 8 4 , the mean prevailing charge for a "brief follow-up visit performed by a general practitioner was 21% higher i n a hospital than i n a n office. Similarly f o r t h e same s e r v i c e . performed by a specialist, the a v e r a g e prevailing charge w a s 12% higher i n a hospital than i n a n office. While hospitalized patients may r e q u i r e more intensive c a r e , t h e physician does n o t bear t h e associated office c o s t s such a s overhead. Costs to a physician a r e lower f o r services performed i n a hospital outpatient department compared t o a n office. T h e T a x Equity and F i s c a l Responsibility Act o f 1 9 8 2 (P.L. 97-248) authorized the Secretary t o l i m i t t h e r e a s o n a b l e charge f o r s e r v i c e s furnished i n a hospital outpatient department t o a percentage of the prevailing charge f o r similar services f u r n i s h e d i n a n office. T h e implementing regulations s e t t h e limit a t 60%. -- Medical Visit/Surgical ( ' t C o g n i t i ~ e / P r ~ ~ e d ~ r a l " ) Differentials. Hospital-based procedures, particularly surgical procedures and those r e q u i r i n g substantial fixzd equipment (such a s certain diagnostic tests) a r e generally priced higher t h a n office-based services. T h i s raises t h e c o n c e r n t h a t tae existing payment mechanism may encourage t h e u s e of s e r v i c e s which not only command high physicians' f e e s but a l s o consume l a r g e a m o u n t s of support and technical resources. T h e parallel concern i s t h a t the system may discourage physicians from spending time with patients to counsel or examine them. T h e resulting payment imbalances a r e s o m e t i m e s referred t o a s the "cognitive/procedural differential" though t h i s term may be misleading. A f e w attempts h a v e been made to determine t h e relative value of surgical procedures a n d medical o f f i c e visits on the basis of resource costs a s opposed to charges. A study by William H s a i o and William Stason (HCFA R e v i e w , F a l l 1979) focused on the professional t i m e expended and the complexity of the service. After standardizing for complexity between selected procedures, the study showed that physicians w e r e paid a s much a s 4 - 5 times more per hour f o r hospital-based surgery than f o r office visits. A follow-up s t u d y using 1 9 8 3 data (as outlined in testimony b e f o r e the S e n a t e Finance Committee Dec. 6 , 1985), showed that values of surgical procedures relative t o o f f i c e visits a r e , a t a minimum, 2 or 3 t i m e s higher when calculated on the basis of charges than when c a l m l a t e d from r e s o u r c e inputs. B. Unit of P a y m e nt Another concern with the c u r r e n t reimbursement methodology i s Medicare's u s e of a n i n d i v i d u a l service a s t h e payment unit. F o r e x a m p l e , physicians c a n bill separately f o r a n i n i t i a l o f f i c e v i s i t , a follow-up o f f i c e v i s i t a n d f o r each individual l a b t e s t or x-ray procedure performed. While some surgeons a r e essentially paid a s i n g l e comprehensive f e e f o r a n i n p a t i e n t c a s e , t h e majority of a l l physician payments a r e made f o r s m a l l units of service. I t has been argued that i n t h i s environment physicians are not discouraged from providing additional s e r v i c e s (such a s l a b o r a t o r y tests), ordering a d d i t i o n a l consultations, or performing a d d i t i o n a l surgeries. While t h e s e a c t i o n s may n o t be o u t s i d e t h e broad range of accepted medical p r a c t i c e , o t h e r l e s s c o s t l y a l t e r n a t i v e t r e a t m e n t p a t t e r n s may be e q u a l l y , o r i n s o m e c a s e s m o r e appropriate. F u r t h e r c o m p o u n d i n g the i n f l a t i o n a r y e f f e c t i s t h e p h e n o m e n o n k n o w n a s " u n b u n d l i n g , " i.e., billing s e p a r a t e l y f o r s e r v i c e s p r e v i o u s l y consolidated i n t o a l a r g e r u n i t o f payment. I t h a s been a r g u e d t h a t t h e t o t a l a m o u n t t h e program pays f o r such m u l t i p l e i n d i v i d u a l s e r v i c e s f r e q u e n t l y e x c e e d s t h e a m o u n t which would h a v e been paid i f t h e y had b e e n g r o u p e d u n d e r a n i n d i v i d u a l s e r v i c e c a t e g o r y , i.e., "bundled." Unbundling i s f r e q u e n t l y cited a s o n e o f the m o r e s i g n i f i c a n t c o n t r i b u t o r s to i n f l a t i o n i n e x p e n d i t u r e s f o r p h y s i c i a n services. I t h a s a l s o been suggested t h a t e x i s t i n g c o d i n g p o l i c i e s may be somewhat inflationary. P r o c e d u r e c o d e s f o r s o m e high v o l u m e s e r v i c e s such a s o f f i c e v i s i t s a r e n o t p r e c i s e l y defined. It may t h e r e f o r e be p o s s i b l e t o d e s c r i b e t h e s a m e s e r v i c e by a c o d e w i t h a higher a l l o w a b l e c h a r g e , f o r e x a m p l e a '*brief visit" might become a n " i n t e r m e d i a t e visit." T h i s phenomenon h a s been l a b e l e d "=code creep=.'' There is also some question whether the increased n u m b e r o f i n d i v i d u a l procedure c o d e s (rising f r o m 2 , 0 0 0 - 2 , 5 0 0 i n 1966 to o v e r 6 , 0 0 0 today) may a l s o f a c i l i t a t e c o d e creep. T h e i m p a c t of these i n c r e a s e s i s r e f l e c t e d in d a t a o n t h e c o m p o n e n t s of i n c r e a s e s i n r e c o g n i z e d c h a r g e s per enrollee f o r physician services. The 1 9 8 6 Annual R e p ~ r to f the Board of T r u s t e e s of t h e S u p p l e m e n t a r y Medics1 I n s u r a n c e T r u s t F u n d d i s a g g r e g a t e s i n c r e a s e s i n e x p e n d i t u r e s per e n r o l l e e f o r p h y s i c i a n s e r v i c e s i n t o two components: p r i c e i n c r e a s e s per u n i t of service a n d " n e t r e s i d u a l factors." T h e latter c o m p o n e n t i n c l u d e s i n c r e a s e s i n e x p e n d i t u r e s d u e to a d d i t i o n a l physician s e r v i c e s per e n r o l l e e , g r e a t e r u s e of s p e c i a l i s t s , u s e of more e x p e n s i v e t e c h n i q u e s and t e c h n o l o g y , a n d other of t h e total factors. F o r the y e a r ending J u n e 3 0 , 1 9 8 4 , a b o u t one-third p e r c e n t a g e i n c r e a s e i n physician e x p e n d i t u r e s per e n r o l l e e was d u e to t h e " n e c r e s i d u a l f a c t o r s " (3.2% o u t o f a t o t a l o f 11.6%). F o r the y e a r ending Sept. 3 0 , 1 9 8 5 , when t h e f r e e z e w a s i n e f f e c t , these r e s i d u a l f a c t o r s w e r e expected to a c c o u n t f o r 8 4 % of the total i n c r e a s e per e n r o l l e e (5.2% o u t of a t o t a l 6.2%). V o l u m e i n c r e a s e s , u n b u n d l i n g , a n d c o d e c r e e p a r e thus i m p o r t a n t f a c t o r s i n d e t e r m i n i n g t h e l e v e l of overall expenditures for p h y s i c i a n services. S