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/ Friday, June 28, 2002
[Federal Register: June 28, 2002 (Volume 67, Number 125)]
[Proposed Rules]
[Page 43845-43894]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jn02-28]
[[Page 43845]]
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Part IV
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 410 and 414
Medicare Program; Revisions to Payment Policies Under the Physician Fee
Schedule for Calendar Year 2003; Proposed Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 410 and 414
[CMS-1204-P]
RIN 0938-AL21
Medicare Program; Revisions to Payment Policies Under the
Physician Fee Schedule for Calendar Year 2003
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: The proposed rule would refine the resource-based practice
expense relative value units (RVUs) and make other changes to Medicare
Part B payment policy. The policy changes concern: Medicare Economic
Index, pricing of the technical component for positron emission
tomography (PET) scans, Medicare qualifications for clinical nurse
specialists, a process to add or delete services to the definition of
telehealth, definition for ZZZ global periods, global period for
surface radiation, and an endoscopic base for urology codes. We also
discuss the refinement of anesthesia work values, clinical social
worker services, and how drugs are accounted for in the sustainable
growth rate.
We are proposing these changes to ensure that our payment systems
are updated to reflect changes in medical practice and the relative
value of services. We solicit comments on the proposed policy changes.
This proposed rule also clarifies the enrollment of physical and
occupational therapists as therapists in private practice. In addition,
this proposed rule discusses physical and occupational therapy payment
caps and makes technical changes to outpatient rehabilitation services.
DATES: We will consider comments if we receive them at the appropriate
address, as provided below, no later than 5 p.m. on August 27, 2002.
ADDRESSES: In commenting, please refer to file code CMS-1204-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission. Mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-1204-P, P.O. Box 8013, Baltimore, MD 21244-8013.
Please allow sufficient time for us to receive mailed comments on
time in the event of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and two copies) to one of the following
addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-8013.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available if you wish to retain proof of filing by stamping in and
retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and could be considered late.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Carolyn Mullen, (410) 786-4589, Marc
Hartstein, (410) 786-4539, or Stephanie Monroe (410) 786-6864 (for
issues related to resource-based practice expense relative value
units).
Jim Menas, (410) 786-4507 (for issues related to anesthesia).
Marc Hartstein, (410) 786-4539 (for issues related to sustainable
growth rate).
Gail Addis, (410) 786-4522 (for issues related to PET scans and
HCPCS codes).
Craig Dobyski, (410) 786-4584 (for issues related to telehealth).
Terri Harris, (410) 786-6830 (for issues related to physical and
occupational therapy).
Latesha Walker, (410) 786-1101 (for all other issues).
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, phone (410) 786-7197.
Copies: To order copies of the Federal Register containing this
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an alternative, you can view and photocopy the Federal Register
document at most libraries designated as Federal Depository Libraries
and at many other public and academic libraries throughout the country
that receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The web site address is: http://
www.access.gpo.gov/nara/index.html.
Information on the physician fee schedule can be found on our
homepage. You can access this data by using the following directions:
1. Go to the CMS homepage (http://www.cms.hhs.gov).
2. Click on ``Medicare.''
3. Click on ``Professional/Technical Information.''
4. Select Medicare Payment Systems.
5. Select Physician Fee Schedule.
Or, you can go directly to the Physician Fee Schedule page by
typing the following: http://www.cms.hhs.gov/medicare/pfsmain.htm.
To assist readers in referencing sections contained in this
preamble, we are providing the following table of contents. Some of the
issues discussed in this preamble affect the payment policies but do
not require changes to the regulations in the Code of Federal
Regulations. Information on the regulation's impact appears throughout
the preamble and is not exclusively in section V.
Table of Contents
I. Background
A. Legislative History
B. Published Changes to the Fee Schedule
II. Provisions of the Proposed Regulations
A. Resource-Based Practice Expense Relative Value Units
B. Anesthesia Issues
C. Changes to the Physician Fee Schedule Update Calculation and
the Sustainable Growth Rate (SGR)
D. Pricing of Technical Components (TC) for Positron Emissions
Tomography (PET) Scans
E. Enrollment of Physical and Occupational Therapists as
Therapists in Private Practice
F. Clinical Social Worker Services
G. Medicare Qualifications for Clinical Nurse Specialists
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H. Process to Add or Delete Services to the Definition of
Telehealth
I. Definition for ZZZ Global Periods
J. Change in Global Period for CPT Code 77789 (Surface
Application of Radiation Source)
K. Technical Change: Sec. 410.61(d)(iii) Outpatient
Rehabilitation Services
L. New HCPCS G-Codes
M. Endoscopic Base for Urology Codes
N. Physical Therapy and Occupational Therapy Caps
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis
Addendum A--Explanation and Use of Addendum B
Addendum B--2003 Relative Value Units and Related Information Used
in Determining Medicare Payments for 2003.
In addition, because of the many organizations and terms to which
we refer by acronym in this proposed rule, we are listing these
acronyms and their corresponding terms in alphabetical order below:
AMA--American Medical Association
BBA--Balanced Budget Act of 1997
BBRA--Balanced Budget Refinement Act of 1999
CF--Conversion factor
CFR--Code of Federal Regulations
CMS--Centers for Medicare & Medicaid Services
CNS--Clinical Nurse Specialist
CPT--(Physicians') Current Procedural Terminology (4th Edition, 2002,
copyrighted by the American Medical Association)
CPEP--Clinical Practice Expert Panel
CRNA--Certified Registered Nurse Anesthetist
E/M--Evaluation and management
FMR--Fair market rental
GAF--Geographic adjustment factor
GPCI--Geographic practice cost index
HCPCS--Healthcare Common Procedure Coding System
HHA--Home health agency
HHS--(Department of) Health and Human Services
IDTFs--Independent Diagnostic Testing Facilities
MCM--Medicare Carrier Manual
MedPAC--Medicare Payment Advisory Commission
MEI--Medicare Economic Index
MGMA--Medical Group Management Association
MSA--Metropolitan Statistical Area
NAMCS--National Ambulatory Medical Care Survey
PC--Professional component
PEAC--Practice Expense Advisory Committee
PET--Positron Emission Tomography
PPS--Prospective payment system
RUC--(AMA's Specialty Society) Relative (Value) Update Committee
RVU--Relative value unit
SGR--Sustainable growth rate
SMS--(AMA's) Socioeconomic Monitoring System
SNF--Skilled Nursing Facility
TC--Technical component
I. Background
A. Legislative History
Since January 1, 1992, Medicare has paid for physicians' services
under section 1848 of the Social Security Act (the Act), ``Payment for
Physicians'' Services.'' This section provides for three major
elements: (1) A fee schedule for the payment of physicians' services;
(2) limits on the amounts that nonparticipating physicians can charge
beneficiaries; and (3) a sustainable growth rate for the rates of
increase in Medicare expenditures for physicians' services. The Act
requires that payments under the fee schedule be based on national
uniform relative value units (RVUs) based on the resources used in
furnishing a service. Section 1848(c) of the Act requires that national
RVUs be established for physician work, practice expense, and
malpractice expense. Section 1848(c)(2)(B)(ii)(II) of the Act provides
that adjustments in RVUs may not cause total physician fee schedule
payments to differ by more than $20 million from what they would have
been had the adjustments not been made. If adjustments to RVUs cause
expenditures to change by more than $20 million, we must make
adjustments to preserve budget neutrality.
B. Published Changes to the Fee Schedule
In the July 2000 proposed rule (65 FR 44177), we listed all of the
final rules published through November 1999. In the August 2001
proposed rule (66 FR 40372) we discussed the November 2000 final rule
relating to the updates to the RVUs and revisions to payment policies
under the physician fee schedule.
In the November 2001 final rule with comment period (66 FR 55246),
we revised the policy for resource-based practice expense RVUs;
services and supplies incident to a physician's professional service;
anesthesia base unit variations; recognition of CPT tracking codes; and
nurse practitioners, physician assistants, and clinical nurse
specialists performing screening sigmoidoscopies. We also addressed
comments received on the June 8, 2001 proposed notice (66 FR 31028) for
the 5-year review of work RVUs and finalized these work RVUs. In
addition, we acknowledged comments received in response to a discussion
of modifier-62, which is used to report the work of co-surgeons. The
November 2001 final rule also updated the list of services that are
subject to the physician self-referral prohibitions in order to reflect
CPT and Healthcare Common Procedure Coding System (HCPCS) code changes
that were effective January 1, 2002. All these revisions ensure that
our payment systems are updated to reflect changes in medical practice
and the relative value of services.
The Medicare, Medicaid, and State Child Health Insurance Program
(SCHIP) Benefits Improvement and Protection Act of 2000 (Pub. L. 106-
554) (BIPA) modernized the mammography screening benefit and authorized
payment under the physician fee schedule effective January 1, 2002. It
provided for biennial screening pelvic examinations for certain
beneficiaries and expanded coverage for screening colonoscopies to all
beneficiaries effective July 1, 2001. It provided for annual glaucoma
screenings for high-risk beneficiaries and established coverage for
medical nutrition therapy services for certain beneficiaries effective
January 1, 2002. It expanded payment for telehealth services effective
October 1, 2001; required certain Indian Health Service providers to be
paid for some services under the physician fee schedule effective July
1, 2001; and revised the payment for certain physician pathology
services effective January 1, 2001. This final rule conformed our
regulations to reflect these statutory provisions.
The final rule also announced the calendar year 2002 physician fee
schedule conversion factor of $36.1992.
II. Provisions of the Proposed Regulations
This proposed rule would affect the regulations set forth at part
410, Supplementary medical insurance (SMI) benefits and part 414,
Payment for Part B medical and other health services.
A. Resource-Based Practice Expense Relative Value Units
1. Resource-Based Practice Expense Legislation
Section 121 of the Social Security Act Amendments of 1994 (Pub. L.
103-432), enacted on October 31, 1994, required us to develop a
methodology for a resource-based system for determining practice
expense RVUs for each physician's service beginning in 1998. In
developing the methodology, we were to consider the staff, equipment,
and supplies used in providing medical and surgical services in various
settings. The legislation specifically required that, in implementing
the new system of
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practice expense RVUs, we apply the same budget-neutrality provisions
that we apply to other adjustments under the physician fee schedule.
Section 4505(a) of the Balanced Budget Act of 1997 (BBA) (Pub. L.
