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What will new Medicare legislation mean for reimbursement, practice hassles, patient care?

The law rules out physician pay cuts for two years, but there are long-term concerns

From the January/February ACP Observer, copyright 2004 by the American College of Physicians.

By Gina Rollins

When Congress passed Medicare reform legislation late last year, physicians received some great news. A 4.5% cut in Medicare pay scheduled to take effect this Jan. 1 was converted instead to a 1.5% raise for both this year and next.

But the Medicare Prescription Drug Modernization and Improvement Act of 2003, which represents the most sweeping change to Medicare since the program was created in 1965, is packed with other provisions that will have an even broader impact on internists and their patients. While most of the media focused on the legislation's new drug benefit, the law addresses a number of issues that are critical to physicians—and meets many of the College's long-term policy goals.

Under the new law, for example, reimbursements for rural physicians will rise, while a bonus system to encourage doctors to practice in rural areas will receive a big boost. Both measures support ACP's goal of increasing access to care, particularly in rural and urban areas where recruiting physicians can be difficult.

The law also changes the way Medicare and its carriers can impose upon physicians when scrutinizing claims for problems. Another major plus: The legislation calls for Medicare to look into new documentation systems to replace current rules.

All these provisions give physicians real short-term relief—but the legislation also raises several long-term concerns.

For one, this year's pay increase may be only a temporary victory. Without more substantive changes to the way Medicare calculates physician reimbursement, physicians will likely see their fees slashed as much as 5% in 2006, predicted Robert B. Doherty, ACP's Senior Vice President for Governmental Affairs and Public Policy.

The law also raises other big-picture questions. How will provisions requiring Medicare to pilot-test disease management programs for beneficiaries with certain chronic conditions affect patients and physicians? And how will plans to introduce market forces into the management of Medicare affect the stability of the program?

Here is an overview of how some of the law's provisions will affect internists, and a look at some of the long-term questions the law raises.

Boosting rural reimbursement

In terms of reimbursement, physicians and hospitals in rural areas are big winners under the Medicare reform legislation. Experts say the law represents the largest, most comprehensive rural package ever considered by Congress.

  • Work values. From 2004 through 2006, the legislation raises the work value portion of the geographic cost index for rural physicians. Because work value components account for 60% of the geographic cost index, the change will be significant.

    Under the law, work values for rural physicians will be set at a minimum of 1.0. If the work value component of a practice is currently 0.8, it will automatically be raised to 1.0. That 0.2 increase will apply to 60% of the practice's Medicare payment that is based on the overall geographic cost index, leading to a significant increase in overall pay for some rural physicians.

    According to Mr. Doherty, the move recognizes that the value of a physician's effort is the same whether he or she practices in downtown Chicago or in Ogallala, Neb. He noted, however, that the reimbursement portion that factors in practice expenses and medical liability costs will still be subject to geographic adjustments.

  • Scarcity bonuses. The new law will also boost physician scarcity bonus payments. These bonuses, which apply to services provided by doctors in health professional shortage areas, will go from 10% to 15%.

    For clinicians working principally in rural areas or those who haven't been able to go to rural areas, this provides a substantial incentive," said nephrologist Derrick L. Latos, MACP, who practices in Wheeling, W.Va. "It's not a lot of money by any means, but in the course of a year's work it will help defray rising practice costs."

    And while rural providers have in the past had to indicate on all claims that they are working in a health shortage area, the law requires Medicare to automatically designate providers who work in rural areas. This designation will also apply to physicians who have practice sites both inside and outside of shortage areas.

Reducing hassles

The new Medicare law streamlines some of the Medicare program's documentation and coding rules and regulations.

  • Extrapolation. One of the most welcome changes in the law is a provision that sharply limits carriers' ability to use a technique known as "extrapolation" when auditing physician claims.

    Under current law, auditors may review as few as 30 claims, and if they find that two or three of those claims have been billed improperly, they may extrapolate that error to thousands of similar claims over a four-year period. Physicians may dispute the finding, but they must fork over fines while they carry on that fight.