e v e r a l s t u d i e s h a v e s h o w n that when l i m i t s a r e placed on allowable fees, i n c r e a s e s i n t h e s e r e s i d u a l f a c t o r s may result. Experience during the E c o n o m i c S t a b i l i z a t i o n (ESP) program during t h e early 1 9 7 0 s i s f r e q u e n t l y cited a s a n i l l u s t r a t i o n of t h i s phenomenon. Analysis by t h e Urban I n s t i t u t s of t h e E S P program i n C a l i f o r n i a showed that physicians c o u n t e r e d a t t e m p t s to c o n t r o l prices by i n c r e a s i n g t h e v o l u m e of s e r v i c e s provided a n d c h a n g i n g to a m o r e c o m p l e x s e r v i c e mix. I n f a c t , g r o s s Medicare incomes of these p h y s i c i a n s a c t u a l l y i n c r e a s e d m o r e d u r i n g t h e 2 y e a r s o f p r i c e c o n t r o l s than in t h e y e a r a f t e r t h e c o n t r o l s w e r e lifted. P h y s i c i a n s h a v e had c o n s i d e r a b l e d i s c r e t i o n i n d e t e r m i n i n g price a n d v o l u m e of services. I t i s estimated t h a t physicians' decisions (such a s o r d e r i n g h o s p i t a l i z a t i o n , d r u g s or l a b o r a t o r y tests) d i r e c t l y i n f l u e n c e o v e r 70% o f a l l health c a r e expenditures. C. P a t i e n t Liability Physicians' d e c i s i o n s about pricing and billing also have a direct economic impact on patients. All patients are liable for the 20% coinsurance charges though Medicaid or private Medi-Gap insurance may pick up some of these costs. In addition, when the physician does not accept assignment, beneficiaries are liable for amounts in excess of Medicare's approved or reasonable charge, an amount fr'equently not picked up by private insurance policies. The difference between the physician's billed charge and Medicare's aproved or reasonable charge is referred to a s the reasonable charge reduction. Reasonable charge reductions were made on 84.5% of unassigned The amount of the reduction was 25.9% of billed charges or claims in FY85. $33.37 per approved claim. Beneficiaries were liable for these reduction amounts. (Comparable figures were recorded for assigned claims though the beneficiaries were not liable for the reduction amounts.) The impact of reasonable charge reductions on unassigned claims is spread unevenly across the population. Nationwide, 59% of claims were paid on a n assignment basis in 1984. The AMA Center for Health Policy Research reported that for physicians who treated some Medicare patients in 1 9 8 4 , 83.9% accepted assignment for at least some patients, a n increase over the 75.6% recorded in 1982. In 1984, 32.1% of physicians always accepted assignment, and 16.1% never accepted assignment. Physician assignment behavior varied by region and by specialty. Physicians have been able to accept or refuse assignment on a claim-by-claim basis. However, under the provisions of DEFRA, physicians may become "participating physicians." As of this time, data is not available on how the implementation of the participating physician provision has affected beneficiary out-of-pocket payments. VI. REFORM OPTIONS For several years, both the Congress and the Administration have been exploring alternative approaches to dealing with escalating expenditures for physician services under Medicare. Proposals for a 1-year freeze on customary a n C prevailing charges were rejected for several years primarily because of the concern that more physicians would refuse assignment, thereby passing along to the beneficiary the costs not met by the program. In 1983, the House Ways and Means Committee reported the Tax Reform Act. have placed a The reported bill included a committee amendment which would 1-year freeze on physicians' fees for services provided to hospital inpatients and would have required physicians to accept assignment for such services. The provision was to be subject to a separate vote when the bill reached the House floor. In the intervening period, the American Medical Association announced a voluntary 1-year freeze on physicians' fees and launched a s'trong campaign against mandatory assignment. The mandatory assignment provision was defeated by a voice vote on Apr. 1 2 , 1984. The Deficit Reduction Act of 1984 included a 15-month freeze on physicians' fees and established the concept of "participating" physicians. The provision attempted to protect beneficiaries from increased liability in connection with non-assigned claims by prohibiting nonparticipating physicians from raising their billed charges during the freeze period. The fee freeze was extended through Apr. 30, 1986, for participating physicians and Dec. 3 0 , 1986, for nonparticipating physicians. However, the freeze provisions were v i e w e d a s a n interim a p p r o a c h u n t i l c a n be i n c o r p o r a t e d i n t o t h e system. more permanent changes S e r i o u s consideratio'n of major r e f o r m s h a s been hampered by a number of factors. T h e s e i n c l u d e major g a p s i n t h e d a t a o n w h a t t h e program is currently paying f o r , opposition by a n u m b e r o f p h y s i c i a n s to a major a l t e r a t i o n i n t h e fee-for-service/ v o l u n t a r y a s s i g n m e n t a p p r o a c h , a n d the uncertainty c o n c e r n i n g the a c t u a l i m p a c t o f m a j o r r e f o r m s o n both t h e program a n d beneficiaries. H o w e v e r , i n a d d i t i o n to rising f i s c a l c o n c e r n s , c h a n g e s both i n t h e h e a l t h s e r v i c e s m a r k e t p l a c e a s a w h o l e a n d t h e M e d i c a r e program itself have g e n e r a t e d i n c r e a s i n g i n t e r e s t i n reform options. The health services m a r k e t p l a c e i s i n c r e a s i n g l y s u b j e c t to c o m p e t i t i v e pressures. This is r e f l e c t e d i n i n c r e a s i n g competition a m o n g p h y s i c i a n s i n r e s p o n s e t o t h e d e v e l o p i n g o v e r s u p p l y (estimated by t h e G r a d u a t e Medical Education National Advisory C o m m i t t e e a t 6 3 , 0 0 0 i n 1 9 9 0 ; t h e i n c r e a s i n g e m p h a s i s g i v e n by e m p l o y e r s to o b t a i n i n g l o w e r cost i n s u r a n c e p r o t e c t i o n ; t h e g r o w t h i n t h e n u m b e r of health m a i n t e n a n c e o r g a n i z a t i o n s (HMOs); a n d the rapid rise of services a r e preferred provider organization (PPO) a r r a n g e m e n t s under which provided to s u b s c r i b e r s a t discounted prices. At t h e s a m e t i m e t h a t these c h a n g e s a r e o c c u r r i n g , Medicare is implementing a major n e w prospective payment system (PPS) f o r h o s p i t a l s which i s r e p l a c i n g t h e earlier " r e a s o n a b l e cost" r e i m b u r s e m e n t system. Under PPS, h o s p i t a l s a r e paid a predeternined r a t e f o r each i n p a t i e n t stay based on t h e pa.tientts c l i n i c a l a n d demographic cllaracteristics a n d t h e n a t u r e of th@ t r e a t m e n t received. T h e classification