105-33), enacted on August 5, 1997, amended section 1848(c)(2)(ii) of
the Act and delayed the effective date of the resource-based practice
expense RVU system until January 1, 1999. In addition, section 4505(b)
of the BBA provided for a 4-year transition period from charge-based
practice expense RVUs to resource-based RVUs.
Further legislation affecting resource-based practice expense RVUs
was included in the Medicare, Medicaid and State Child Health Insurance
Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L.
106-113), enacted on November 29, 1999. Section 212 of the BBRA amended
section 1848(c)(2)(ii) of the Act by directing us to establish a
process under which we accept and use, to the maximum extent
practicable and consistent with sound data practices, data collected or
developed by entities and organizations. These data would supplement
the data we normally collect in determining the practice expense
component of the physician fee schedule for payments in CY 2001 and CY
2002. (In the 1999 final rule (64 FR 59380), we extended, for an
additional 2 years, the period during which we would accept
supplementary data.)
2. Current Methodology for Computing the Practice Expense Relative
Value Unit System
Effective with services furnished on or after January 1, 1999, we
established a new methodology for computing resource-based practice
expense RVUs that used the two significant sources of actual practice
expense data we have available--the Clinical Practice Expert Panel
(CPEP) data and the American Medical Association's (AMA) Socioeconomic
Monitoring System (SMS) data. The methodology was based on an
assumption that current aggregate specialty practice costs are a
reasonable way to establish initial estimates of relative resource
costs for physicians' services across specialties. The methodology
allocated these aggregate specialty practice costs to specific
procedures and, thus, can be seen as a ``top-down'' approach.
a. Major Steps
A brief discussion of the major steps involved in the determination
of the practice expense RVUs follows. (Please see the November 1, 2001
final rule (66 FR 55249) for a more detailed explanation of the top-
down methodology.)
Step 1--Determine the specialty specific practice expense
per hour of physician direct patient care. We used the AMA's SMS survey
of actual aggregate cost data by specialty to determine the practice
expenses per hour for each specialty. We calculated the practice
expenses per hour for the specialty by dividing the aggregate practice
expenses for the specialty by the total number of hours spent in
patient care activities.
Step 2--Create a specialty specific practice expense pool
of practice expense costs for treating Medicare patients. To calculate
the total number of hours spent treating Medicare patients for each
specialty, we used the physician time assigned to each procedure code
and the Medicare utilization data. We then calculated the specialty
specific practice expense pools by multiplying the specialty practice
expenses per hour by the total physician hours.
Step 3--Allocate the specialty specific practice expense
pool to the specific services performed by each specialty. For each
specialty, we divided the practice expense pool into two groups based
on whether direct or indirect costs were involved and used a different
allocation basis for each group.
(i) Direct costs--For direct costs (which include clinical labor,
medical supplies, and medical equipment), we used the procedure
specific CPEP data on the staff time, supplies, and equipment as the
allocation basis.
(ii) Indirect costs--To allocate the cost pools for indirect costs,
including administrative labor, office expenses, and all other
expenses, we used the total direct costs combined with the physician
fee schedule work RVUs. We converted the work RVUs to dollars using the
Medicare CF (expressed in 1995 dollars for consistency with the SMS
survey years).
Step 4--For procedures performed by more than one
specialty, the final procedure code allocation was a weighted average
of allocations for the specialties that perform the procedure, with the
weights being the frequency with which each specialty performs the
procedure on Medicare patients.
b. Other Methodological Issues
(i) Zero Physician Work Pool--For services with physician work RVUs
equal to zero (including those services with a technical and
professional component), we created a separate practice expense pool
using the average clinical staff time from the CPEP data and the ``all
physicians'' practice expense per hour.
We then used the adjusted 1998 practice expense RVUs to allocate
this pool to each service. Also, for all radiology services that are
assigned physician work RVUs, we used the adjusted 1998 practice
expense RVUs for radiology services as an interim measure to allocate
the direct practice expense cost pool for radiology.
(ii) Crosswalks for Specialties without Practice Expense Survey
Data
Since many specialties identified in our claims data did not
correspond exactly to the specialties included in the SMS survey data,
it was necessary to crosswalk these specialties to the most appropriate
SMS specialty.
(iii) Because we believe that most physical therapy services
furnished in physicians' offices are performed by physical therapists,
we crosswalked all utilization for therapy services in the CPT 97000
series to the physical and occupational therapy practice expense pool.
B. Practice Expense Proposals for Calendar Year 2003
1. CPEP Data
a. Ophthalmology Services--Rank Order Anomalies
Rank order anomalies were created in three ophthalmology families
of codes because only certain services in each family were brought to
the Practice Expense Advisory Committee (PEAC) for refinement, while
CPEP data for the other codes were left unchanged. The American Academy
of Ophthalmology has requested that we make the following changes in
the CPEP data to ensure that the more complex services in a family of
codes are not paid less than the simpler services and we are proposing
to do so.
CPT code 67820, Revise eyelashes--remove ophthane from the supply
list.
CPT code 67825, Revise eyelashes--remove the bipolar handpiece from
the supply list.
CPT code 65220, Removal foreign body from eye--use the supply list
and clinical staff time assigned to CPT code 65222. The exam lane
should be the only equipment assigned.
CPT codes 92081 and 92083, Visual field examination(s)--Assign the
same supplies and equipment as CPT code 92082; assign 35 minutes of
clinical staff time to 92081 and 70 minutes to 92083.
b. Practice Expense Inputs for Thermotherapy Procedures
There are three CPT codes for transurethral destruction of prostate
tissue: CPT 53850, by microwave
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therapy, CPT 53852, by radiofrequency thermotherapy, and CPT 53853, by
water-induced thermotherapy (WIT). A manufacturer of WIT equipment has
expressed concern that the practice expense inputs currently assigned
to CPT 53853 underestimate the costs associated with that procedure
relative to the other two codes. We have compared the inputs of the
three codes and agree that the WIT procedure has not been assigned many
of the basic supply and equipment inputs that are included in the CPEP
inputs for the other two procedures. Therefore, we are proposing to
add, on an interim basis, the following inputs: Power table, ultrasound
unit, mayo stand, endoscopy stretcher, light source, chux, sani-wipe,
patient education book, sterile towel, sterile gloves, specimen cup,
alcohol swab, gauze, tape, lidocaine, betadine, 10 cc syringe, 30 cc
syringe, sterile water, leg bag. These inputs would be in addition to
the thermotherapy unit, treatment catheter, drainage bag, cystopak
(which contains drapes, syringe, irrigation tubing, surgical lubricant,
sterile cup, gauze pad and cysto tubing) and minimum visit package for
each visit (which contains patient gown, unsterile gloves, exam table
paper, pillow case and thermometer probe cover) that are currently
assigned as practice expense inputs for this procedure.
We are also proposing to change on an interim basis the staff type
for CPT code 53853 from the RN/LPN/MTA blend to RN in order to make the
staff type consistent among these three similar procedures. In
addition, we have corrected for all three procedures the minutes
assigned to each piece of equipment to reflect the intra- and post-
clinical staff times only, rather than the total clinical staff times
as we do for all services.
We will request that these three procedures be reexamined by the
PEAC at the same time in order to ensure that there is a consistent
approach to the assignment of direct cost inputs.
We have also received questions regarding the large disparity in
prices that we have used for the three different thermotherapy
machines. Currently, the thermotherapy equipment for CPT code 53850 is
priced at $180,000, code 53852 at $42,995 and code 53853 at $18,500.
The first two prices were given to us in 1999 and we have been sent
documentation that indicates that the prices have fallen dramatically
since that time. This documentation indicates that the current price
for the thermotherapy equipment for CPT 53580 is somewhere between
$55,000 and $100,000 and for code 53852 between $25,000 and $30,000. We
are proposing to set the prices at $60,000 and $30,000, respectively
and are also requesting that commenters furnish any additional
available price documentation, particularly invoices for recently
purchased equipment, so that we can ensure that any differences in
assigned prices accurately reflect actual differences in costs.
c. Revision to Inputs for Iontophoresis
It has been brought to our attention that the electrodes assigned
to the supply list for CPT code 97033, Iontophoresis, are not the type
of electrodes required for this procedure. We are proposing to
substitute two electrodes with a medication vesicle as the appropriate
supply for iontophoresis.
d. Correction to Price for Sterile Water
The current price of $40.00 for 1000 ml of sterile water that is
listed in our CPEP supply database is incorrect. We are proposing to
change this to $3.00.
2. Zero Physician Work Pool for Practice Expense
a. Discussion of Alternatives to the Zero Physician Work Pool
Within the last year, there have been two reports that have
addressed the zero physician work pool. The GAO released a report in
October 2001 that recommended eliminating the zero physician work pool
(GAO-02-53, page 25). The Lewin Group, under contract with us, provided
a draft report on June 5, 2001 analyzing the zero physician work pool
and provided several ideas that we could study as alternatives. As we
indicated in the November 2, 1998 final rule (63 FR 58821), we created
the zero physician work pool as an interim measure until we could
further analyze the effect of the top-down methodology on the Medicare
payment for services that do not have physician work RVUs. Given our
interest in finding alternatives to the zero physician work pool, we
have analyzed the following possible ideas:
Eliminate the Zero Physician Work Pool.
The Lewin Group indicated that one idea could be to eliminate the
zero physician work pool, as recommended by the GAO (the Lewin Group,
page 19). We do not believe that the zero physician work pool should be
eliminated at this time. In the absence of a change to the methodology
or additional data, eliminating the zero physician work pool would
result in large reductions in payments for some of the specialties
whose services are included in the pool. The Lewin Group also indicated
that this idea is not a ``viable alternative to the current zero
(physician) work pool approach.'' (The Lewin Group, pages 19-20).
Develop Specialty-Specific Zero Physician Work Pools.
Under this approach, the Lewin Group report described an idea for
maintaining the general zero physician work pool approach with
specialty-specific zero physician work pools (the Lewin Group, page
20). Since the zero physician work pool is an exception to the basic
methodology, we are not currently interested in developing another
exception to replace it. We are interested in finding a single
methodology that would apply to all physicians' services. While we are
not adopting this suggestion, we do appreciate the Lewin Group's work
in developing this and many other ideas for consideration as we make
refinements to the practice expense methodology.
Make Technical Component Equal Global Less Professional
Component RVUs.
Many of the services that are affected by the zero physician work
pool are services that have both professional and technical components.
