Medicare Announces Increases in Final Physician Payment Rule for 2005

November 10, 2004

Medicare Announces Increases in Final Physician Payment Rule for 2005

The Centers for Medicare & Medicaid Services (CMS) today issued Medicare’s final rule for physician payment for 2005, with new benefits and higher payments for preventive services including a "Welcome to Medicare Physical" and increased payment rates to physicians. The expanded benefits and increased payments result from the Medicare Modernization Act of 2003 (MMA) and are included in the 2005 Physician Fee Schedule rule, which will become effective January 1.

"This rule follows through on our commitment to make Medicare a prevention-oriented program," said HHS Secretary Tommy G. Thompson. "At the same time, we are also making sure that Medicare pays accurately for drugs and other services that physicians provide. As a result of the new law, Medicare beneficiaries will receive higher quality care and value for their premium dollar."

The Physician Fee Schedule sets rates for how Medicare pays more than 875,000 physicians and other health care professionals. In 2005, CMS projects that aggregate spending under the fee schedule will increase 4 percent to $55.3 billion, up from $53.1 billion in 2004. The spending increase is due in part to an MMA provision that increased physician payment rates by 1.5 percent, a move that negated a previous law’s planned cut of payment rates by 3.3 percent for 2005.

In addition, the final rule implements a new "Welcome to Medicare Physical" for all new beneficiaries. This exam gives physicians the opportunity to make an overall assessment of a patient’s health, and provide counseling on nutrition and other steps to stay healthy. Medicare also provides new coverage for screening for cardiovascular disease and for diabetes.

"Too many beneficiaries haven’t used services that make it possible to detect and treat illnesses before they lead to serious health problems and avoidable health care costs," said CMS Administrator Mark B. McClellan, MD, PhD. "Under the new law, we’ve modernized Medicare to include preventive benefits and appropriate payments for these services, and we intend to close the prevention gap for seniors."

CMS has made two changes to the proposed payment provisions for the physical to ensure that beneficiaries get the maximum value from this service. Physicians can bill and be paid separately for the screening electrocardiogram, in addition to the payment for the physical. The rule also lets a physician bill for a more extensive office visit when performed at the same time as the physical, as long as the services are medically necessary.

The final rule also dramatically increases payments for vaccinations and other types of injections, reflecting Medicare’s rapid action on recommendations from the American Medical Association’s Drug Administration Workgroup to assure appropriate payment for all drug administration services. For example, payments for administering the influenza vaccine will rise from $8 to $18. Physicians can also be paid for injections and vaccinations, even when performed on the same day as other Medicare-covered services. Medicare currently does not allow payment for injections provided on the same day as other Medicare services.

Other provisions designed to expand beneficiary access to high-quality care include:

  • Expanding access to a broader array of health care professionals. For example, the rule lets psychologists receive payment for administering diagnostic psychological tests and supervising the administration of these tests.
  • Clarifying that Medicare will pay for care plan oversight for those who get home health care provided by non-physician professionals if state law authorizes them to provide those services.
  • New coverage for a one-time evaluation and counseling from a physician employed by a hospice to determine appropriate end-of-life services for terminally ill beneficiaries.
  • Expanding access to state-of-the-art treatments. For example, the rule removes restrictions on payments for low osmolar contrast medium (LOCM) because it has become standard practice among radiologists even though it is more expensive than other contrast materials.
  • Covering routine clinical costs in studies of certain potentially life-saving investigational devices.

Based on public comments, CMS has also made significant changes in Medicare’s approach to paying for drugs administered in the physician’s office, and for services related to the use of those drugs, which are covered in Medicare Part B.

"For years, taxpayers, the Medicare program and most importantly our beneficiaries have paid too much for drugs administered in a physician’s office, and we’ve provided too little support for the valuable services that physicians provide in their offices along with the drugs. For the first time, we’re going to pay accurately for the drugs and for their administration," Dr. McClellan said. "To make sure we do this right, we’ve listened to comments from health professionals and patient groups and payment experts."

The final rule adopts 18 new codes to be used for billing for administering drugs, developed by the American Medical Association’s (AMA) CPT Editorial Board. Because new permanent codes will not be included in the CPT until 2006, CMS has developed these temporary codes to allow physicians to be paid for these services beginning January 1, 2005. The rule also accepts the relative values (which are used to determine payment rates) for these codes that were recommended by the AMA’s Relative Value Update Committee (RUC).

These higher payments are based on American Society for Clinical Oncology survey data, and include payment for staff time to prepare pharmaceuticals and physician work for supervising of pharmaceutical preparation. One of the important changes Medicare is adopting based on the AMA Workgroup’s recommendations is that Medicare will allow the physician to receive additional payments when a second drug is infused. As a result of implementing the AMA’s recommendations, Medicare payment rates in 2005 for drug administration services will be more than 120 percent higher than in 2003, and physicians will have more opportunities to bill for the administration services they are providing.