system used to g r o u p h o s p i t a l p a t i e n t s i s k n o w n a s D i a g n o s i s R e l a t e 2 G r o u p s (DRGs). T h e system i s being phased in over a 4-year period beginning o n Oct. 1 , 1983. [For a discussion of prospective p a y m e n t , see CRS I s s u e Brief 8 3 1 7 1 , P r o s p e c t i v e P a y m e c t s f o r Medicare Inpatient H o s p i t a l Services.] T h e P?S system h a s a l t e r e d the e c o n o m i c i n c e n t i v e s f o r hospitals by encouraging them t o k e e p p a t i e n t s hospitalized f o r a s short a period a s i s medically necessary a n d t o perform a s f e w tests a n d procedures a s a r e needed while t h e patient i s h o s p i t a l i z e d . P?S a r e thus significantly T h e economic i n c e n t i v e s for hosptals under d i f f e r e n t from t h o s e f o r physicians w h o a r e providing a n d o r d e r i n g services i n t h e i n p a t i e n t setting. T h e s e c h a n g e s h a v e served to f o c u s a t t e n t i o n o n a l t e r n a t i v e w a y s o f c h a n g i n g t h e e x i s t i n g economic i n c e n t i v e s for physicians by changing the method of payment. S t u d i e s of a number of o p t i o n s a n d related issues a r e c u r r e n t l y being c o n d u c t e d by H C F A , t h e O f f i c e of T e c h n o l o g y A s s e s s m e n t , a n d o t h e r public a n d p r i v a t e entities. T h e major a l t e r n a t i v e s which a r e being examined a r e f e e s c h e d u l e s , p a y i n g f o r physician s e r v i c e s o n t h e basis of D R G s , or paying for services on a c a p i t a t i o n , i.e., per p e r s o n , basis. Reforms in the existing system could be r e s t r i c t e d t o s e r v i c e s provided in an inpatient hospital setting to all (approximately 6 2 % of physicians'expenditures) o r could be a p p l i e d physicians' services. P a y m e n t r e f o r m s might be taken e i t h e r a p a r t f r o m o r i n c o n c e r t with r e f o r m s i n t h e c u r r e n t a s s i g n m e n t system. Finally, reforms c o u l d b e i n c l u d e d a s p a r t o f more e x t e n s i v e r e f o r m s i n t h e M e d i c a r e p r o g r a m a s a whole. A. Fee Schedules Fee schedules a r e set payment amounts for each service. F o r example, i f this i s the the f e e schedule a m o u n t is $20 f o r a n initial office visit, amount paid regardless of the physician's charge. As noted earlier, Medicare's limit o n year-to-year increases i n prevailing charges i e , the economic index limit) has led in effect t o the use of d e f a c t o f e e schedules i n some localities. These de facto f e e schedules a r e more often reflective of historical charging patterns rather that actual i n p u t costs. One option f o r revising Medicare's reimbursement system would be to replace the current d e facto f e e schedules based o n local charging patterns with a uniform f e e schedule. This would have the advantage of removing t h e wide fluctuations i n payments for similar services though certain a r e a w i d e a d j u s t m e n t s f o r cost-of-living differentials might be permitted. Physicians would k n o w i n advance what Medicare's payment would be. At the same t i m e , Medicare would have some control over the amount paid f o r individual services. However, this approach would have l e s s impact on overall expenditures unless controls on intensity and volume were a l s o incorporated i n the n e w system. There a r e several methods which have been suggested f o r developing a uniform f e e schedule. The schedule could be based o n a relative value s c a l e , existing charging patterns, or negotiation with representatives of the physician community. These methods a r e not mutually exclusive. Elements of a l l three are frequently incorporated in discussions of a f e e schedule based on a relative value s c a l e (RVS). A RVS i s a method of valuing individual services in relationship to each other. Each service i s assigned an abstract index number or weight. For example, a n initial office visit could be assigned a value and other services assigned higher or l o w e r numbers to indicate their "value" relative to an initial office visit. A RVS i s not a f e e scheeule. It is translated into a f e e schedule by use of a predetermined "conversion factor" or multiplier. For example, if the multiplier was 4 , an initial office visit with a relative value of 4.9 would be priced at $19.60. RVSs a r e frequently discussed in terms of a system which could reflect ineividual t i m e , s k i l l , and overhead c o s t s that each service requires. Ultimately the goal would be to establish RVSs which a r e economically neutral in terms of what services a r e performed, the setting where services a r e rendered, and the region in which the physician practices. However, to d a t e , R V S s have generally been developed on the basis of charges. The best known RVS was developed by the California Medical Association (CMA). T h e California R V S (CRVS) was established i n 1 9 5 6 and subsequently revised several times. T h e most recent editions were based on f e e data derived from files of third party payers in the State. Attempts were not made to a d j u s t the charge data based o n potential measures of relative "value." S e v e r a l other professional societies, some Blue Shield plans, and some commercial insurance companies a l s o developed RVSs though many of these were based on the California model. The use and development of RVSs was generally halted by the antitrust action of the Federal Trade Commission (FTC) i n 1979. T h e F T C issued a consent notice which required the CMA to cease publishing, promulgating, o r participating i n the use of RVSs; f u r t h e r , previously issued schedules had to b e withdrawn. In early 1 9 8 5 , the F T C issued a n advisory letter to the American Society of Internal Medicine expressing the concern that R V S s developed by medical societies could be viewed a s price f i x i n g schemes. S e v e r a l s t u d i e s a r e u n d e r w a y , which a t t e m p t t o d e t e r m i n e the relative v a l u e s o f s e r v i c e s based o n physician t i m e , c o m p l e x i t y o f s e r v i c e a n d s i m i l a r factors. A n u m b e r of s e g m e n t s o f organized m e d i c i n e h a v e e x p r e s s e d strong i n t e r e s t i n d e v e l o p i n g o r a s s i s t i n g i n t h e d e v e l o p m e n t o f a n RVS. A study by t h e Urban I n s t i t u t e ("Final R e p o r t o n A l t e r n a t i v e M e t h o d s o f Services, October 1984) D e v e l o p i n g a R e l a t i v e Value S c a l e o f Physicians' a t t e m p t e d to e x p l o r e a l t e r n a t i v e m e a n s of c o n s t r u c t i n g RVSs. The first y e a r ' s study c o n c l u d e d that- cost-related i n f o r m a t i o n o n s u c h f a c t o r s a s t i m e per p r o c e d u r e , c o m p l e x i t y , s e v e r i t y , a n d r e s o u r c e c o s t s a r e i n s u f f i c i e n t to a l l o w timely d e v e l o p