Under current policy, the technical component practice expense RVU is
determined in the zero physician work pool. It is added to the practice
expense RVUs for the professional component determined under the basic
methodology to determine payment for the global service. This Lewin
Group idea would change this to make the technical component RVUs equal
the difference between the global and the professional component RVUs
while other zero physician work services would be returned to the basic
methodology (The Lewin Group, page 21).
If we were to adopt this approach, the zero physician work pool
would no longer have any effect. The zero physician work pool would not
have any effect on the professional and technical component services
since the global service from the basic methodology would be used to
derive the technical component value. The practice expense RVUs for
other zero physician work services would be priced under the basic
methodology. In the absence of a change to the methodology or
additional data, this idea would result in large reductions in payments
for some of the specialties whose services are included in the pool.
As we have indicated above, we are concerned about adopting this
idea at this time. While we are not currently proposing to adopt this
idea as an alternative to the zero physician work
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pool, we do believe there is merit in making the technical component
value equal the difference between the global and professional
component RVU for services that are unaffected by the zero physician
work pool. We receive many more bills for the global than the technical
component only. Since it is far more common to receive a global than a
technical component only bill, it is far more likely that using the
global to value the technical component service will result in a
payment that is more typical of the relative actual practice expense
associated with the service.
For this reason, we are proposing to make the technical component
value equal to the difference between the global and the professional
component for procedure codes that are not included in the zero
physician work pool. We will continue to make the global value equal to
the sum of the professional and the technical component values for
procedure codes that remain in the zero physician work pool. However,
we may revisit this decision in the future if we can address issues
related to the zero physician work pool. We have provided more detail
on the redistributive impact of this proposal among all physician
specialties in the impact section of this proposed rule.
Develop Proxy Physician Work RVUs for Zero Physician Work
Services.
Finally, the Lewin Group described an idea that would retain work
and direct expenses as the basic allocators of indirect costs but
create proxy physician work values for services that have no physician
work (the Lewin Group, pages 22-23). The GAO suggests that the basic
method for allocating indirect expenses does not adequately account for
the indirect costs associated with services that do not have physician
work RVUs (GAO-02-53, page 22). We do not believe that the large
payment reductions that would occur if some zero physician work
services were priced under the basic methodology are necessarily
associated with the indirect cost allocation methodology. While the
zero physician work pool is of benefit to many of the services that
were originally included, some specialties commented that this
methodological change negatively affected the particular services they
provide. As a result, we allowed specialties to request that their
services be removed from the zero physician work pool (see July 22,
1999 proposed rule (64 FR 39620)). If there are shortcomings in the
indirect cost allocation for services that have zero physician work, it
seems likely that the values for all zero physician work services would
be adversely affected. However, since many zero physician work services
are not adversely affected under the top down methodology, it seems
unlikely that the indirect cost allocation explains the adverse payment
impact that would result for some services from elimination of the zero
physician work pool. For this reason, we do not anticipate modifying
the indirect cost allocation for zero physician work services.
Based on our analysis of the Lewin suggestions, we do not believe
that allocation of either direct or indirect expenses explains the
effect of the top down methodology on zero physician work services.
Rather, we believe it is likely that a relatively low practice expense
per hour for some of the specialties included in the zero physician
work pool explains why their payments are adversely affected by its
elimination.
The specialties whose services are affected by the zero physician
work pool may want to conduct supplemental practice expense surveys if
they believe there are shortcomings in the practice expense per hour
information that we use as part of the basic methodology. We have
published in this issue of the Federal Register, an interim final rule
with comment that will modify the criteria for acceptance of
supplemental data. This should make it easier for specialties to
incorporate new practice expense survey information into the
methodology. Further, as we indicated previously in the November 1,
2000 Federal Register (65 FR 65384), we believe that there are
significant advantages to receiving practice cost information through
multi-specialty surveys. For this reason, we would welcome a multi-
specialty practice expense survey from all of the specialties that have
payments affected by the zero physician work pool.
b. Other Proposals for Changes to the Zero Physician Work Pool
(i) Adjustment to Oncology Supplies Practice Expense Per Hour
In the June 5, 1998 proposed rule (63 FR 30832), we proposed an
adjustment to the medical supplies practice expense per hour for
oncology as a result of a concern that their inordinately high practice
expense per hour included expenses associated with separately payable
cancer drugs. We proposed to substitute the ``all physician'' average
for the oncology-specific medical supplies practice expense per hour.
We received public comments indicating that, even after excluding the
effect of higher drug expenses, oncologists have higher medical supply
expenses than the average physician because of high supply costs
associated with the administration of chemotherapy. These commenters
suggested alternatives to using the average physician rate. In our
November 2, 1998 (63 FR 58825) final rule, we made an adjustment to the
medical supplies practice expense per hour for oncology and indicated
our belief that oncology medical supply expenses would not necessarily
exceed those of the average physician. However, the adjustment has
largely had no effect since the practice expense RVUs for chemotherapy
administration services are determined in the zero physician work pool.
In its October 2001 report, the GAO recommended that we examine the
effect of the adjustment made to oncologists' reported medical supplies
expenses per hour. GAO did not suggest a specific alternative to the
adjustment we made (GAO-02-53, pages 24-25). Consistent with the GAO
recommendation, we have examined this adjustment and its impact on
Medicare payments to oncologists. Upon further review, we believe that
there is merit in reconsidering the adjustment that we made to the
medical supply expenses for oncologists in combination with removing
chemotherapy administration services from the zero physician work pool.
At this time, we have no specific information on oncology medical
supply expenses net of separately payable drugs. However, we have
established a process that would allow specialties to submit
supplemental practice expense survey data to us. While the criteria for
performing a survey require consistency with the SMS, we are amenable
to modifications to the survey instrument so that it can address
questions that are of concern to a specific medical specialty. For
instance, we would allow an oncology survey to request that respondents
distinguish between drug and other medical supply related expenses. We
believe that using specific data on this question from a survey would
be preferable to developing an alternative adjustment that requires us
to make assumptions about oncology medical supply expenses. However, if
further survey information is unavailable to us, we are considering
information that could be used as a reasonable proxy to determine the
portion of the supplies practice expense per hour that is attributable
to medical supplies that are not separately payable. Such an idea was
suggested in the public comments on the June 5, 1998 proposed rule. We
are considering other alternatives as well. These approaches to the
supplies
[[Page 43851]]
practice expense per hour would apply if chemotherapy administration
services were removed from the zero physician work pool.
(ii) Change to Staff Time Used To Create the Pool
In the November 2, 1998 final rule (63 FR 58841), we indicated that
average clinical staff time was used in the creation of the zero
physician work pool. Since the cost pools are created based on
physician time and, by definition, zero physician work services have no
physician time, we need to use staff time to create the cost pool. If
our database indicates that multiple staff types are typically involved
in the service, we have used an average of the different clinical staff
times. We are proposing to create the cost pool using the highest staff
time in place of average staff time. The impact of this proposal is
shown in the impact section of this proposed rule.
(iii) Removal of Non-Invasive Vascular Diagnostic Study Codes From the
Zero Physician Work Pool
We are proposing to remove the non-invasive vascular diagnostic
study codes (CPT codes 93875-93990) from the zero physician work pool
based on a request from the American Association for Vascular Surgery
and the Society for Vascular Surgery. The impact of this proposal is
also described further in the impact section.
(iv) Removal of Immunization CPT Codes 90471 and 90472 From the Zero
Physician Work Pool
As discussed above, in the November 2, 1998 final rule (63 FR
58841), in response to the many commenters who were concerned about the
proposed reductions for services with zero physician work RVUs, we
created a separate practice expense pool for all services with zero
physician work RVUs. The assignment of services to this zero physician
work pool was of benefit to most services in this expense pool.
However, some specialties were negatively affected by this methodology,
and we have allowed specialties to indicate whether their services
should be priced in this pool.
Immunization administration services do not have physician work
RVUs and have been included in the zero physician work pool. So that
the direct practice expense resource costs associated with the
immunization administration services are recognized, we propose
removing these services from the zero physician work pool methodology
and treating them like the vast majority of services on the physician
fee schedule. Using the direct cost practice expense inputs as
recommended by the AMA's RUC, the proposed practice expense relative
value units will be 0.22 for CPT code 90471 and 0.09 for CPT code
90472. This change will nearly double payment for CPT code 90471 and
slightly reduce payment for CPT code 90472. Procedure CPT code 90471 is
used for immunization administration and CPT code 90472 is used for
each additional vaccine. Since CPT code 90472 must be billed in
conjunction with CPT code 90471, the total payment for these procedures
will increase when billed together.
We have not assigned immunization administration physician work
RVUs because this service does not typically involve a physician. The
nurse that administers the vaccine typically provides the necessary
counseling to the patient and this time is accounted for in the
practice expense RVU.
In addition, we would note that not all services represented by CPT
codes 90471 and 90472 are covered by Medicare. For example, medically
necessary administrations of tetanus toxoid (such as following a severe
injury) would be covered whereas preventive administration of this
vaccine would not be covered. Also, we will consider whether the amount
of counseling of the patient and/or family may be different for
childhood immunizations than for the typical Medicare service.
Therefore, we are considering whether coding changes to reflect these
differences would be appropriate.
3. Utilization Data
As indicated earlier, Medicare utilization is an important data
source used in determining the practice expense RVUs. In our final rule
published on November 2, 1998 (63 FR 58815), we used 1997 Medicare
utilization data to create the original resource-based practice expense
RVUs. Based on a public comment, we indicated in our November 2, 1999
final rule (64 FR 59405) that we would use 1998 Medicare utilization to
develop the fully implemented RVUs that appear in that final rule.
Because these data were unavailable to us for the proposed rule, the
first time we could act on this public comment was in the final rule.
We have continued our policy of using the latest utilization data to
develop each successive year's fully implemented practice expense RVUs
during each year of the transition (see 65 FR 65436, published on
November 1, 2000, and 66 FR 55322, published on November 1, 2001).
While substituting the latest year's utilization data into the
practice expense methodology generally made little difference on total
Medicare payments per specialty, it had a larger impact on services
that have values affected by the zero physician work pool. The practice
expense values for the technical component and other services included
in the zero physician work pool declined 4 percent in 2002 as a result
of using the most recent Medicare utilization data. Since the technical
component is used to derive the global practice expense RVUs for
professional and technical component services, there was also a
reduction in the practice expense RVU for the global service.
The specialties that provide many of the services that are included
in the zero physician work pool have expressed concern about the impact
of the most recent data on utilization on values for their services.
