Proposed CMS Physicians Fee Schedule Includes 4.3% Payment Reduction and Prohibition on Self-referral for Nuclear Medicine Services

August 10, 2005

Proposed CMS Physicians Fee Schedule Includes 4.3% Payment Reduction and Prohibition on Self-referral for Nuclear Medicine Services

CMS Announces Proposed Payment Update and Policy Changes for Medicare Physician Fee Schedule

The Centers for Medicare & Medicaid Services (CMS) expects to pay approximately $56.5 billion to 875,000 physicians and other health care professionals in 2006, according to a proposed rule released today that would update payment rates and revise payment policies under the Medicare Physician Fee Schedule. (See Related Items box below for a link to the full fee schedule.)

The proposed rule would expand Medicare coverage of glaucoma screening; expand access for rural beneficiaries enrolled in Medicare Advantage plans to services of federally qualified health centers (FQHCs); reform payment for multiple imaging procedures performed on a beneficiary at one session; and revise payment for inhalation therapy and end stage renal disease (ESRD) treatment.

The proposed rule indicates that payment rates per service for physicians’ services would be reduced by 4.3 percent for 2006, a reduction required by a statutory formula that takes into account substantial growth in overall Medicare spending in 2004.

"The payment reduction shows the need for more effective ways to pay physicians that help them improve quality and avoid unnecessary costs," said CMS Administrator Mark B. McClellan, MD, PhD. "CMS is working with members of Congress, physician organizations, and other healthcare stakeholders on ways to improve physician payment without adding to overall Medicare costs, if at all possible. These collaborations build on Medicare’s performance-based payment demonstrations, value-based payment reforms implemented in the private sector, and especially promising measures and reform ideas from leading physician organizations."

The physician fee schedule specifies payment rates to physicians and other providers for more than 7,000 health care services and procedures, ranging from simple office visits to complex surgery. The fee schedule is updated on an annual basis according to a formula specified by statute. The formula requires CMS to adjust the update up or down depending on how actual expenditures compare to a target rate, called the sustainable growth rate or SGR. The SGR in turn is calculated based on medical inflation, the projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation.

If actual spending exceeds the target, or SGR, as it did the past several years, then the law requires CMS to reduce the update factor. The final rule will contain details of the methodology for calculating the SGR.

In addition to updating the Medicare physician fee schedule, the proposed rule will revise a number of other policies affecting Medicare Part B payments.

The proposed rule provides for expanding the screening glaucoma benefit to include Hispanic-Americans age 65 and older because they are identified as an ethnic group at high risk for the disease. Currently this benefit is limited to individuals with diabetes, those with a family history of glaucoma, and African-Americans age 50 and over, another group with a propensity to develop glaucoma.

Additionally, as required by the Medicare Modernization Act (MMA), this proposed rule provides for supplemental payments to federally qualified health centers (FQHCs) that contract with Medicare Advantage (MA) plans. The payments are designed to cover the difference, if any, between the payment received by the health center for treating Medicare Advantage enrollees and the center’s normal Medicare payment rate. These supplemental payments will encourage health centers to participate in the new MA program.

The proposed rule would revise payment for separately billable drugs and biologicals furnished by ESRD facilities. Under the proposal, the payment rate will be set at average sales price (ASP) plus 6 percent, consistent with payment rates for most other drugs under Medicare Part B. CMS is also proposing to change the drug add-on adjustment which was established to account for the difference between previous payments for separately billed drugs and biologicals and the revised pricing that took effect January 1, 2005. Revisions to geographic designations and wage index adjustments, with respect to ESRD payment, are also included in the proposed rule.

CMS is seeking comment on an appropriate dispensing fee amount for inhalation drugs provided using nebulizers, which are covered by Medicare Part B. In 2005, CMS implemented payment reforms to make the payment for these drugs accurately reflect their prices; previously, Medicare had been substantially overpaying for the drugs. With these significant changes in drug payment rates, CMS established an interim dispensing fee of $57 for a 30-day supply and $80 for a 90-day supply of these inhalation drugs (the previous dispensing fee was $5 per month). Now that the new drug payment system has been implemented successfully, CMS intends to establish a dispensing fee amount for 2006 that is adequate to cover the costs of those services that appropriately fall within the scope of a dispensing fee. It is likely that this fee amount will be lower than the current $57 per month.

In addition, Medicare beneficiaries will also have access to inhalation drugs dispensed through metered dose inhalers (MDIs) when the new Medicare drug benefit begins in January. The proposed rule seeks comments on a number of issues concerning the inhalation drug dispensing fee, such as what services appropriately fall within the scope of a dispensing fee and the cost of those services, information on the quality of nebulizer drug services, and the impact of the availability of coverage for MDI inhalation drugs. In addition, the rule includes some proposed changes to the supplying fee for oral Medicare Part B drugs.

Consistent with a recommendation to Congress by the Medicare Payment Advisory Commission (MedPAC), CMS is proposing to reduce payments for certain diagnostic imaging procedures to reflect their limited additional costs when they are performed on contiguous body parts in the same session with the patient. Because these changes are made in a budget neutral manner, these lower payments for multiple diagnostic imaging services will allow higher across-the-board payments for other services under the fee schedule.

Other provisions in the proposed rule address:

  • Expanding the list of Medicare telehealth services to include certain medical nutrition therapy services, which will enable greater access to these services for beneficiaries in rural areas.
  • Revising the methodology used to account for the costs of running a physician’s practice.
  • Refinements to the payment adjustments for the malpractice costs associated with specific services.
  • Revising the list of health services for which those physicians are prohibited from self-referring their patients (the physician self-referral rules) to include diagnostic nuclear medicine services and therapeutic nuclear medicine services.
  • Technical refinements to the ASP methodology.

CMS also discusses the 2005 demonstration measuring quality of care for cancer patients undergoing chemotherapy, and seeks input on the merits of the program and opportunities to evolve the program in order to not only better capture data on the clinical care of patients with cancer, but also to provide support for improvement in the provision of that care.

The proposed rule will be published in the August 8, 2005 Federal Register. CMS will accept comments on the proposals until September 30, and publish a final rule later this year.