m e n t of a r e l i a b l e cost-based RVS. The authors concluded t h a t u s e of charge-based d a t a w a s t h e p r e f e r a b l e alternative. T h e report s u g g e s t e d t h a t a n c o n s e n s u s development" p r o c e s s (i.e., g r o u p d e c i s i o n m a k i n g ) could serve a useful role in the review, evaluation, and adjustment of an RVS based o n charges. U s i n g t h i s a p p r o a c h , a p a n e l would m o d i f y t h e i n d e x v a l u e s w h i c h a p p e a r e d o u t o f l i n e based o n o t h e r m e a s u r e s o f v a l u e such a s process. The p r o d u c t i o n costs. T h e f i n a l r e p o r t recommended a three-step scale f i r s t s t e p would b e t o d e v e l o p a r e l a t i v e c o s t s c a l e b a s e d o n a modified from r e l a t i v e c h a r g e s u s i n g limited c o s t i n f o r m a t i o n a n d experts' a s s e s s m e n t s of each service's profitability. T h e second s t e p w o u l d be to c o n v e r t the r e l a t i v e cost s c a l e i n t o a r e l a t i v e value s c a l e based primarily o n insurers' v i e w s of s e r v i c e s benefits, a p p r o p r i a t e n e s s f o r s u b s c r i b e r s , r i s k s , e f f i c a c y , a n d spillover i m p l i c a t i o n s f o r other services and costs. T h e f i n a l step i n v o l v e s converting the realtive value scale into a fee schedule. A k e y i s s u e i n t h e establishment of a f e e s c h e d u l e i s t h e d e t e r m i n a t i o n o f t h e payment unit. If separately i d e n t i f i a b l e p a y m e n t s c o n t i n u e d t o b e m a d e f o r each i n d i v i d u a l s e r v i c e , t h e existing i n c e n t i v e s for u n b u n d l i n g , code c r e e p , a n d v o l u m e would remain. It may b e possible to counter these i n c e n t i v e s by d e f i n i n g common services m o r e precisely a n d d e f i n i n g c o m p o n e n t s of services a s part of s i n g l e m o r e c o m p r e h e n s i v e units. However, there are s o m e t e c h n i c a l problems related to defining s o m e larger p a c k a g e s of services particularly f o r a m b u l a t o r y care. ~ i s s u e s r e l a t e s to t h e i n i t i a l l e v e l a t w h i c h fees are A second s e of established. I m p l e m e n t a t i o n of a uniform p a y m e n t a m o u n t w o u l d m e a n that there would be s o m e " w i n n e r s " a n d s o m e " l o s e r s " under t h e n e w s y s t e m , i.e., s o m e persons would r e c e i v e higher payments a n d some would receive lower p a y m e n t s than t h e y would under t h e c u r r e n t system. If d e s i r e d , t h i s e f f e c t c o u l d be partially o f f s e t through a phase-in approach though this could r e s u l t i n higher o v e r a l l expenditures. I t i s expected t h a t a f e e s c h e d u l e would b e established with a certain t a r g e t budget a m o u n t i n mind. T h e c o n v e r s i o n f a c t o r would t h e r e f o r e n e e d to b e c a l c u l a t e d t o r e f l e c t projections of v o l u m e , unbundling a n d o t h e r changes. A third s e t of i s s u e s r e l a t e s to t h e d i f f e r e n t i a l s , if a n y , w h i c h w o u l d b e permitted by s p e c i a l t y , s e t t i n g w h e r e t h e s e r v i c e s a r e r e n d e r e d o r g e o g r a p h i c area. T h e o r e t i c a l l y , t h e f e e s c h e d u l e could b e d e s i g n e d i n such a w a y a s t o a l t e r c e r t a i n e c o n o m i c i n c e n t i v e s i n t h e c u r r e n t system. For example, the m u l t i p l i e r a m o u n t might b e i n c r e a s e d f o r m e d i c a l visit p r o c e d u r e s a n d l o w e r e d f o r s u r g i c a l procedures. T h e f e e s c h e d u l e a m o u n t s might b e established on a competitive basis. Doctors could bid proposed conversion factors to Medicare with the parogram accepting a certain percentage of the bids. For those whose bids were not accepted, beneficiary cost-sharing might be higher. Additional incentives might be included for participating physicians. Several recent developments have occurred with respect to development of a n RVS. On Jan. 1 5 , 1986, the Department of Health and Human Services entered into a 30-month cooperative agreement with Harvard University for development of an RVS. William Hsiao is the principal investigator and the The R V S i s to be based on American Medical.Association is a subcontractor. resource costs taking into account time, complexity, opportunity costs, and overhead. During the development of the R V S , it is also expected that procedures will be identified which are currently overpriced or underpriced. As noted earlier, COBRA, a s modified by P.L. 99-509, required the Secretary, with the advice of the newly established Physician Payent Review Commission, to develop a RVS and report to Congress on its development by July 1 , 1989. The report is to include recommendations concerning its potential application to Medicare on or after Jan. 1 , 1990. B. Physician DRGs As noted above, the Social Security Amendments of 1983 (P.L. 98-21) provided for the establishment of a prospective payment system (PPS) for inpatier't hospital services baseC on diagnosis related groups (DRGs). The legislation also required the Secretary to report to Congress in 1985 on the advisability and feasibility of paying for physician services provided to hospital inpatients on the basis of a DRG-type classification system. The report was due July 1 , 1985, but had not been forwarded to the Congress as of Feb. 20, 1987. It is expected that a physician DRG payment scheme for inpatient services would involve the establishment of a predetermined rate for each of the 468 DRGs used under the P P S system. The rate could be based on the average of allowable charges per admission during a base year. Rates which appeared services. Census out-of-line might be repriced, vis-a-vis rates for other division and urban/rural variations comparable to those under P P S might be included. A physician DRG payment unit is generally thought of a s starting with the hospital admission and ending with the hospital discharge. It would thus be consistent with the P P S unit of service which is the hospital episode. In certain cases, e.g., certain surgical DRGs, the pricing package might be defined to include certain preadmission and/or post discharge servites or time periods of services. This would counter incentives to unbundle some services. However, for many DRGs, particularly nonsurgical DRGs, it would be difficult to define what preadmission and/or post discharge t.ime period should be considered part of the inpatient episode for reimbursement purposes. There is concern that the existing DRG classification system which was designed to reflect hospital costs may not in all cases fully reflect differences in physician input costs. A recent study ("Creating DRG-Based Physician Reimbursement Schemes," by Janet Mitchell, Oct. 1984) showed that while there is relatively little variation i n doctors' approved