They recently suggested that we use combined utilization data from 1997
to 2000 to determine the practice expense values. Alternatively, these
commenters suggested using either the 1997 or 1999 utilization as a
``base year'' until an alternative to the zero physician work pool can
be developed. These commenters further indicated that, once an option
is chosen, we should not use more recent utilization data until
comprehensive reform of the zero physician work methodology is adopted.
We believe the suggestion of using multiple years of utilization
data in the practice expense methodology has merit. Using multiple
years of data has the potential to minimize the effect of year to year
case mix changes on practice expense RVUs and improves the stability of
our payment systems. We are proposing to develop the practice expense
RVUs using Medicare utilization data from 1997-2000. More information
on the impact of this proposal can be found in the regulatory impact
statement of this proposed rule.
We also agree with the suggestion that the utilization data not
change annually until the zero physician work pool is eliminated. In
fact, we are reconsidering whether to continue the practice of using
the most recent utilization to develop each successive year's practice
expense RVUs. As we have indicated elsewhere in this and earlier rules,
we are continuing the refinement process beyond the 1998-2002
transition period mandated by the BBA. Once the refinement process is
complete, we believe that the physician community has a reasonable
expectation that the practice expense RVUs will not change from year to
year unless further
[[Page 43852]]
refinement is undertaken. Once the initial refinement of practice
expense RVUs is complete, we expect to make additional refinements at
least every 5 years as provided for in section 1848(c)(2)(B) of the
Act. As the refinement process continues, there have been fewer
widespread changes to Medicare payments and there has been increased
year-to-year consistency in the practice expense RVUs. We believe this
stability would improve if we incorpoated the most recent utilization
data into the practice expense methodology only when we undertake
substantial refinement as part of a 5-year review. For this reason, we
are proposing to use the 1997-2000 utilization data to develop the CY
2003 practice expense RVUs and not further update the utilization data
to incorporate the 2001 utilization data in this year's final rule.
Further, we are proposing to continue using the 1997-2000 utilization
data in the practice expense methodology until we undertake the 5-year
review of practice expense RVUs. We invite comments on these issues.
4. Site of Service
As part of our resource-based practice expense methodology, we make
a distinction between the practice expense RVUs for the non-facility
and the facility setting.
This distinction is needed because of the higher resource costs to
the physician in the non-facility setting when the practitioner
typically bears the cost of the resources associated with the service.
In addition, the distinction ensures that we do not make a duplicate
payment for any of the practice expenses incurred in performing a
service for a Medicare beneficiary. When the beneficiary is a facility
patient, we pay the facility for the clinical staff, supplies, and
equipment needed to care for the patient. A generally lower facility
practice expense rate is paid to the practitioner. Currently, we have
designated only hospitals, skilled nursing facilities (SNFs), and
community mental health centers (CMHCs) as facilities for purposes of
calculating practice expense. An ambulatory surgical center (ASC) is
designated as a facility if it is the place of service for a procedure
on the ASC list. All other places of service are currently considered
non-facility.
Several new places of service are now in use for which we need to
assign a site-of-service designation. Also, we are proposing revisions
to the site-of-service designation for several existing places of
service. We are proposing to assign a facility site of service where a
facility or other payment will be made, in addition to the physician
fee schedule payment to the practitioner, to reflect the practice
expenses incurred in providing a service to a Medicare patient. We are
proposing to designate all other places of service as non-facilities.
The following is a list of the new places of service, along with
their place of service numerical codes and their proposed site of
service designations using the above criteria:
04--Homeless Shelter--
We are proposing that this be considered a nonfacility setting.
05--Indian Health Service Free-Standing Facility--
We are proposing that this be considered a nonfacility setting.
06--Indian Health Service Provider-Based Facility--
We are proposing that this be considered a facility setting.
07--Tribal 638--Free-Standing Facility--
We are proposing that this be considered a nonfacility setting.
08--Tribal 638--Provider-Based Facility--
We are proposing that this be considered a facility setting.
15--Mobile Unit
We are proposing that this be considered a nonfacility setting.
If a mobile unit provides a service to a facility patient, the
appropriate place-of-service code for the facility should be used. For
instance, if a portable X-ray service is provided to a patient in a
Part A skilled nursing facility stay, the place of service is 31,
Skilled Nursing Facility. No payment is made under Part B for the
technical component of a diagnostic test, portable x-ray transportation
or portable x-ray set up. Payment is made to the SNF for Part A
services and includes payment for diagnostic services that may be
needed by the patient. This policy is consistent with recommendations
made by the Inspector General in a recent report, Review of Improper
Payments Made by Medicare Part B for Covered Services under the Part A
Skilled Nursing Facility Prospective Payment System (A-01-00-00538).
20--Urgent Care Facility--
We are proposing that this be considered a nonfacility setting.
We are proposing changes in site of service to the following
current designations:
26--Military Treatment Facility--
Currently this is designated as a nonfacility. We are proposing
that this be considered a facility setting.
41--Ambulance-Land
42--Ambulance Air or Water--
Currently codes 41 and 42 are designated as nonfacility. We would
propose to designate them as facilities because we make payments for
ambulance services using the ambulance fee schedule that covers the
direct practice expense.
52--Psychiatric Facility Partial Hospitalization--
Currently, this is designated as a nonfacility. We are proposing
that this be considered a facility setting.
56--Psychiatric Residential Treatment Facility--
Currently, this is designated as a nonfacility. We are proposing
that this be considered a facility setting.
In the chart below is a complete list of all the existing place-of-
service codes along with the appropriate site-of-service designation
and the descriptor for each. These codes are used on all professional
claims to specify the entity where services are furnished.
Place of Service Codes for Professional Claims; Database as of 1/11/2002
----------------------------------------------------------------------------------------------------------------
Place of
Facility vs nonfacility service Place of service name Place of service description
designation code(s)
----------------------------------------------------------------------------------------------------------------
01-02 Unassigned................. N/A.
NF.......................... 03 School..................... A facility whose primary purpose is
education.
NF.......................... 04 Homeless Shelter........... A facility or location whose primary
purpose is to provide temporary
housing to homeless individuals (for
example, emergency shelters,
individual or family shelters).
[[Page 43853]]
NF.......................... 05 Indian Health Service Free- A facility or location, owned and
standing Facility. operated by the Indian Health
Service, which provides diagnostic,
therapeutic (surgical and non-
surgical), and rehabilitation
services to American Indians and
Alaska Natives who do not require
hospitalization.
F........................... 06 Indian Health Service A facility or location, owned and
Provider-based Facility. operated by the Indian Health
Service, which provides diagnostic,
therapeutic (surgical and non-
surgical), and rehabilitation
services rendered by, or under the
supervision of, physicians to
American Indians and Alaska Natives
admitted as inpatients or
outpatients.
NF.......................... 07 Tribal 638 Free-standing A facility or location owned and
Facility. operated by a Federally recognized
American Indian or Alaska Native
tribe or tribal organization under a
638 agreement, which provides
diagnostic, therapeutic (surgical
and non- surgical), and
rehabilitation services to tribal
members who do not require
hospitalization.
F........................... 08 Tribal 638 Provider-based A facility or location owned and
Facility. operated by a Federally recognized
American Indian or Alaska Native
tribe or tribal organization under a
638 agreement, which provides
diagnostic, therapeutic (surgical
and non- surgical), and
rehabilitation services to tribal
members admitted as inpatients or
outpatients.
09-10 Unassigned................. N/A.
NF.......................... 11 Office..................... Location, other than a hospital,
skilled nursing facility (SNF),
military treatment facility,
community health center, State or
local public health clinic, or
intermediate care facility (ICF),
where the health professional
routinely provides health
examinations, diagnosis, and
treatment of illness or injury on an
ambulatory basis.
NF.......................... 12 Home....................... Location, other than a hospital or
other facility, where the patient
receives care in a private
residence.
13-14 Unassigned................. N/A.
NF (*See above explanation). 15 Mobile Unit................ A facility/unit that moves from place-
to-place equipped to provide
preventive, screening, diagnostic,
and/or treatment services.
16-19 Unassigned................. N/A.
NF.......................... 20 Urgent Care Facility....... Location, distinct from a hospital
emergency room, an office, or a
clinic, whose purpose is to diagnose
and treat illness or injury for
unscheduled, ambulatory patients
seeking immediate medical attention.
F........................... 21 Inpatient Hospital......... A facility, other than psychiatric,
which primarily provides diagnostic,
therapeutic (both surgical and
nonsurgical), and rehabilitation
services by, or under, the
supervision of physicians to
patients admitted for a variety of
medical conditions.
F........................... 22 Outpatient Hospital........ A portion of a hospital which
provides diagnostic, therapeutic
(both surgical and nonsurgical), and
rehabilitation services to sick or
injured persons who do not require
hospitalization or
institutionalization.
F........................... 23 Emergency Room--Hospital... A portion of a hospital where
emergency diagnosis and treatment of
illness or injury is provided.
F when performing a service 24 Ambulatory Surgical Center. A freestanding facility, other than a
on the Medicare ASC list, physician's office, where surgical
otherwise a NF.. and diagnostic services are provided
on an ambulatory basis.
NF.......................... 25 Birthing Center............ A facility, other than a hospital's
maternity facilities or a
physician's office, which provides a
setting for labor, delivery, and
immediate post-partum care as well
as immediate care of newborn
infants.
F........................... 26 Military Treatment Facility A medical facility operated by one or
more of the Uniformed Services.
Military Treatment Facility (MTF)
also refers to certain former U.S.
Public Health Service (USPHS)
facilities now designated as
Uniformed Service Treatment
Facilities (USTF).
27-30 Unassigned................. N/A.
F........................... 31 Skilled Nursing Facility... A facility which primarily provides
inpatient skilled nursing care and
related services to patients who
require medical, nursing, or
rehabilitative services but does not
provide the level of care or
treatment available in a hospital.
[[Page 43854]]
NF.......................... 32 Nursing Facility........... A facility which primarily provides
to residents skilled nursing care
and related services for the
rehabilitation of injured, disabled,
or sick persons, or, on a regular
basis, health-related care services
above the level of custodial care to
other than mentally retarded
individuals.
NF.......................... 33 Custodial Care Facility.... A facility which provides room, board
and other personal assistance
services, generally on a long-term
basis, and which does not include a
medical component.
F........................... 34 Hospice.................... A facility, other than a patient's
home, in which palliative and
supportive care for terminally ill
patients and their families is
provided.
35-40 Unassigned................. N/A.