    "When you put those two together, it scares many physicians into settling, even though they believe they're right and would ultimately prevail," Mr. Doherty said. "They can't afford to put up funds for the amounts due plus fees involved in litigating the matter."

    The new law allows extrapolation only in cases of "sustained payment error," a term the Centers for Medicare and Medicaid Services (CMS) must define, or when attempts to educate a practice about similar mistakes have failed.

    In addition, physicians will have to pay back the disputed amount only after an independent body (not the Medicare carrier) has determined that the practice is at fault. "That will have a tremendous impact, because [the current system] is not only unfair, it has many doctors frightened to death," Dr. Latos said. "It's led them to purposely undercode so they don't get caught up in this process because of a mistake."

  • Responses to inquiries. The new law compels Medicare carriers to respond in writing to providers' inquiries within 45 days in a clear, concise and accurate manner. This provision is designed to curtail the number of instances in which providers either don't receive a response or are given the carrier's policy—only to find out later that the advice contained in the policy is inaccurate.

    "We found this was a big issue among the ACP membership," said Doug Leahy, FACP, an internist with Summit Medical Group in Knoxville, Tenn. "To be told 'this is a carrier's policy and the carrier must stand by it' is a big win. Doctors need accurate, reliable information they can count on." All Medicare carriers must also set up toll-free information lines that providers can call with questions about billing, coding, claims and coverage. The law also directs carriers to improve their provider education efforts.

  • E/M documentation. The law creates a process through which Medicare will pilot-test alternatives to the current evaluation and management (E/M) documentation system. Currently, physicians may follow two sets of guidelines and use whichever one benefits them more. However, both sets have been criticized as confusing and irrelevant for requiring clinically irrelevant information.

    "Congress wanted to ensure that before another episode of confusing guidelines was issued, they had significant input from industry," said Paul Speidell, government affairs representative for the Medical Group Management Association (MGMA). "This is a regulatory reform that's pretty important."

  • E-prescribing. The law calls for the Secretary of the HHS to consult with providers before issuing e-prescribing standards by 2005. It also calls for a one-year pilot project beginning in 2006, with a report to Congress and promulgation of final standards by 2008.

    ACP officials claimed victory when the final version of the law promoted— not required—e-prescribing. The House version of the legislation would have called for mandatory e-prescribing by 2007.

    "Although e-prescribing has great potential to decrease errors and improve safety," Mr. Doherty said, "it's technically not ready for prime time, and the idea that Congress was going to force-feed it was not good. The final version avoids an unfunded mandate and will eliminate barriers to adoption."

A hit on physician-administered drugs

Not all aspects of the law, however, are favorable to physicians. Provisions dealing with payments for office-administered drugs and related drug administration, particularly for specialties like oncology, hold potentially negative consequences.

Legislators decided to change reimbursement for office-administered drugs, ostensibly to correct a long-standing practice in which Medicare paid office-based physicians more for these drugs than it paid suppliers. Organizations including the College argued that physicians used this payment difference to make up for the low fees they received for drug administration.

Critics of the law's new payment policy say that although it addressed drug over-payments, it did not go far enough to boost physicians' fees for administering the drugs.

While Medicare currently pays physicians 95% of the drugs' average wholesale price, doctors will receive only 85% in 2004. In 2005, physicians will receive an amount equal to the average sales price plus 6%. In 2006, physicians will receive either that same amount or they will be paid based on prices set by a competitive bidding process with private vendors, whichever is lower.

Congress also set aside funds to cover the cost of drug administration in 2004. That set-aside, which may total as much as $500 million, is exempt from budget-neutrality requirements that require any increase to one specialty to be offset by a decrease elsewhere. Whether these funds will adequately cover costs associated with drug administration is an open question. "It's not clear that it's sufficient for all groups to continue to provide services to Medicare patients," says MGMA's Mr. Speidell.

Groups like the American Society of Clinical Oncology predict a grim financial fallout from the changes. The oncologists see the law's provisions resulting in significant cuts to cancer care over the next 10 years. They warn that the new fees could result in restricted access to office-based chemotherapy for Medicare patients.