charges for cases within specific surgical DRG categories, there were wide variations in doctorsf approved charges for cases within medical DRG categories. Making p a y m e n t s o n t h e b a s i s o f physician D R G s could t h u s i n v o l v e l a r g e n u m b e r s o f " w i n n e r s " and " l o s e r s " f o r medical DRGs. S o m e of these individual effects could be p a r t i a l l y o f f s e t depending o n h o w t h e p a y m e n t s a r e made. DRG payment system for O n e of t h e k e y i s s u e s i n d e s i g n i n g a physician i n p a t i e n t s e r v i c e s i s determining t o whom the payment should actually be made. P a y m e n t s c o u l d b e m a d e to t h e a t t e n d i n g p h y s i c i a n , t h e m e d i c a l staff One consideration in making this o f t h e h o s p i t a l o r t h e hospital itself. c h o i c e i s t h e d e g r e e of f i n a n c i a l r i s k t h a t i s i m p o s e d o n t h e v a r i o u s parties involved. F o r e x a m p l e , a n i n d i v i d u a l p h y s i c i a n ' s c a s e l o a d may c o n s i s t o f a higher proportion o f sicker patients r e q u i r i n g m o r e i n t e n s i v e c a r e t h a n t h e a v e r a g e f o r a p a r t i c u l a r DRG. P l a c i n g a n i n d i v i d u a l physician a t r i s k could potentially e n c o u r a g e t h e provision of less care than was medically a p p r o p r i a t e o r t h e a v o i d a n c e of m o r e s e v e r e cases. Further, this approach would i m p o s e a d d i t i o n a l a d m i n i s t r a t i v e burdens o n physicians. Attending physicians w o u l d b e r e s p o n s i b l e f o r o b t a i n i n g r e q u i s i t e s e r v i c e s f r o m o t h e r p h y s i c i a n s a n d p a y i n g them f o r s e r v i c e s rendered. P r o b l e m s could a r i s e i f p h y s i c i a n s could n o t a g r e e o n h o w t o s u b d i v i d e t h e s i n g l e payment. A l t e r n a t i v e l y , physician DRG payments could b e m a d e to t h e m e d i c a l staff of t h e hospital w h i c h would then be responsible for distributing the payments. T h e d i s t r i b u t i o n of payments a m o n g i n d i v i d u a l p h y s i c i a n s c o u l d be based o n their p e r c e n t a g e of total billings. If t o t a l b i l l i n g s exceeded DRG payment a m o u n t s , e a c h staff member would r e c e i v e p r o p o r t i o n a t l e y l e s s w h i l e if total billings w e r e l e s s than p a y m e n t s , each staff member would receive T h ~ s ,the physicians c o l l e c t i v e l y would be a t r i s k for proportionately more. by i n d i v i d u a l members. either e x c e s s i v e utilization or e x c e s s i v e billings T h i s a p p r o a c h , w h i l e placing a d d i t i o n a l burdens o n h o s p i t a l s t a f f s , h a s t h e potential a d v a n t a g e of creating a r i s k pool of s u f f i c i e n t s i z e tc a v o i d unacceptable r i s k s a s s o c i a t e d with i n c r e a s e s i n c a s e s e v e r i t y (i.e., i n c r e a s e I n the percentage of sicker p a t i e n t s r e q u i r i n g m o r e c a r e t h a n a v e r a g e for a particular DRG) . Another a p p r o a c h would be to pay t h e h o s p i t a l directly which would i n turn d i s t r i b u t e t h e funds. P a y m e n t s could be made either a s a s e p a r a t e p h y s i c i a n D R G payment or a c o m b i n e a a m o u n t f o r both physicians' a n d h o s p i t a l services rendered during t h e i n p a t i e n t stay. This approach places strong incentives on t h e hospital t o c o n t a i n expenditures. H o w e v e r , t h i s a p p r o a c h would place t h e i n s t i t u t i o n i n t h e position of a r b i t r a t i n g payment disputes among physicians a n d , i n t h e c a s e o f c o m b i n e d p a y m e n t s , a m o n g p h y s i c i a n s a n d o t h e r c o m p e t i n g interests. A physician D R G payment s c h e m e would g i v e p h y s i c i a n s (or physician groups) t h e i n c e n t i v e t o p r a c t i c e m o r e e f f i c i e n t l y s i n c e they w o u l d b e a t risk f o r a n y c o s t s i n e x c e s s o f t h e p a c k a g e price. T h i s payment approach would directly a d d r e s s t h e problem of u n b u n d l i n g f o r s e r v i c e s provided in the i n p a t i e n t setting. I t would a l s o a d d r e s s t h e d i v e r g e n c e of economic i n c e n t i v e s t h a t c u r r e n t l y exist between h o s p i t a l s a n d physicians. Under PPS, h o s p i t a l s h a v e t h e i n c e n t i v e to h o s p i t a l i z e patients f o r a s s h o r t a period a s Conversely, needed a n d t o p e r f o r m a minimum n u m b e r o f t e s t s a n d treatments. physicians h a v e t h e i n c e n t i v e to k e e p patients i n t h e h o s p i t a l l o n g e r a n d t o perform a d d i t i o n a l b i l l a b l e procedures. Implementation of a physician DRG system would a l i g n t h e incentives. H o w e v e r , t h e c o n c e r n h a s been expressed t h a t i f hospital a n d physician i n c e n t i v e s a r e t o o c l o s e l y a l i g n e d t h e quality of patient c a r e may b e affected. T h e physician may n o l o n g e r be a s s t r o n g a n a d v o c a t e f o r needed m e d i c a l services. P a t i e n t a c c e s s t o c a r e may b e a f f e c t e d if h o s p i t a l s p r a c t i c e "skimming," i.e., a d m i t t i n g l a r g e n u m b e r s o f p a t i e n t s w h o r e q u i r e l e s s c a r e than a v e r a g e f o r t h e D R G w h i l e r e f e r r i n g . e l s e w h e r e - patients who require more care than average. While a physician DRG payment approach would limit expenditures for individual admissions it might not be as effective in controlling overall expenditures. For example, certain complex cases might be managed in two admissions instead of one. It is also likely that many services would be transferred to outpatient settings and billed for separately. The DRG payment limitations would not apply to services provided in roughly 35-40% of total physician expenditures. At outpatient setting this point, i t is generally agreed that the capability does not exist to extend the approach beyond the hospital setting. DRGs for inpatients have been defined in terms of specific diagnoses which require comparable resources and are delimited by the hospital episode itself. However, identification of payment units for purposes of outpatient services is more difficult. -- A number of persons have suggested that a DRG payment approach may not be appropriate for all physician services provided on a n inpatient basis. However, a number have suggested this approach might be appropriate for by hospital-based physicians, generally payment for services provided P.L. radiologists, anethesiologists, and pa-thologists (the so-called RAPS). 