F........................... 41 Ambulance--Land............ A land vehicle specifically designed,
equipped and staffed for lifesaving
and transporting the sick or
injured.
F........................... 42 Ambulance--Air or Water.... An air or water vehicle specifically
designed, equipped and staffed for
lifesaving and transporting the sick
or injured.
43-49 Unassigned................. N/A.
NF.......................... 50 Federally Qualified Health A facility located in a medically
Center. underserved area that provides
Medicare beneficiaries preventive
primary medical care under the
general direction of a physician.
F........................... 51 Inpatient Psychiatric A facility that provides inpatient
Facility. psychiatric services for the
diagnosis and treatment of mental
illness on a 24-hour basis, by or
under the supervision of a
physician.
F........................... 52 Psychiatric Facility- A facility for the diagnosis and
Partial Hospitalization. treatment of mental illness that
provides a planned therapeutic
program for patients who do not
require full time hospitalization,
but who need broader programs than
are possible from outpatient visits
to a hospital-based or hospital-
affiliated facility.
F........................... 53 Community Mental Health A facility that provides the
Center. following services: outpatient
services, including specialized
outpatient services for children,
the elderly, individuals who are
chronically ill, and residents of
the CMHC's mental health services
area who have been discharged from
inpatient treatment at a mental
health facility; 24-hour a day
emergency care services; day
treatment, other partial
hospitalization services, or
psychosocial rehabilitation
services; screening for patients
being considered for admission to
State mental health facilities to
determine the appropriateness of
that admission; and consultation and
education services.
NF.......................... 54 Intermediate Care Facility/ A facility which primarily provides
Mentally Retarded. health-related care and services
above the level of custodial care to
mentally retarded individuals but
does not provide the level of care
or treatment available in a hospital
or SNF.
NF.......................... 55 Residential Substance-Abuse A facility which provides treatment
Treatment Facility. for substance (alcohol and drug)
abuse to live-in residents who do
not require acute medical care.
Services include individual and
group therapy and counseling, family
counseling, laboratory tests, drugs
and supplies, psychological testing,
and room and board.
NF.......................... 56 Psychiatric Residential A facility or distinct part of a
Treatment Center. facility for psychiatric care which
provides a total 24-hour
therapeutically planned and
professionally staffed group living
and learning environment.
57-59 Unassigned................. N/A.
NF.......................... 60 Mass Immunization Center... A location where providers administer
pneumococcal pneumonia and influenza
virus vaccinations and submit these
services as electronic media claims,
paper claims, or using the roster
billing method. This generally takes
place in a mass immunization
setting, such as a public health
center, pharmacy, or mall, but may
include a physician office setting.
NF.......................... 61 Comprehensive Inpatient A facility that provides
Rehabilitation Facility. comprehensive rehabilitation
services under the supervision of a
physician to inpatients with
physical disabilities. Services
include physical therapy,
occupational therapy, speech
pathology, social or psychological
services, and orthotics and
prosthetics services.
NF.......................... 62 Comprehensive Outpatient A facility that provides
Rehabilitation Facility. comprehensive rehabilitation
services under the supervision of a
physician to outpatients with
physical disabilities. Services
include physical therapy,
occupational therapy, and speech
pathology services.
63-64 Unassigned................. N/A.
[[Page 43855]]
NF.......................... 65 End-Stage Renal Disease A facility other than a hospital,
Treatment Facility. which provides dialysis treatment,
maintenance, and/or training to
patients or caregivers on an
ambulatory or home-care basis.
66-70 Unassigned................. N/A.
NF.......................... 71 State or Local Public A facility maintained by either State
Health Clinic. or local health departments which
provides ambulatory primary medical
care under the general direction of
a physician.
NF.......................... 72 Rural Health Clinic........ A certified facility which is located
in a rural medically-underserved
area that provides ambulatory
primary medical care under the
general direction of a physician.
73-80 Unassigned................. N/A.
NF.......................... 81 Independent Laboratory..... A laboratory certified to perform
diagnostic and/or clinical tests
independent of an institution or a
physician's office.
82-98 Unassigned................. N/A.
99 Other Place of Service..... Other place of service not identified
above.
----------------------------------------------------------------------------------------------------------------
B. Anesthesia Issues
1. Five-Year Review of Anesthesia Work
Medical and surgical services paid under the physician fee schedule
have three separate relative value components, a work RVU, a practice
expense RVU and a malpractice RVU. Physician anesthesia services are
paid under the physician fee schedule, but the payment method is
different than the payment method for physician medical and surgical
services. Payment for anesthesia services is based on the sum of base
units and anesthesia time units multiplied by an anesthesia CF that is
different from the physician fee schedule CF for medical and surgical
services.
The law requires that we review RVUs no less than every 5 years.
The first 5-year review of work RVUs was completed and the revised work
RVUs were implemented in 1997. The second 5-year review (with the
exception of anesthesia services) was completed and the revised work
RVUs implemented in CY 2002.
In the first 5-year review of work RVUs, we accepted the American
Medical Association's (AMA's) Relative Value Update Committee's (RUC's)
recommendation that the work of anesthesia services was undervalued by
approximately 23 percent. Since anesthesia services do not have
individual work RVUs per code, the adjustment in anesthesia work was
made to the anesthesia CF and not to the anesthesia codes themselves.
This resulted in a 16-percent increase in the anesthesia CF. Budget
neutrality was maintained by making an adjustment to the general
physician fee schedule.
For the second 5-year review, the American Society of
Anesthesiologists (ASA) submitted comments to us contending that the
work of anesthesia services is still undervalued by almost 31 percent.
The Society subsequently reduced this to a request for a 26-percent
increase in work based on additional discussions with the RUC.
We can impute an anesthesia work value from the current allowed
charge for an anesthesia service. This work value can be compared to
the work value for anesthesia services that is derived from a building
block approach. Under the building block approach, uniform individual
components of the anesthesia service are identified and the work value
of each component is estimated on the basis of a comparable physician
medical or surgical service. The ASA derived a work value for an
anesthesia code by dividing the anesthesia service into five uniform
components and compared the work of each component to a comparable
medical or surgical service. The five components are--preoperative
evaluation, equipment and supply preparation, induction period,
postinduction period, and postoperative care and visits. Using this
method, the ASA proposed work values for 19 high volume anesthesia
codes. The 19 codes represent a reasonable variety of surgical
procedure types, including general surgery, vascular surgery,
neurosurgery, urology, orthopedics, cardiac surgery, and ophthalmology.
The base units of the 19 anesthesia codes reviewed range from three to
twenty units.
During this second 5-year review of work, four RUC workgroups have
reviewed the ASA comments and received supplemental information through
presentations from the ASA. Most of these workgroups have expressed
concerns about some of the intensity values that ASA assigned to the
individual anesthesia components, most notably, the induction and
postinduction time periods. Each of these workgroups expressed serious
concern about extrapolating the imputed work undervaluation from the 19
survey codes to all anesthesia service codes, even though these 19
codes account for more than 40 percent of all anesthesia associated
with surgical services.
Despite the efforts of its workgroups, the RUC furnished no
recommendation to us on whether the work of anesthesia services is
over-or undervalued. In the November 1, 2001 physician fee schedule
final rule, we stated that:
The RUC has informed us that it will continue to look at anesthesia
work beginning at its first meeting in CY 2002. We will review the RUC
recommendation and address anesthesia work in next year's proposed
physician fee schedule rule.
The RUC recently presented us with the analysis and findings of its
April 2002 anesthesia workgroup. Despite its detailed analysis and
laborious discussions of this issue, the RUC concluded that it was
unable to make a recommendation regarding modification to the physician
work valuation of anesthesia codes. Specifically, the RUC indicated the
following:
``The RUC, having carefully considered the information presented,
and having a reasonable level of confidence in the data which was
presented and developed by the RUC, is unable to make a recommendation
to CMS regarding modification to the physician work valuation of
anesthesia codes.''
At the April 2002 meeting, the RUC anesthesia workgroup reviewed
the postinduction intensity values for the 19 anesthesia codes. The
group also
[[Page 43856]]
reviewed each anesthesia code, the benchmark surgical code, and the
five codes mapped to that anesthesia code that accounted for the
largest percentage of total volume. The group considered the extent to
which the anesthesia work of the benchmark surgical code is
representative of other surgical codes that would be covered by the
anesthesia code.
We will review the information forwarded by the RUC and all
comments we receive during the comment period to determine if an
appropriate adjustment can be made to anesthesia work. We would note
that any such adjustment would also require an adjustment to the
conversion factor for all physicians' services, as required by section
1848(c)(2)(B)(ii) of the Act. For example, a 26 percent increase in
anesthesia work, an amount which was requested last year, would require
a reduction of about 0.4 percent in the conversion factor for all
services. We welcome comments on these issues.
2. Add-on Anesthesia Codes
Current Policy
As we discuss above, payment for anesthesia services is based on
the sum of an anesthesia code-specific base unit value plus anesthesia
time units multiplied by an anesthesia CF. If the physician is involved
in multiple anesthesia services for the same patient during the same
operative session, payment is based on the base unit assigned to the
anesthesia service having the highest base unit value and anesthesia
time that encompasses the multiple services. This policy was adopted at
the start of the physician fee schedule in 1992 and is incorporated in
Sec. 414.48(g).
Claims processing manuals instruct the carrier on the method for
handling anesthesia associated with multiple or bilateral surgical
procedures. Under Medicare Carrier Manual (MCM) 4830 D, the carrier
instructs the physician to report the anesthesia procedure with the
highest base unit value with the multiple procedures modifier, ``51'',
and to report total time across all surgical procedures. Thus, the
carrier is recognizing payment for one anesthesia code, despite the
billing of multiple surgical codes by a surgeon.
Proposed Policy for Add-on Codes
In 2001 and 2002, the CPT has added new anesthesia codes, some of
which are add-on codes. The objective is that the add-on code would be
billed with a primary code and the base unit of each code would be
allowed.
In the burn area, CPT code 01953 (1 base unit) is used in
conjunction with CPT code 01952 (5 base units). In the obstetrical
area, CPT code 01968 (2 base units) is used in conjunction with CPT
code 01967 (5 base units) and CPT code 01969 (5 base units) is used in
conjunction with CPT code 01967 (5 base units).
The application of the multiple anesthesia service policy means
that the base units of the add-on codes would never be recognized. Only
the base units of the primary code would be allowed. We believe that
anesthesia add-on codes should be priced differently than other
multiple anesthesia codes. As a result, we are proposing to revise the
regulations in Sec. 414.46(g) to include an exception to the usual
multiple anesthesia services policy for add-on codes.
