Medicare's physician payment form - includes bibliography

Physician Executive, Sept-Oct, 1990 by Richard M. Lauve

Medicare's Physician Payment Reform

Numerous unsuccessful attempts to control Medicare Part B cost have led to an understanding [1,2,3,4] that if health care expenditures are to be constrained indirectly, both the price and the quatity of services must be addressed. The alternative, and more direct, mechanism of directly limiting expenditures via explicit budgetary caps has heretofore proven impossible politically. The Physician Payment Review Commission (PPRC) demonstrated its understanding of these concepts in its 1990 annual report to Congress. "To rationalize the pattern of payments by Medicare, the Commission proposes a Medicare Fee Schedule based primarily on resource costs. To limit beneficiary financial liability, it recommends limits on balance billing. To control the growth in expenditures, the Commission proposes the use of expenditure targets, increased research on the effectiveness of medical services, and development of practice guidelines." [5]

The 1989 budget reconciliation process produced a set of reforms in the payment of Medicare Part B expenses that parallels closely the PPRC's recommendations. The Resource-Based Relative Value Scale (RBRVS) was adopted and will eventually serve as the basis of physician payments. Transition to RBRVS began in 1990 with decreases in "overvalued procedures." A four-year "phase-in" of RBRVS will begin in 1992, with blending of customary charges and RBRVS fees. The final fee schedule will value each procedure, in each geographic region, on the basis of: work, practice expenses, and malpractice costs. The proportional weight of each component in determining the fee varies among procedures and geographic areas. The geographic adjustments will be applied to the practice expense and malpractice cost components of the fee calculation, but only one fourth of the work component will be adjusted for geographic variations. Fee differentials for the same procedure across specialties will be eliminated by 1992, [6] but the bonus will increase to 10 percent in 1991 for services in rural and inner-city under-served areas, [7] and a bonus of 5 percent to participating physicians will continue. [8]

In adopting this new fee schedule based on resources consumed rather than historical charges, Congress recognized the limitations of RBRVS. Although payments for certain "high-priced" procedural services would be decreased by the new fee schedule, RBRVS itself includes no mechanism for containment of the quality of services lrovided or for direct control of total expenditures. The Secretary of Health and Human Services (HHS) is admonished on several occasions in OBRA '89 to study any changes in volume resulting from laws, regulations, or other causes.

To address expenditures directly, Congress adopted Volume Performance Standards (VPS), in lieu of Expenditure Targets. The VPS system is designed to control total expenditure growth and not, as the name might suggest, the volume of services consumed. Percentage increases in the Medicare actual expenditures will be compared annually to a budgeted growth rate, the "Performance Standard Rate." This target growth rate will be established by Congress with advice from the Secretary of HHS and the PPRC. Absent congressional action, the target will default to a growth rate established by a formula that considers actual changes in the prior year, population changes, five-year moving average volume changes, and changes in expenditures related to fee and regulation changes. This target rate, or Performance Standard Rate, is then reduced by a "Performance Standard Factor."

The Performance Standard Rate for 1990 is the Secretary's estimate of actual increases, reduced by 1/2 percent (the Performance Standard Factor for 1990). The Performance Standard Factor is 1 percent for 1991, 1.5 percent for 1992, and 2 percent thereafter. [9] Physician fee increases and/or volume increases that cause expenditure growth rates to exceed the targeted Performance Standard Rate would lead to a mandatory reduction of the following year's physician fee increase by the same percentage amount by which the target was exceeded, barring specific congressional action. [10] Limits are established for the percentage decrease in fee schedule updates at 2 percent for 1992 and 1993, 2.5 percent for 1994 and 1995, and 3 percent thereafter. [11] Volume Performance Standards are therefore considerably more complex than the originally proposed Expenditure Targets. However, they retain the decrement in fee schedule updates, dictated by prior actual expenditure increases exceeding targeted growth rates. [12]

To protect Medicare participants, Congress adopted limits, Balance Billing Caps (BBC), on the maximum amount a provider can balance bill. For Part B enrollees also eligible for title XIX benefits, assignment is mandated for services rendered after April 1, 1990. [13] For nonpoor Medicare enrollees, balance billing will be limited to 125 percent of the Medicare amount allowed to nonparticipating physicians in 1991, 120 percent in 1992, and 115 percent thereafter. [14] Therefore, BBC will eventually provide a two-tiered fee schedule consisting of either the RBRVS allowance (for participating physicians) or 115 percent of 95 percent of the RBRVS allowance (for nonparticipating physicians). This will limit nonparticipating physicians to collecting a total of 109.25 percent of the participating physician's fee (115 percent of 95 percent of participating fee amount).