99-509 requires the Department to study this issue. The President's F Y E 7 Budget includes a RAP proposal (see discussion, Part IV A, above); the specifics of this proposal are not currently available. Capitation A third reform option is that of capitation. Medicare currentiy pays some ~ r o v i d e r s (i.e., risk contracting HMOs and competitive medical plans) on this basis. It is expected that the number of beneficiaries who are coverea under these arrangements will grow substantially over the nsxt few years. The Administration favors extension of this approach to additional beneficiaries. Under an alternative capitation approach known as geographic capitation, servs Medicare would contract with an entity, such as a Carrier, which would as a n at-risk insurer in a defined geographic area. Medicare wouid essentially purchase a specified package of services (physician services, all person Part B services, or Part A and Part B services) for a specified per price. The entity would be responsible for determining payment amounts and payment units. To assure beneficiary access to care at predictable levels of out-of-pocket costs, an entity could be required to obtain physician participation agreements from a certain percentage of physicians in the geographic area. Certain financial incentives might be employed (such as reduced cost-sharing) to encourage beneficiary use of participating physicians. The Federal Government would be required to determine the per person payment amount. Medicare uses 95% of the Average Adjusted Per Capita Cost organizations (AAPCC) calculation for paying at-risk health maintenance (HMOs) and competitive medical Flans (CMPs). The AAPCC is a n estimate of the average per person cost of Medicare benefits in the area. A similar calculation could be made for a n area-wide capitation system. However, many persons feel that the AAPCC calculation does not adequately reflect variations in the health status of enrolled population resulting from A capitation amount would be selective i . . voluntary) enrollment. relatively easy to calculate if the system were mandatory for all beneficiaries. H o w e v e r , a mandatory approach i s probably not feasible a t t h i s time. T h e r e i s relatively l i t t l e e x p e r i e n c e w i t h t h e c o n c e p t of g e o g r a p h i c c a p i t a t i o n systems. S e v e r a l h a v e suggested t h e possibility of a d e m o n s t r a t i o n project i n t h i s area. D. Assignment/Participation Issues R e g a r d l e s s of t h e reform o p t i o n c h o s e n , a d e c i s i o n would n e e d t o be m a d e a b o u t w h e t h e r p h y s i c i a n s would be required t o a c c e p t Medicare's p a y m e n t r a t e a s t h e f u l l payment (plus a n y required coinsurance) o r i f p h y s i c i a n s would be permitted to c h a r g e a d d i t i o n a l amounts. The questicn is whether assignment s h o u l d b e mandatory o r optional. T h e i s s u e o f mandatory versus voluntary a s s i g n m e n t h a s been t h e f o c u s o f d e b a t e f o r several years. The American Medical Association (AMA) i s strongly o p p o s e d t o mandatory a s s i g n m e n t w h i l e a n u m b e r of beneficiary g r o u p s h a v e indicated their support. P r o p o n e n t s of mandatory a s s i g n m e n t n o t e t h a t under the current system, many patients h a v e d i f f i c u l t y u n d e r s t a n d i n g h o w Medicare d e t e r m i n e s payment. cases A n a m b e r of b e n e f i c i a r i e s h a v e been f a c e d w i t h high a n d i n many unanticipated out-of-pocket c o s t s in c o n n e c t i o n with their d o c t o r s ' bills. In F Y 8 5 , b e n e f i c i a r i e s effectively faced a c o i n s u r a n c e of 45.9% o n unassigned c l a i m s ; they w e r e f i n a n c i a l l y r e s p o n s i b l e f o r t h e 25.9% average reduction It from billed c h a r g e s i n a d C i t i o n t o the 20% statutory c o i n s u r a n c e amount. may S e C i f f i c u i t f o r beneficiaries to budget for the reduction amounts a s s o c i a t e d with unassigned claims. F r e q u e n t l y , these arnocnts a r e not c o v e r e d u n d e r health i n s u r a n c e p o l i c i e s s u p p l e m e n t a l to Medicare ("Medi-Gap" policies). T h e D e f i c i t R e d u c t i o n Act of 1984 addressed s o m e of these c o n c e r n s by p r o h i b i t i n g nonparticipating physicians from r a i s i n g their billed c y a r g e s during t h e 15-monch f r e e z e period. T h e s e proviSiO?S were excende5 through Dec. 3 1 , 1986. Beginning Jan. 1 , 1 9 8 7 when t h e f r e e z e i s r e n o v e d , nonparticipating physicians will f a c e a l i m i t o n the a l l o w a b l e i n c r e a s e s in their charges. P r o p o n e n t s of mandatory a s s i g n m e n t a l s o s u g g e s t that t h e e x i s t i n g proSlems will be exacerbated a s Medicare places a d d i t i o n a l l i m i t s o n a p p r o v e d charges. T h e y s u g g e s t tP.at physicians may be l e s s likely to a c c e p t a s s i g n n e n t and t 2 a t a n y Medicare cost-savings will be transferred to b e n e f i c i a r i e s in t h e form of increased out-of-pocket c o s t s f o r unassigned claims. Thus any incentives for e f f i c i e n c y which a r e incorporated in a n e w payment system c o u l d be l a r g e i y o f f s e t u n l e s s a s s i g n m e n t w e r e mandated. They further suggest that mandatory a s s i g n m e n t would be particularly i m p o r t a n t under a physician D R G payment scheme. O t h e r w i s e , physicians could a c c e p t a s s i g n m e n t f o r c a s e s whose costs w e r e l e s s than t h e D R G r a t e and n o t a c c e p t a s s i g n m e n t a n d b i l l t h e p a t i e n t t h e a d d i t i o n a l a m o u n t when t h e c o s t s w e r e more. Mandatory a s s i g n m e n t w o u l d , i n e f f e c t , l i m i t o v e r a l l p a y m e n t s f o r c o v e r e d s e r v i c e s provided t o enrollees. O p p o n e n t s of this a p p r o a c h contend that mandatory a s s i g n m e n t would r e p r e s e n t a n unwarranted infringement into the p r i v a t e p r a c t i c e of medicine. I t would i n t e r f e r e with the existing doctor-patient r e l a t i o n s h i p by preventing physicians from f r e e l y entering A d v o c a t e s of t h e v o l u n t a r y a s s i g n m e n t i n t o " c o n t r a c t s w w i t h their patients. a p p r o a c h s t a t e t h a t s i n c e physicians c u r r e n t l y h a v e t h e o p t i o n of a c c e p t i n g o r r e j e c t i n g a s s i g n m e n t , Medicare b e n e f i c i a r i e s a r e a b l e t o select f r o m v i r t u a l l y t h e e n t i r e physician population. T h e y a r g u e t h a t if a s s i g n e m n t w e r e m a n d a t e d , a n u m b e r of physicians might d r o p o u t of t h e program. B e n e f i c i a r y a c c e s s i n certain g e o g r a p h i c a r e a s and/or t o c e r t a i n physician s p e c i a l i t i e s would t h e r e f o r e b e jeopardized. Patients who have established a long-standing relationship with particular physicians might be forced to seek care elsewhere if they wished to receive program payments for services. Advocates of mandatory asssignment have countered this argument by