Other physician concerns

The legislation raises a number of other issues of concern to physicians:

  • Lab payments. Physicians are troubled by a provision that freezes payments on clinical laboratory services for five years. "Physicians can't control inflation on lab expenses," explained Dr. Leahy. "Vendors may increase the cost of reagents. That may have an impact on their ability to provide the service."

    And any cuts in services might be felt most acutely in rural areas, he added, where there are fewer suppliers of lab services.

  • Specialty hospitals. The legislation places an 18-month moratorium on construction of specialty hospitals primarily or exclusively involved in cardiac care, orthopedics or another procedure. Although the provision targets invasive cardiologists and orthopedic surgeons, it demonstrates that "Congress has again cast a suspicious eye on physician ownership," according to Alan R. Nelson, MACP, Special Advisor to ACP's Chief Executive Officer.

  • Disease management. The new law establishes a pilot disease management program focusing on Medicare beneficiaries with certain chronic diseases.

    In the project's first phase, disease management organizations and physician groups under contract with the CMS may operate those pilots in areas where significant numbers of Medicare beneficiaries live. If these programs succeed, the pilot may expand to other areas.

    Dr. Leahy said that like many similar efforts, however, the devil will be in the details. "The question is how the medical community will interface with the disease management programs," he explained. "If it's strictly for economics, then we'll have a lot of concern. But if it's a tool for physicians to provide higher quality of care, then it will be a positive."

Changes for beneficiaries

Of course, the law brings about another major change: a new drug benefit for Medicare beneficiaries. That benefit could have significant implications for internists.

The legislation calls for the prescription drug benefit to begin in 2006. Prior to that time, seniors will be able to purchase a discount card that is expected to help Medicare patients save 15% or more on drugs. Low-income seniors will receive an additional subsidy of $600 to further offset their drug expenditures.

When the drug benefit is implemented in 2006, Medicare beneficiaries will be able to enroll in a stand-alone drug plan or join a private health plan that offers drug coverage. Both options would be subject to an average monthly premium of $35, although lower-income beneficiaries will pay less.

As part of the package, Congress included tax subsidies to encourage employers to maintain drug coverage for retirees, and to allow private insurers to offer basic health coverage.

Beneficiaries are supposed to have access to at least one prescription drug plan and an integrated plan that offers both health and drug coverage. Pharmacy benefit managers (PBMs) will administer the drug plans.

The law also calls for demonstration projects to begin in 2010 in up to six metropolitan areas. Scheduled to last six years, the initiative will require fee-for-service Medicare to compete with private health plans based on price. Analysts say that the impact of that competition on physician payments is a big unknown.

For the first time, high-income beneficiaries (with $80,000 or more in income per year) will have to pay higher premiums for doctors' visits and other outpatient care. And starting in 2005, the yearly deductible for Part B, which has for years been fixed at $100, will increase annually with inflation.

One of the most important new benefits is that the legislation now provides for a one-time preventive history and physical exam for all new Medicare enrollees. Another first is a provision for new preventive benefits to cover screening for diabetes and cardiovascular disease.

But how all of those changes will impact physicians is unclear. In the near term, doctors can count on plenty of questions from patients seeking advice on what to do.

"I think we're going to have to be more knowledgeable, because as this gets implemented, our patients are going to turn to us for answers," Dr. Latos said. "I've already had patients asking me questions about the prescription benefit I couldn't answer."

Dr. Nelson is also concerned about the possibility of increased administrative burdens from having to deal with multiple PBMs and drug plans. "That's a huge unknown," he pointed out. "If there is more than one entity in each area and they each have their own formulary, how many formularies are internists going to have to deal with? And will the drugs in each class be most suited to benefit patients, or will they be there on the basis of cost?"

Those are just more pluses or minuses that will become apparent only as regulatory details are completed and the provisions of the new law begin to take effect.

Gina Rollins is a freelance writer in Silver Spring, Md.

Click here for a detailed analysis of how the final Medicare reform legislation compares to the College's public policy goals.

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