Practice Expense Changes Could Mean Trouble

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As if the health care reimbursement picture for 2007 was not complex enough with the present and upcoming Deficit Reduction Act (DRA) changes for diagnostic imaging, on June 29 the Centers for Medicare and Medicaid Services (CMS) published a proposed rule in the Federal Register that will, according to CMS, create the “largest revisions ever proposed for services related to patient evaluation and management.”

The document is the result of Medicare’s third 5-year review of work relative value units (RVUs) under the Medicare Physician Fee Schedule (MPFS), and, when its proposed changes are implemented on January 1, 2007, it will not only drastically alter how Medicare calculates the value of the time physicians spend treating patients, but also, and more importantly for outpatient diagnostic imaging facilities, it will change how Medicare calculates practice expenses.

CMS’s stated goal is to make its methodology for calculating those expenses easier to understand and more consistent across procedures by moving to a “bottom-up” methodology. In other words, instead of looking at final costs for procedures and making assumptions about what part of that cost is needed to cover the expense of running the practice and offering the procedure (top-down methodology), CMS will use survey data on actual practice expenses from eight different specialties and the Relative Value Update Committee (RUC) of the American Medical Association and apply a methodology closer to strict addition to figure out practice expenses. Think clinical staff time plus supplies plus equipment costs plus an allowance for indirect expenses such as office rent, utilities, billing staff, and receptionist time.

As part of this change, the methodology used to calculate indirect practice expenses will also change and CMS will eliminate the “non-physician work pool” exemption to the current methodology, which was used to calculate practice expense RVUs for services without physician work RVUs, primarily radiology and pathology services. These costs will now be accounted for using the standard practice expense methodology.

The Good, the Bad, and the Ugly

According to the American College of Radiology (ACR), these changes are a bit of a mixed bag for radiology. Reimbursement for some procedures may go up under the new methodology. However, others will certainly go down—in some cases substantially. Furthermore, despite CMS’s goal of making the whole system easier to understand, it is, in reality, a lot more complex than just pure addition. For one thing, different specialties that provide diagnostic imaging may have different practice expenses, but CMS is not allowed to, for example, pay a cardiologist or a neurologist who performs an imaging procedure more or less than a radiologist who performs the exact same procedure. As a result, the practice expense data for a service that crosses several specialties must be combined and weight-averaged by which specialties perform it the most.

According to Pam Kassing, senior director of economics and health policy for the ACR, the change in the practice expense methodology may produce some extreme cuts. For example, using CMS’s proposed figures, reimbursement for bone densitometry, a screening test for osteoporosis, may go down 72% with just this methodology change. “We are trying to look at the logic behind that, how that could happen,” Kassing said.

Kassing and the ACR are examining the new methodology to make sure it is sound and that it is being applied correctly while also preparing for further changes expected later this summer, such as the announcement of the annual Medicare conversion factor that is expected to reduce all Medicare physician payments by nearly 5% unless Congress intercedes, and CMS’s highly anticipated rule on how it will implement the multiple procedure discount on contiguous body part scans that was part of the DRA changes for radiology.

“There should be concern by all of medicine that there are a lot of changes going on with the Medicare fee schedule next year and we don’t know really how they are going to fall out until the very end of the year,” Kassing said.

Final numbers will likely not be announced until November 1, and, while in past years proposed numbers and final numbers mirrored each other closely, such an assumption cannot be made this year because of the size of the changes.

A Gradual Approach

Switching the methodologies is no small step for CMS either, and the agency did