C. Changes to the Physician Fee Schedule Update Calculation and the
Sustainable Growth Rate (SGR)
1. Medicare Economic Index Productivity Adjustment
In its March 2002 Report to Congress, MedPAC recommended that ``The
Secretary should revise the productivity adjustment for physicians'
services and make it a multifactor instead of labor-only adjustment.''
In this section, we review the history of the Medicare Economic Index
(MEI) productivity adjustment, describe the current MEI productivity
adjustment, and identify and evaluate possible alternative MEI
productivity adjustments based on the individual contributions we
solicited from experts on this topic. We conclude by proposing that the
MEI productivity adjustment be changed to reflect an economy-wide
multifactor productivity adjustment.
a. History of MEI Productivity Adjustment
The MEI is based on the fourth sentence of section 1842(b)(3) of
the Act that states that prevailing charge levels beginning after June
30, 1973 may not exceed the level from the previous year except to the
extent that the Secretary finds, on the basis of appropriate economic
index data, that such higher level is justified by year-to-year
economic changes. S. Rept. No. 92-1230 at 191 (1972) provides slightly
more detail on that index, stating that:
Initially, the Secretary would be expected to base the proposed
economic indexes on presently available information on changes in
expenses of practice and general earnings levels combined in a
matter consistent with available data on the ratio of the expenses
of practice to income from practice occurring among self-employed
physicians as a group.
Based on this legislative intent, in 1975, we determined that the
MEI would be based on a broad wage measure reflecting overall earnings
growth, rather than direct inclusion of physicians' net income. We used
average weekly earnings of nonagricultural production (nonsupervisory)
workers, net of worker's productivity, as the wage proxy in the initial
MEI. We included the productivity adjustment because it avoided double
counting of gains in earnings resulting from growth in productivity and
produced a MEI that approximated an economy-wide output price index
like the Consumer Price Index (CPI). The productivity adjustment we
used was the annual change in economy-wide private nonfarm business
labor productivity, applied only to the physicians' earnings portion of
the MEI (then 60 percent).
As noted, the productivity adjustment in the MEI serves to avoid
the double counting of productivity gains. Absent the adjustment,
productivity gains from producing additional outputs (procedures) with
a given amount of inputs would be included in both the earnings
component of the MEI (reflecting growth in overall economy-wide
productivity) and in the additional procedures that are billed
(reflecting physicians' own productivity gains). Therefore, general
economic labor productivity growth is removed from the labor portion of
the price update.
The basic structure of the MEI remained relatively unchanged from
its effective date (July 1, 1975) to 1992, although its weights were
updated periodically and a component was added for professional
liability insurance. Section 9331 of the Omnibus Budget Reconciliation
Act of 1986 (Pub. L. 99-509) (OBRA) mandated a study of the MEI and a
notice and opportunity for public comment before revision of the
methodology for calculating the MEI. Based on this requirement, we held
a workshop with experts on the MEI in March 1987 to discuss topics
ranging from the specific type of index to use (Laspeyres versus
Paasche) to revising the method of reflecting productivity changes.
Participants in the meeting included the Federal government, the
Physician Payment Review Commission (PPRC), the Congressional Budget
Office, the American Medical Association (AMA), and several consulting
firms. The meeting participants concluded that a productivity
adjustment was appropriate and that an acceptable measure of physician-
specific productivity did not exist. Many alternative approaches were
discussed,
[[Page 43857]]
including the use of a policy-based ``target'' measure and several
existing economic productivity measures.
Using recommendations from the meeting participants, we revised the
MEI and the productivity adjustment with the implementation of the
physician fee schedule as discussed in the November 1992 final rule (57
FR 55896). While we retained an adjustment for economy-wide labor
productivity, it was applied to all of the direct labor categories of
the MEI (70.448 percent), not just physicians' earnings, and was based
on the 10-year moving average percent change (instead of annual percent
changes). This form of the index has been used since that time, and was
most recently discussed in the November 1998 final rule (63 FR 58845)
when the MEI weights were rebased to a 1996 base year.
The Balanced Budget Act replaced the Medicare Volume Performance
Standard (MVPS) with a Sustainable Growth Rate (SGR). Section 1848(f)
of the Act specifies the formula for establishing yearly SGR target for
physicians' services under Medicare. The use of SGR targets is intended
to control the actual growth in aggregate Medicare expenditures for
physicians' services. The SGR targets are not limits on expenditures.
Payments for services are not withheld if the SGR target is exceeded by
actual expenditures. Rather, the appropriate fee schedule update, as
specified in section 1848(d)(3) of the Act, is adjusted to reflect the
success or failure in meeting the SGR target. If expenditures are less
than the target, the update is increased. If expenditures exceed the
target, the update is reduced. Specifically, expenditures are allowed
to increase by fee-for-service Medicare enrollment growth, physician
fee increases, increases in real per capita Gross Domestic Product
(GDP), and changes in laws or regulations. Consequently, the statute
links allowable increases in the volume of services resulting from
physician productivity gains--together with volume and intensity
increases due to technology and other factors--to the real per capita
GDP.
When the SGR was enacted, the Congress specified continued use of
the MEI. By 1997, this index, including its productivity adjustment,
had been used in updating Medicare payments to physicians for over
twenty years. We did not propose any changes to the productivity
adjustment used in the MEI because its continued use was consistent
with the newly mandated SGR. If we did not make the adjustment in the
MEI, general economic productivity gains would be reflected in two of
the SGR factors, the MEI and real per-capita GDP (which reflects real
GDP per hour worked, or labor productivity, and hours worked per
person). We believe it is reasonable to remove the effect of general
economic productivity from one of these factors (the MEI) to avoid
double counting.
b. Current MEI Productivity Adjustment
The current MEI productivity adjustment is based on the 10-year
moving average percent change in private nonfarm business (referred to
hereafter as ``economy-wide'') labor productivity, published by the
Bureau of Labor Statistics (BLS) on a quarterly basis. A 10-year moving
average is used to limit the impact of cyclical fluctuations in
productivity. The productivity adjustment is applied only to the direct
labor portions of the MEI (currently estimated at 71.272 percent).
Therefore, the MEI is not reduced by the full change in labor
productivity, but instead by only a portion of the change.
In addition, the most recently available historical data are used
for the update for the upcoming calendar year (for example, data
available through the second quarter of CY 2001 was used for the CY
2002 update).
Under this method, the current estimate of the existing MEI for the
CY 2003 fee schedule update would be 2.3 percent. The 10-year moving
average percent change in economy-wide labor productivity for the CY
2003 update is estimated to be 2.1 percent. However, since this
adjustment is applied only to the direct labor portion of the MEI, the
actual adjustment would be 1.5 percent. By comparison, the most recent
forecast by DRI-WEFA, a Global Insight Company, of the CPI for all
items for this same period is 1.6 percent.
As noted previously, since its original development, the MEI
productivity adjustment has been based on economy-wide productivity
changes. This practice arose from the fact that the physicians'
compensation portion of the MEI is proxied to grow at the same rate as
general earnings in the overall economy, which reflect growth in
overall economy-wide productivity. Removing labor productivity growth
reflected in general earnings from the labor portion of the MEI
produces an index that is consistent with other economy-wide output
price indexes, like the CPI. Although some commenters have argued that
use of a physician-specific productivity measure would be more
appropriate, no such published measure existed at the time of the MEI's
development; nor does one exist today.
c. Research on Alternative MEI Productivity Adjustments
We conducted a number of research activities to evaluate whether
the current productivity adjustment is still the most appropriate
adjustment to use in the MEI. First, we evaluated the currently
available productivity estimates that are produced by the BLS to
develop a better understanding of the strengths and weaknesses of these
measures. We also reviewed the theoretical foundation of the MEI to
understand how labor and multifactor productivity relate to the current
physician payment system. Then we studied the limited publicly
available data to begin to develop preliminary estimates of trends in
physician-specific productivity to better understand the current market
conditions facing physicians. Finally, we solicited the individual
contributions of academic and other professional economic experts on
prices and productivity. They included experts from MedPAC, AMA, OMB,
Dr. Uwe Reinhardt from Princeton University, Dr. Joe Newhouse from
Harvard University, Dr. Ernst Berndt from MIT, and Dr. Joel Popkin from
Joel Popkin and Company (former Assistant Commissioner of Prices at
BLS). Based on the information we gathered during these research
efforts, we evaluated six possible options for a productivity
adjustment to the MEI. Our findings on each of the options we
investigated are summarized below:
Option 1--Using a physician-specific productivity
adjustment.
This option would entail using an estimate of physician-specific
productivity to adjust the MEI. This option may have some theoretical
attractiveness, but there are major problems obtaining accurate
measures of physician-specific productivity. First, no published
measure of physician-specific productivity is available. The Federal
agency that produces the official government statistics on
productivity, BLS, does not calculate or publish productivity measures
for any health sector. Nor are there alternative measures of physician-
specific productivity that incorporate the BLS methodology of measuring
productivity and that would meet the BLS standard of publication.
Second, it is not clear that using physician-specific productivity
within the current structure of the MEI would be appropriate. Because
we believe the MEI appropriately uses an economy-wide wage measure as
the proxy for physician wages, using physician specific productivity
could overstate or
[[Page 43858]]
understate the appropriate wage increase in the MEI.
We do believe, however, that it is important to understand the rate
of change in physician-specific productivity. Toward this end, we have
performed our own preliminary analysis of physician-specific
productivity, using the limited publicly available data on physician
outputs and inputs. Our analysis attempted to simulate the methodology
the BLS would use to measure productivity. While this information
cannot be interpreted as an official measure of productivity, we do
believe it is a rough indication of the current market conditions
facing physicians. We used this information to help form our
determination of the most appropriate productivity adjustment to
incorporate in the MEI, fully recognizing its preliminary nature and
other limitations. The results of our preliminary analysis suggest that
long-run physician-specific productivity growth is currently at
approximately the same level as economy-wide multifactor productivity
growth. Prior to the recent period, however, our preliminary estimates
suggested that physician productivity gains were generally
significantly greater than general economy-wide multifactor
productivity gains.
As we have emphasized, our rough estimates are inadequate for
establishing a formal basis for the productivity adjustment to the MEI.