stating that the developing oversupply of physicians coupled with the importance of Medicare in many physicians' practices make a significant access problem unlikely in most areas. Opponents of mandatory assignment indicate that physicians as a group have been responsive to the financial concerns of their patients. They suggest that physicians are more willing t o accept assignment in cases of financial hardship. They note that physicians are more likely to accept assignment a s annual charges increase and as beneficiaries get older. They also note that the majority of beneficiaries have relatively modest annual 1.iability in connection with physicians' claims. The law includes several incentives for physicians to become participating A number of persons have suggested that i n lieu of mandating physicians. assignment attention should be focused o n creating additional incentives for physicians to participate. For example, Medicare could pay a higher percentage i t above 80%) of the approved rates for participating physicians and a reduced percentage (i.e., below 80%) for nonparticipating physicians. Patients would then have strong incentives for selecting participating physicians. A number . o f entities, both governmental and private, are currently studying various aspects of physician reimbursement under Medicare. The 97th Congress required the Department to prepare the following studies which were due in 1985, but which had not been submitted by Nov. 1986. -- Physician DRG Study. P.L. 98-21, the Social Security Amendments of 1 9 8 3 , established the prospective payment system for hospitals based on DRGs. This legislation also required the Secretary to begin during F Y 8 4 the collection of data necessary to compute the amount of physician charges for services furnished to hospital inpatients for each DRG. The law required the Secretary to report to Congress i n 1985 on the advisability and feasibility of paying for inpatient physician services o n the basis of DRGs. DEFRA specified that the due date was July 1 , 1985. -- Study of Chanqe in Volume and Mix of Services. DEFRA required the Secretary to monitor physician services to determine any change during the 15-month fee freeze in the per capita volume and mix of services provided to enrollees. The Secretary is required to report to the Congress by July 1985 on any changes that have occurred. The report is to include legislative recommendations for assuring that any restrictions in the growth of two 20, P a r t B c o s t s which C o n g r e s s i n t e n d s to be borne by p r o v i d e r s a n d physicians i s n o t t r a n s f e r r e d to b e n e f i c i a r i e s i n t h e form of i n c r e a s e d out-of-pocket c o s t s , r e d u c e d services o r r e d u c e d a c c e s s t o n e e d e d physicians' care. s t u d i e s o n a broad range of T h e D e p a r t m e n t i s conducting a s e r i e s of p h y s i c i a n r e i m b u r s e m e n t i s s u e s both i n c o n n e c t i o n with the congressionally m a n d a t e d r e p o r t s a s w e l l a s i t s o n g o i n g i n t e r e s t i n t h e s e issues. The f i n d i n g s from a n u m b e r o f t h e s t u d i e s a r e e x p e c t e d t o be r e f l e c t e d i n t h e reports. D E F R A a l s o r e q u i r e d t h e O f f i c e of T e c h n o l o g y Assessment (OTA) t o r e p o r t t o C o n g r e s s by Dec. 3 1 , 1 9 8 5 , on f i n d i n g s a n d r e c o m m e n d a t i o n s w i t h respect t o w h i c h P a r t B p a y m e n t a m o u n t s a n d policies may b e modified to: -- -- e l i m i n a t e i n e q u i t i e s i n t h e r e l a t i v e a m o u n t s paid t o p h y s i c i a n s by t y p e of s e r v i c e , l o c a l i t y and s p e c i a l t y with a t t e n t i o n to a n y i n e q u i t i e s between c o g n i t i v e services and medical procedures; and i n c r e a s e i n c e n t i v e s f o r physicians a n d s u p p l i e r s to a c c e p t assignment. T h e OTA r e p o r t , which was submitted i n F e b r u a r y 1 9 8 6 , e x a m i n e d f o u r a l t e r n a t i v e Medicare payment polices: modifications to the current payment s y s t e m , f e e s c h e d u l e s , paying for packages of s e r v i c e s , a n d capitation. The r e p o r t noted t h a t t h e effects of each strategy a r e d i f f i c u l t to p r e d i c t , because of t h e u n c e r t a i n t y regarding physicians' behavior a n d the changing medical marketp,lace. T h e report suggests t h a t t h e policy options that i n v o l v e the l e a s t a m o u n t of c h a n g e from t h e c u r r e n t payment methodology or t h a t c a l l f o r r e s e a r c h and demonstration could be i m p l e m e n t e d w i t h i n 1 t o 2 years. T h e s e policy o p t i o n s include: reducing t h e number of payment codes, i n s t i t u t i n g v o l u m e c o n t r o l s , and mandating assignment. F e e s c h e d u l e s based o n historical c h a r g e d a t a could a l s o be i m p l e m e n t e d i n t h e n e a r future. H o w e v e r , other t y p e s of reforms, such a s universal c a p i t a t i o n , r e s o u r c e b a s e d r e l a t i v e values s c a l e s , and payments for s o m e t y p e s of p a c k a g e s o r b u n d l e s o f services (such a s physician DRGs) may require further research and d e m o n s t r a t i o n before they could b e implemented. COBRA required t h e S e c r e t a r y , with t h e a d v i c e o f t h e n e w l y e s t a b l i s h e d scale (RVS) f o r P h y s i c i a n P a y m e n t C o m m i s s i o n , to d e v e l o p a r e l a t i v e v a l u e to physician payments. P.L. 99-509 d e f e r s t h e d a t e t h e S e c r e t a r y i s r e q u i r e d r e p o r t o n t h e R V S t o J u l y 1 , 1989. T h e potential a p p l i c a t i o n d a t e o f t h e R V S i s deferred u n t i l a f t e r Dec. 3 1 , 1989. P.L. 9 9 - 5 0 9 a l s o r e q u i r e d the S e c r e t a r y to study and r e p o r t to C o n g r e s s by July 31, 1987 concerning the design and implementation of a prospective payment system f o r payment under P a r t B f o r r a d i o l o g y , a n e s t h e s i o l o g y , a n d pathology (RAP) s e r v i c e s f u r n i s h e d to h o s p i t a l inpatients. T h e report i s to i n c l u d e d a t a from a r e p r e s e n t a t i v e s a m p l e s h o w i n g , f o r d i s c h a r g e s classified w i t h i n each diagnosis-related group (DRG), the distribution of total r e a s o n a b l e c h a r g e s a n d c o s t s for each i n p a t i e n t discharge. - LEGISLATION H.Con.Res. 3 0 (Kolter et al.)/s.Con.Res. 1 5 (Heflin, et al.) Expresses sense of Congress that no major change i n the payment methodology for physicians' services, including services to hospital inpatients, should have been made until reports required by 99th Congress are received and evaluated. H.Con.Res. 30 introduced in House on Jan. 22, 1987. S.Con.Res. 1 5 introduced in Senate on Feb. 5 , 1987. S.COn.Res. 5 6 (Durenberger, et al.) Exp.resses sense of Congress that . n o significant changes in payment methodology for physicians' services, including services to hospital inpatients should be undertaken until results of reports required by 99th Congress are received and analyzed and Congress has considered advantages and disadvantages of possible solutions. Introduced. Introduced May 1 , 1987; referred to Committee on Finance. HEARINGS U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on Health and the Environment. Physician payments under Medicare. Hearings, 99th Congress. 