CMS also recently clarified that oncologists may bill Medicare separately for managing significant adverse drug reactions related to chemotherapy administration, using existing codes for office visits, including higher level, prolonged service and critical care services. With input from physician organizations, Medicare will soon issue a coding guidance to assure appropriate billing for these services, providing additional revenues for practices that have not used these billing codes appropriately.

In the final regulation, CMS is establishing new payment rates for most Part B drugs that will be set at 106 percent of the average sales price (ASP), based on the most recently available data from manufacturers. Drug payment rates will also be updated on a quarterly basis. In a separate rule, published in the September 16 Federal Register, CMS adopted a modification to the ASP methodology that changes how manufacturers account for discounts and rebates, in order to produce more stability and predictability in drug pricing. The ASP price data used for the estimates in the final rule is from the second quarter, and includes price information on drugs that account for 99 percent of billed services. CMS has just received third-quarter data and expects to publish it soon, and will also review findings of an independent analysis of ASPs by the Government Accountability Office (GAO). Overall, CMS does not expect substantial changes between second- and third-quarter price data.

"We appreciate the input we received from specialty societies and patient advocates as we developed this final rule, and we look forward to continuing to work with them as we refine this system," Dr. McClellan said. "The input is also reflected in our recently announced $300 million national demonstration program for cancer care, to support obtaining and acting upon better information to improve the quality of care for Medicare patients."

The impact analysis of the combined payment changes related to oncology shows that these savings are very similar to savings projected at the time of passage of the Medicare law. Altogether, the changes in drug administration payments are expected to add 5 percent per patient to Medicare payments (not counting the CMS clarifications about billing for complications), and the demonstration program is expected to add another 15 percent to oncologists’ physician fee schedule payments. CMS actuarial projections indicate that utilization and revenues for ambulatory oncology practices are expected to continue to increase in 2005.

Further, to help provide broader access to low-priced drugs, Medicare is collaborating with oncology specialty groups to make it easier for physicians to find lower prices on drugs. A recent survey by the American Society of Clinical Oncology of some of its members found that both low- and high-volume practices are able to obtain low prices for drugs, and Medicare’s new support for finding favorable prices is expected to broaden the availability of such savings.

The rule also implements MMA changes in payment rates for inhalation therapy drugs used to treat respiratory disorders such as chronic obstructive pulmonary disease. Two of these drugs - albuterol sulfate and ipratroprium bromide - are currently paid at 80 percent of the average wholesale price (AWP). The final rule, as the MMA required, bases the payment rate on ASP, which will result in much more accurate payments, as the Government Accountability Office documented recently in an independent analysis. In response to comments, CMS also will provide a dispensing fee for supplying inhalation therapy. The 2005 dispensing fee will be $57 for 30 days of therapy or $80 for 90 days. The rule also reduces the paperwork associated with billing for inhaled drugs.

The final rule also establishes a payment for supplying immunotherapy drugs to transplant patients, in conjunction with Medicare’s previous implementation of more accurate payment for immunotherapy drugs. In response to comments, CMS will pay a dispensing fee of $50 for a new transplant patient and $24 for a transplant patient who has already been undergoing post-transplant therapy.

The final rule also substantially increases the payment for clotting factor, from five cents in the proposed rule to 14 cents. The payment will go to most providers of blood clotting factors, not just to hemophilia treatment centers or home health agencies.

The rule also changes how Medicare pays for services to beneficiaries with end-stage renal disease (ESRD). It eliminates the cross-subsidy in payments for drugs used in ESRD treatment so Medicare’s payment reflects the acquisition costs of the drugs, while increasing payment rates for ESRD providers by the amount of the drug cross-subsidy. The payment rates for ESRD facilities will for the first time be adjusted to reflect the higher costs of treating some patients, such as those with extremely low body mass indices. Payment rates will also be adjusted for factors such as age and body surface area.

More accurate payments means that providers of ESRD care will be paid more fairly for the treatments required for the different types of patients, providing better financial incentives for appropriate care. In this final rule, both independent and hospital-based facilities will receive an 8.7 percent increase in their composite payment rate, in addition to a 1.6 percent update for services under the proposal.

The final rule also enhances other physician payments. In addition to the 1.5 percent increase in physician payments, Medicare will also offer a 5 percent quarterly incentive payment to doctors practicing in "physician scarcity areas. Those areas are listed on the CMS website at www.cms.hhs.gov/providers/bonuspayment. Also, CMS will pay physicians who use telecommunications technology to provide monthly management services for rural beneficiaries who are on dialysis. As a result, CMS expects that rural beneficiaries with end stage renal disease will get better support for high-quality care.

The final rule will be published in the November 15, 2004 Federal Register and become effective January 1, 2005.