Nor is the underlying economic theory sufficiently compelling, at this
time, to adopt a physician-specific productivity measure, even if a
suitable one were available. We conclude, however, that economy-wide
multifactor productivity growth appears to be roughly comparable to
current physician-specific productivity growth.
Option 2--Retaining the current productivity adjustment.
We investigated retaining the current productivity adjustment, that
is, applying the 10-year moving average percent change in economy-wide
labor productivity to the labor portion of the MEI. We have applied
economy-wide labor productivity to a portion of the index in some form
since the inception of the MEI in 1975. This current form has been used
since the last major revision to the index in 1992 and was developed
from the contributions of the 1987 expert panel. That panel concluded
that using labor productivity applied to the labor portion of the index
was a technically sound way to account for productivity in the
physician update. This method makes optimal use of the available data
since labor productivity data were, and are, available on a more timely
basis than economy-wide multifactor productivity. By applying this
measure to the labor portion of the index, the mix of physician-
specific labor and nonlabor inputs is reflected. Also, the use of a 10-
year moving average percentage change reduces the volatility of annual
labor productivity changes.
Our research, however, has indicated that using multifactor
productivity applied to the entire index is superior to using an
economy-wide labor productivity measure applied only to the labor
portion of the index. The experts with whom we consulted believed it
was more appropriate to reflect the explicit contribution to output
from all inputs. The current measure explicitly reflects the changes in
economy-wide labor inputs but does not reflect the actual change in
nonlabor inputs. Instead, it implicitly assumes that nonlabor inputs
would grow at the rate necessary to produce an economy-wide multifactor
measure that is equivalent to the current MEI productivity adjustment.
That implicit assumption is less precise than a direct, explicit
calculation.
In addition, while the implicit approach produced an MEI
productivity adjustment in most years that was reasonably consistent
with overall multifactor productivity growth, it now appears less
consistent with the actual change in nonlabor inputs in the economy. In
recent years, economy-wide labor productivity has grown very rapidly.
This acceleration is partly the result of major investments in
computers (a nonlabor input) that have helped create a more productive
work force. Also, the Bureau of Economic Analysis (BEA) has adopted
methodological changes in accounting for computer software purchases in
measuring GDP. These changes have significantly increased the measured
historical growth rates in real GDP and labor productivity. As a result
of these developments, the MEI productivity adjustment based on labor
productivity applied only to the labor portion of the MEI has increased
very rapidly. Since the multifactor definition is an explicit
calculation of the change in economic output relative to the change in
both labor and nonlabor inputs, it better reflects the trend changes.
Finally, as noted previously, our preliminary estimates of
physician-specific productivity suggest a current growth pattern that
is similar to growth in multifactor productivity in the economy
overall. In consideration of the economic theory underlying
productivity measurement, especially in view of the recent developments
in labor versus nonlabor economic input growth trends, we concluded
that using a multifactor productivity adjustment is superior to the
current methodology for adjustment for productivity in the MEI.
Option 3--Changing to using economy-wide multifactor
productivity.
One option for adjusting for productivity gains in the MEI would be
to continue to use an economy-wide productivity measure, but to use
multifactor productivity applied to the entire index, instead of labor
productivity applied to the labor portion of the MEI. As noted
previously, this approach was recommended by MedPAC in its March 2002
Report to the Congress. This option would better satisfy the
theoretical requirements of an output price, in this case the MEI, by
explicitly reflecting the productivity gains from all inputs. In
addition, the use of economy-wide multifactor productivity would still
be consistent with the MEI's use of economy-wide wages as a proxy for
physician earnings. While annual multifactor productivity can fluctuate
considerably, though usually less than labor productivity, using a
moving-average would produce a relatively stable and predictable
adjustment.
Each expert with whom we consulted believed that using a
multifactor productivity measure was theoretically superior to the
existing method because it reflected the actual changes in nonlabor
inputs instead of reflecting an implicit assumption. They also believed
that the lack of timely data on multifactor productivity was not as
important as would have appeared initially. Instead, the experts
believed it was more appropriate that the adjustment be based on a
long-run average that was stable and predictable rather than on annual
changes in productivity. Thus, if a long-run average were used, the
increased lag time associated with the availability of published data
on multifactor productivity would become less significant. Finally, one
expert believed that changing to economy-wide multifactor productivity
applied to the entire MEI would make it easier to understand the
magnitude of the productivity adjustment.
Use of multifactor productivity to adjust the MEI poses two
concerns. First, multifactor productivity is much harder to measure
than labor productivity. Economic inputs other than labor hours can be
very difficult to identify and calculate properly. The experts at BLS,
however, have adequately overcome these difficulties, and we are
satisfied that their official published measurements are sound for
[[Page 43859]]
the purpose at hand. Moreover, use of a 10-year moving average increase
helps to mitigate any remaining measurement variation from year to
year.
The second concern relates to the timeliness of the data. BLS
publishes multifactor productivity levels and changes only annually (as
opposed to the quarterly release of labor productivity data) and with
an extended time lag (about 1\1/2\ years). These timeframes arise
unavoidably from the difficulties of measurement mentioned above, but
imply that the timeframe of data used to adjust the MEI would not match
that of the historical data on wages and prices underlying the MEI. For
the CY 2003 physician payment update, for example, we would use data on
wages and prices through the second quarter of CY 2002, but would have
to use multifactor productivity data only through CY 2000. Although the
misalignment of data periods is a concern, we believe it is a
reasonable trade-off in view of the improvement offered by the explicit
measurement of nonlabor inputs. Also, since use of a 10-year moving
average is intended to reduce fluctuations and provide a more stable
level of the productivity adjustment, availability of the most recent
data is of less importance.
The 10-year moving average percent change in economy-wide
multifactor productivity that would be used for the CY 2003 update
(historical data through CY 2000) is currently estimated at 0.8
percent. Our preliminary internal analysis of physician-specific
productivity gains suggests that these economy-wide multifactor
measures are somewhat consistent with those trends. Thus, using
economy-wide multifactor productivity for MEI productivity adjustment
theoretically would be superior to using labor productivity growth
applied to the labor portion of the MEI. In addition, the use of a 10-
year moving average would help alleviate the lag in the availability of
the data. Lastly, the current 10-year moving average growth in economy-
wide multifactor productivity appears to be within the range we have
estimated for physician-specific multifactor productivity. One possible
weakness of using economy-wide multifactor productivity is that it does
not reflect physician-specific measures, whereas the existing
methodology reflects the distribution of labor and nonlabor inputs used
in the production of physician services. In practice, however, the
balance between these factors of production is not substantially
different for physician practices versus the overall economy.
Option 4--Changing to using economy-wide multifactor
productivity with physician-specific input weights.
Another option we explored was using economy-wide labor and capital
productivity measures (which, when weighted together, produce
multifactor productivity), but with physician-specific input weights.
This method would better reflect the proportion of labor and capital
inputs used by physicians, yet still reflect the explicit contribution
to productivity of labor and nonlabor inputs. The experts with whom we
discussed this option thought it was theoretically consistent with a
measure of multifactor productivity, even though different productivity
measures would be applied to different components of the MEI.
As noted above, the labor and capital shares for the overall
economy do not appear to vary enough from the physician-specific shares
in the MEI to result in a significantly different measure. A weakness
of this method is that the BLS capital productivity series is not
widely used or cited; therefore, we are unsure of the accuracy and
reliability of this measure. This method also adds another layer of
complexity to the formula, however, making it more difficult to
understand the adjustment. We would prefer that any method we choose be
straightforward so that everyone can readily understand the adjustment.
Overall, we believe that this method does not provide enough of a
technical improvement to justify the added complexity that would be
required to implement it.
Option 5--Adjusting productivity using a ``Policy
Standard''.
In its March 2002 Report to the Congress, MedPAC suggested
establishing a policy target for the productivity adjustment. Under
this methodology, the level of the policy target would be based on the
productivity gains that we believe physicians could attain. This level
would be set through policy and would likely be based on a long-run
average of either economy-wide labor or multifactor productivity (but
could reflect other, possibly judgmental, factors). Generally, the
level of the policy standard would remain constant for several years;
periodically, the policy target would be reviewed, and possibly
adjusted.
Some of the experts we consulted believed that a policy target
would lessen the volatility of the adjustment since the target would
not be changed often. Conversely, others noted the large, abrupt
changes that could result if actual economic performance deviated from
the policy standard requiring subsequent adjustments to the standard.
Some believed that this method adjusts for the problem of precisely
measuring productivity. If we used a policy standard we could avoid
having to develop an exact measure. Using a policy target, however, may
appear arbitrary without a theoretical basis to support its use.
The policy target recommended by MedPAC was 0.5 percentage points
per year. Its justification for this number was the fact that the long-
run average of economy-wide multifactor productivity was close to 0.5
percent (the most recent 10-year average is now 0.8 percent). We do not
believe this is a preferred option for adjusting the MEI for
productivity improvements. Our preference is to use a long-term data-
based approach that will produce results that are not inconsistent with
a policy standard and that will automatically reflect changes in actual
economic performance over time, and not through abrupt periodic large
adjustments. Thus, we conclude that a policy target does not provide an
improvement over any of the data-based methodologies.
Option 6--Eliminate Productivity Adjustment from the MEI.
Questions are raised occasionally as to the possibility of
eliminating the productivity adjustment from the MEI. We did not
consider this to be a viable option. Our research concluded that
adjusting for productivity in the MEI is necessary to have a
technically correct measure of an output price increase, free of
double-counting the impact of productivity. Every expert with whom we
consulted agreed that a productivity adjustment was appropriate. They
believed that the important question is which adjustment is the most
appropriate. Therefore, we conclude, again, that it is not acceptable
for the productivity adjustment to be removed from the MEI.
d. Use of a Forecasted MEI and Productivity Adjustment
MedPAC, in its March 2002 Report to the Congress, recommended the
use of a forecasted MEI value, rather than the current historical
increase. However, implementation of this option raises several legal
as well as practical issues. The 1972 Senate Finance Committee report
language reflects Congress' intent that the MEI should ``follow rather
than lead'' overall inflation. Because of this, updates to the
physician fee schedule have always been based on historical, rather
than forecasted, MEI data. In this way, increases in the MEI do not
lead the current measures of inflation but follow them based on
historical trends. Furthermore, at the time of
[[Page 43860]]
implementation of the SGR system, the Congress specified that the SGR
system should use the MEI that existed at that time, which was based on
historical data measures. The law did not recommend or specify a change
in the MEI methodology; the assumption is that the Congress was
satisfied that the MEI was functioning as designed.