1st session. Apr. 26, 1985. [unpublished] U.S. Congress. House. Committee on Ways and Means. Medicare reimbursement for physician services. Hearings, 99th Congress, 2d session. Apr. 14, 1986. U.S. Congress. Senate. Committee on Finance. Medicare's physician payment system. Hearings, 99th Congress, 2d session. Apr. 2 5 , 1986. ----- Reform of Medicare payments to physicians. 99th Congress, 1st session. Dec. 6, 1986. U.S. Congress. Senate. Special Committee on Aging. Medicare: Physician payment options. Hearings, 98th Congress, 2d session. Har. 1 6 , 1984. Washington, U.S. Govt. Print. Off., 1984. Hearings, REPORTS AND CONGRESSIONAL DOCUMENTS The Consolidated Omnibus Budget Reconciliation Act of 1985. Congressional record, Apr. 8 , 1986: Contains text of P.L. 99-272. U.S. S3799-S3891. Congress. Conference Committees, 1985. Consolidated Omnibus Budget Reconciliation Act of 1985; conference report to accompany H.B. 3128. Dec. 1 9 , 1985. Washington, U.S. Govt. Print. off., 1985. (99th Congress, 1st session. House. Report no. 99-453) Also a p p e a r s i n P a r t I11 of t h e C o n g r e s s i o n a l R e c o r d , Dec. 1 9 , 1 9 8 5 ( v . 1 3 1 , no. 177) U.S. Congress. C o n f e r e n c e C o m m i t t e e s , 1986. P r o v i d i n g f o r r e c o n c i l i a t i o n pursuant to S e c t i o n 2 o f t h e C o n c u r r e n t R e s o l u t i o n o n t h e B u d g e t f o r F Y 8 7 ; c o n f e r e n c e r e p o r t to a c c o m p a n y H.R. 5300. Oct. 7 , 1986. W a s h i n g t o n , U.S. Govt. Print. Off., 1986. (99th C o n g r e s s , 2d session. House. R e p o r t no. 99-1012) U.S. Congress. House. C o m m i t t e e o n t h e Budget. Reconciliation Act o f 1 9 8 6 ; r e p o r t to a c c o m p a n y H.R. 5300. J u l y 3 1 , 1986. W a s h i n g t o n , U.S. Govt. Print. Off., 1986. (99th C o n g r e s s , 2 d session. House. R e p o r t no. 99-727) U.S. Congress. House. Committee. o n W a y s a n d Means. S u b c o m m i t t e e o n Health. Proceedings of the conference Feb..l, 1984. W a s h i n g t o n , o n t h e f u t u r e o f Medicare. U.S. Covt. Print. Off., 1984. 3 6 2 p. At head o f title: 9 8 t h C o n g r e s s , 2d session. House. C o m m i t t e e p r i n t 98-23. U.S. Congress. Senate. C o m m i t t e e o n t h e BuBget. Sixth Omnibus R e c o n c i l i a t i o n Act of 1 9 8 6 ; r e p o r t to a c c o m p a n y S. 2706. J u l y 3 9 , 1986. Washington, U.S. Govt. Print. Off., 1986. (99th C o n g r e s s , 2d session. Senate. R e p o r t no. 99-348) House. R e p o r t no: 99-453) U.S. Congress. Secate. C o m m i t t e e o n Finance./ House. C o m m i t t e e s o n W a y s and Means and o n Energy a n d Commerce. J o i n t c o m m i t t e e print. Background d a t a o n ~ h y s i c i a n r e i m b u r s e m e n t under Medicare. October 1983. Washington. U.S. Govt. Print. Off., 1983. 1 0 9 p. At head of title: 9 8 t h C o n g r e s s , ' 2 6 session. Senate J o i n t c o m m i t t e e print 98-106. U.S. Congress. Senate. Special C o m m i t t e e on Aging. Medicare: paying t h e physician -- h i s t o r y , i s s u e s , and opticns. I n f o r m a t i o n paper. March 1984. W a s h i n g t o n , U.S. Govt. Print. Off., 1984. 3 7 p. At head o f title: 9 5 t h C o n g r e s s , 2d session. Senate. C o m m i t t e e print 98-153. CHRONOLOGY OF E V E N T S 01/05/87 -- 10/21/86 -- 04/07/86 -- 07/18/84 -- 04/20/83 -- P r e s i d e n t submitted F Y 8 8 Budget. P r e s i d e n t signed i n t o l a w (P.L. 99-509) t h e O m n i b u s B u d g e t R e c o n c i l i a t i o n A c t of 1986. P r e s i d e n t signed i n t o l a w (P.L. 99-272) t h e C o n s o l i d a t e d O m n i b u s B u d g e t R e c o n c i l i a t i o n A c t of 1 9 8 5 (COBRA). P r e s i d e n t signed i n t o l a w (F.L. R e d u c t i o n Act of 1984. 98-369) t h e D e f i c i t P r e s i d e n t signed i n t o l a w (P.L. 98-21) t h e S o c i a l Security Amendments of 1983. ADDITIONAL R E F E R E N C E S O U R C E S B u r n e y , I r a , and G e o r g e Sheiber. Medicare physician services: t h e composition o f spending a n d a s s i g n m e n t rates. Health c a r e f i n a n c i n g review, f a l l 1985. v. 7 , no. 1: 81-96. Medicare physician payment, participation a n d B u r n e y , I r a , e t al. reform. Health a f f a i r s , w i n t e r 1 9 8 4 , v. 3 , no. 4: 5-24. H a d l e y , J a c k , e t al. F i n a l r e p o r t o n a l t e r n a t i v e m e t h o d s of developing a relative v a l u e s c a l e of physician services: T h e Urban Institute, Washington, D.C. R e p o r t pursuant t o HCFA c o n t r a c t no. 500-81-0053. October 1984. 1 3 9 p. Toward developing a r e l a t i v e H s a o , William, and William Stason. v a l u e scale f o r medical and surgical services. Health care financing review, f a l l 1 9 7 9 , v. 1 , no. 2: 3-22. J e n c k s , S t e p h e n , and Allen Dobson. Strategies f o r reforming Medicare's physician payments: physician d i a g n o s i s related groups and other approaches. New England J o u r n a l of Medicine, J u n e 6 , 1 9 8 5 , v. 3 1 2 , no. 23: 1492-1499. Mitchell, Janet B., et al. Alternative methods of describing physician services performed and billed. Health Economics Research, Inc., Chestnut H i l l , Massa-chusetts. R e p o r t pursuant to HCFA grant no. 500-81-0054. May 1 , 1984. 2 9 6 p. Mitchell, J a n e t B., et al. Creating DRG-based physician reimbursement schemes: A conceptual and empirical analysis. Center for Health Economics Research, B o s t o n , Massachusetts. Year 1 R e p o r t pursuant to HCFA grant no. 18-P-983871-01. October 1984. R i c e , Thomas. Determinants of physician assignment r a t e s by type of service. Health c a r e financing r e v i e w , s u m m e r 1 9 4 8 , v. 5 no. 4, 33-42. U.S. Congress. Office of Technology Assessment. Payment f o r physician services: strategies f o r Medicare. [ w a s h i n g t o n ] February 1986. (OTA-H-294) U.S. Congressional Budget Office. Physician r e i m b u r s e m e n t under Medicare: o p t i o n s f o r change. [Washington] April 1986. U.S. Dept. of Health and Human S e r v i c e s , HCFA. Physician reimbursement and participation in Medicare, unpublished paper. Sept. 2 0 , 1984. U.S. General Accounting Office. Reimbursing physicians under Medicare on the basis of their specialty. Letter Report t o HCFA (GAO/HRD84-94) Sept. 2 7 , 1984. 1 0 p. U.S. Library of Cqngress. C o n g r e s s i o n a l Research Service. Medicare: F Y 8 8 budget [by] J e n n i f e r O'Sullivan. (Updated regularly) [ w a s h i n g t o n ] 1985. CRS I s s u e Brief 8 7 0 3 8 CRS I s s u e Brief 8 6 0 4 5