If we were to change to a forecasted MEI and productivity
adjustment, there are also several practical issues that would need to
be addressed. One is that changing from a historical-based MEI to a
projected MEI would cause transitional problems because there would be
a period of data that would not be accounted for in the year of
implementation. For example, the CY 2002 MEI update was based on
historical data through the second quarter of 2001. If we were to use a
forecasted MEI in the update for CY 2003, the changes between the
second quarter of 2001 and the first quarter of 2003 would not be
accounted for in the update. Finally, changing to a forecasted MEI and
productivity adjustment raises additional questions about correcting
for forecast errors. Based on these problems, we will continue to use
historical data to make updates under the physician fee schedule.
e. Proposed Productivity Adjustment to the MEI
Based on the research we conducted on this issue, we are proposing
to change the methodology for adjusting for productivity in the MEI. We
propose that the MEI used for the CY 2003 physician payment update
reflect changes in the 10-year moving average of private nonfarm
business (economy-wide) multifactor productivity applied to the entire
index. The current method accounts for productivity by adjusting the
labor portion of the MEI by the 10-year moving average change in
private nonfarm business (economy-wide) labor productivity.
We propose to make this change because: (1) It is theoretically
more appropriate to explicitly reflect the productivity gains
associated with all inputs (both labor and nonlabor); (2) the recent
growth rate in economy-wide multifactor productivity appears more
consistent with the current market conditions facing physicians; and
(3) the MEI still uses economy-wide wage changes as a proxy for
physician wage changes. We believe that using a 10-year moving average
change in economy-wide multifactor productivity produces a stable and
predictable adjustment and is consistent with the moving-average
methodology used in the existing MEI. We propose that the adjustment be
based on the latest available actual historical economy-wide
multifactor productivity data, as measured by BLS. Based on these
proposed changes, we currently estimate the MEI to increase 3.0 percent
for CY 2003. This is the result of a 3.8-percent increase in the price
portion of the MEI, adjusted downward by a 0.8-percent increase in the
10-year moving average change in economy-wide multifactor productivity.
Table 1 shows the detailed cost categories of the proposed MEI update
for CY 2003. Since the current estimate of the MEI increase for CY 2003
is based on incomplete historical data, it may change slightly before
we announce the final MEI no later than November 1, 2002.
Table 1.--Increase in the Medicare Economic Index Update for Calendar
Year 2003 \1\
------------------------------------------------------------------------
CY 2003
Cost categories and price measures 1996 percent
weights changes
------------------------------------------------------\2\---------------
Medicare Economic Index Total, productivity n/a 3.0
adjusted.......................................
Productivity: 10-year moving average of n/a 0.8
Multifactor productivity, private nonfarm
business sector............................
Medicare Economic Index Total, without 100.0 3.8
productivity adjustment........................
1. Physician's Own Time \3\................. 54.5 4.1
a. Wages and Salaries: Average hourly 44.2 3.9
earnings Private nonfarm...............
b. Fringe Benefits: Employment Cost 10.3 4.8
Index, benefits, private nonfarm.......
2. Physician's Practice Expense \3\......... 45.5 3.6
a. Nonphysician Employee Compensation... 16.8 4.1
1. Wages and Salaries: Employment Cost 12.4 3.7
Index, wages and salaries, weighted by
occupation.................................
2. Fringe Benefits: Employment Cost Index, 4.4 5.4
fringe benefits, white collar..............
b. Office Expense: Consumer Price Index 11.6 2.6
for Urban Consumers (CPI-U), housing...
c. Medical Materials and Supplies: 4.5 2.1
Producer Price Index (PPI), ethical
drugs/PPI, surgical appliances and
supplies/CPI-U, medical equipment and
supplies (equally weighted)............
d. Professional Liability Insurance: CMS 3.2 11.3
professional liability insurance survey
\4\....................................
e. Medical Equipment: PPI, medical 1.9 1.6
instruments and equipment..............
f. Other Professional Expense........... 7.6 1.6
1. Professional Car: CPI-U, private 1.3 -2.9
transportation.............................
2. Other: CPI-U, all items less food and 6.3 2.5
energy.....................................
------------------------------------------------------------------------
\1\ The rates of historical change are estimated for the 12-month period
ending June 30, 2002, which is the period used for computing the
calendar year 2003 update. The price proxy values are based upon the
latest available Bureau of Labor Statistics data as of April 2002.
\2\ The weights shown for the MEI components are the 1996 base-year
weights, which may not sum to subtotals or totals because of rounding.
The MEI is a fixed-weight, Laspeyres-type input price index whose
category weights indicate the distribution of expenditures among the
inputs to physicians' services for calendar year 1996. To determine
the MEI level for a given year, the price proxy level for each
component is multiplied by its 1996 weight. The sum of these products
(weights multiplied by the price index levels) over all cost
categories yields the composite MEI level for a given year. The annual
percent change in the MEI levels is an estimate of price change over
time for a fixed market basket of inputs to physicians' services.
\3\ The measures of productivity, average hourly earnings, Employment
Cost Indexes, as well as the various Producer and Consumer Price
Indexes can be found on the Bureau of Labor Statistics website--http://
stats.bls.gov.
\4\ Derived from a CMS survey of several major insurers (the latest
available historical percent change data are for the period ending
second quarter of 2002).
n/a Productivity is factored into the MEI compensation categories as an
adjustment to the price variables; therefore, no explicit weight
exists for productivity in the MEI.
[[Page 43861]]
2. Sustainable Growth Rate (SGR)
Section 1848(f)(2) of the Act specifies a formula for calculating
annual SGR targets for Medicare physicians' services. The formula
includes four factors. Section 1848(f)(2)(A) of the Act specifies that
the first factor is the Secretary's estimate of weighted average
percentage increase in fees for all physicians' services. We have
calculated this factor as a weighted average of the CY 2002 fee
increases that apply for the different types of services included in
the definition of physicians' services for the SGR. (For a complete
list of these services see the November 1, 2001 Federal Register (66 FR
55316).) Drugs furnished in a physician's office that are not usually
self-administered are generally covered ``incident to'' a physician's
service under section 1861(s)(2)(A) of the Act and included in the SGR.
In the past, we have used the MEI as an approximation of the drug price
increase. In the final revisions we make to the CY 2001 SGR later this
year, we will account for drug price growth using a refined methodology
that uses growth in drug prices instead of the MEI as a proxy. In
addition, we will account for drug price growth using this refined
methodology in the SGRs for CY 2002 and subsequent years.
Under section 1848(d) of the Act, the update for any year is equal
to the MEI increased or decreased by an update adjustment factor
determined using a statutory formula. The statute limits the update
adjustment factor to +3.0 and -7.0 percentage points. On March 1, 2002,
we provided our estimate of the CY 2003 physician fee schedule update
to the Medicare Payment Advisory Committee (MedPAC) and made this
information available to the public. We estimated the update adjustment
factor would be -13.1 percent. If the only change to our March 2002
estimate was accounting for drug price growth in the SGR, we estimate
the update adjustment factor would be -12.8 percent. Since the statute
limits the update adjustment factor to -7.0 percent, we expect the CY
2002 physician fee schedule update to equal the MEI reduced by 7.0
percentage points.
D. Pricing of Technical Components (TC) for Positron Emission
Tomography (PET) Scans
Currently all components of HCPCS code G0125, Lung image PET scan,
are nationally priced. However, the technical component (TC) and global
value for all other PET scans are carrier priced. To keep pricing
consistent with other PET scans, we propose to have the carriers price
the TC and global values of HCPCS code G0125.
E. Enrollment of Physical and Occupational Therapists as Therapists in
Private Practice
In the November 2, 1998 final rule (63 FR 58814), we defined
private practice for physical therapists (PTs) or occupational
therapists (OTs) to include a therapist whose practice is in an--
Unincorporated solo practice;
Unincorporated partnership; or
Unincorporated group practice.
Private practice also includes an individual who is furnishing
therapy as an employee of one of the above, a professional corporation,
or other incorporated therapy practice. Some carriers and fiscal
intermediaries have interpreted the regulation to mean that
occupational and physical therapists employed by physicians cannot be
enrolled as therapists in private practice. In these carrier areas,
therapy services provided in a physician's office must instead be
billed as incident to a physician's service.
A specialty society representing occupational therapists has
requested that carriers be able to enroll OTs in physician-directed
groups as occupational therapists in private practice. A group
representing PTs believes that provider numbers should be issued only
to PTs working as employees in practices owned and operated by
therapists.
We are proposing to clarify national policy--we would allow
carriers to enroll therapists as physical or occupational therapists in
private practice when they are employed by physician groups. We believe
that this would reflect actual practice patterns and would permit more
flexible employment opportunities for therapists. We also believe that
this would increase beneficiaries' access to therapy services,
particularly in rural areas. Therefore, we would revise Secs. 410.59
and 410.60 to reflect this change.
F. Clinical Social Worker Services
Currently, Sec. 410.73(b)(2)(ii) states that, for purposes of
billing Medicare Part B, clinical social worker (CSW) services do not
include services furnished by a CSW to an inpatient of a Medicare-
participating skilled nursing facility (SNF). Under this rule, CSWs
cannot receive Medicare Part B payment for diagnostic and therapeutic
mental health services when the services are furnished to patients in
participating SNFs, but they can receive payment for these same mental
health services when furnished in most other settings. Additionally,
clinical psychologists (CPs) may receive Medicare Part B payment for
these same diagnostic and therapeutic mental health services when
furnished to patients in participating SNFs. The effective date of the
rule that precluded Medicare Part B payment to CSWs for services
furnished to patients in participating SNFs was June 22, 1998. However,
the provisions under this rule were suspended for two years beyond the
effective date. Accordingly, these provisions that terminated payment
for CSW services in the SNF setting were delayed until June 22, 2000.
Announcement of the two-year suspension of the provisions was made in a
letter signed by the Administrator to the National Association of
Social Workers rather than publishing it in the Federal Register.
In order to redress this issue, on October 19, 2000, we published a
notice of proposed rulemaking in the Federal Register (65 FR 62681), in
which we proposed to pay CSWs for CPT psychiatry codes 90801, 90802,
90816, 90818, 90821, 90823, 90826, 90828, 90846, 90847, 90853, and
90857 when furnished to patients in participating SNFs who are not in a
covered Part A stay. At this time, we are reprinting our proposal to
allow CSWs to bill for the listed CPT psychiatry codes when furnished
to patients in participating SNFs who are |
