February 2002

Legislative Watch

By George G. Olden, JD

CMS Strikes Again
Rehabilitation providers face fee schedule cut in 2002.

On November 1, 2001, the Centers for Medicare & Medicaid Services (CMS) published a final rule that sets out numerous revisions in the Medicare physician fee schedule. The regulation states that effective January 1, 2002, payments to all providers covered by the fee schedule will be reduced by 5.4%. Accordingly, rehabilitation service providers who are reimbursed pursuant to the physician fee schedule will experience a cut of 5.4% in payments in calendar 2002. Legislation to alleviate the impact of this rule was introduced before Congress recessed for the year; however, despite fairly broad support for the legislation, no action was taken before the end of the session.

The Regulation
The CMS final rule, entitled "Medicare Program: Revisions to Payment Policies and Five-Year Review of and Adjustments to the Relative Value Units Under the Physician Fee Schedule for Calendar Year 2002," is printed in the Federal Register, pages 55245 to 55503. It is also available on the Internet at: www.access.gpo.gov/nara/index.html or www.hcfa.gov/medicare/pfsmain.htm.

The rule makes several significant changes affecting Medicare payments pursuant to the fee schedule including, inter alia: refinement of resource-based practice expense relative value units (RVUs); services and supplies incident to a physician's professional service; services subject to the physician self-referral prohibitions (to reflect changes to CPT codes and HCPCS codes); and benefit enhancements mandated by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. In addition, the rule finalizes the calendar year 2001 interim RVUs and delineates interim RVUs for new and revised procedure codes for 2002. The rule also addresses comments made on a proposed notice published by CMS on June 8, 2001, concerning a 5-year review of work RVUs and finalizes them.

While the foregoing revisions will have varying impacts on providers subject to the fee schedule, all providers will be affected by CMS announcements that the physician fee schedule update for calendar year 2002 is -4.8%, the initial estimate of the sustainable growth rate (SGR) for 2002 is 5.6%, and the conversion factor for calendar year 2002 is $36.1992. In simpler terms, these pronouncements constitute a 5.4% reduction in fee schedule payments for providers in 2002.

The Medicare statute provides that the physician fee schedule conversion factor is equal to the conversion factor for the previous year multiplied by an update factor determined pursuant to another provision of law. Furthermore, the law requires that changes to the RVUs cannot cause expenditures to increase or decrease more than $20 million from the amount of expenditures that would have been made if the RVU adjustments had not been put in place. In the November 1, 2001, rule, CMS explained that it implements these requirements through a uniform budget neutrality adjustment to the conversion factor. To this end, CMS stated: "We are making a 0.460 percent reduction (0.9954) in the conversion factor to account for the increase in work RVUs resulting from the 5-year review. We are also making a 0.18% (0.9982) reduction in the conversion factor to account for an anticipated increase in the volume and intensity of services in response to the final year of the implementation of resource-based practice expense RVUs. As a result of the 5-year review of RVUs and additional budget-neutrality adjustments required by law, the conversion factor is 5.4% lower than last year's conversion factor." In numeric terms, the conversion factor in 2001 was $38.2581 and in 2002 it will be $36.1992.

Critics of CMS' reduction in the conversion factor argue that the agency used a faulty formula in calculating the adjustments to the conversion factor and that the information upon which CMS relied is deficient. A critical element of the CMS rule is the SGR formula that is utilized to calculate payment updates. SGR is linked to changes in the gross domestic product, which in turn reflect general economic upturns and downturns. Consequently, the reduction in the conversion factor is dictated in part by general economic factors despite the fact that they may have no bearing at all on the health care sector or, more particularly, on providers subject to the fee schedule. This argument is supported by the Medicare Payment Advisory Commission (MedPAC) that recently opined that the SGR "fails to account for all the relevant factors that affect the cost of physician services." MedPAC recommends replacing the SGR with an annual update predicated on factors influencing the cost of units of efficiently providing physician services.

Legislation
On November 28, 2001, a bipartisan group of members of the House Energy and Commerce Committee introduced HR 3351, the Medicare Physician Payment Fairness Act. This bill would restrict the decrease in the physician fee schedule in 2002 to 0.9% of payments in 2001, instead of 5.4% as specified in the CMS final rule. The legislation would impose a 1-year suspension of current regulations. The bill, which is sponsored by Representatives Tauzin (R-La), Bilirakis (R-Fla), Dingell (D-Mich), and Brown (D-Ohio), currently has 287 cosponsors, more than a majority of the members of the House.

HR 3351 would require MedPAC to report back to Congress by March 1, 2002, on how best to update physician payments, given the disparity between the gross domestic product and physicians' actual costs. According to Commerce Committee Chairman Tauzin, the goal of the legislation is to use MedPAC's recommendations to create an entirely new payment formula by May 2002.

Preliminary Congressional Budget Office (CBO) estimates that the bill will cost $1.25 billion over 5 years. HR 3351 requires that its cost be offset.

As evidenced by the number of cosponsors, this legislation has strong bipartisan support. It is also noteworthy that in a letter dated December 13, 2001, eight Republican members of the House Ways and Means Committee wrote to Committee Chairman Thomas (R-Calif) expressing deep concerns about the reduction in the fee schedule. The letter contended that "[u]nless Congress acts in the near future, Medicare payments to physicians and other health care providers will plummet. This significant across-the-board cut, which becomes effective January 1, 2002, could exacerbate existing access problems for Medicare beneficiaries, particularly in rural communities."

In the Senate, Senators Breaux (D-La) and Jeffords (I-Vt) introduced S 1707, the Medicare Physician Payment Fairness Act of 2001 on November 15, 2001. The bill has 65 cosponsors, far more than a majority of the Senate. This legislation is very similar to HR 3351. One notable difference between the House and Senate bills is that the Senate measure does not require the cost of the bill to be offset.

Legislation to address the CMS rule is strongly supported by the National Association of Rehabilitation Providers and Agencies, the American Physical Therapy Association (APTA), the Private Practice Section of APTA, and numerous other professional rehabilitation organizations. Such legislation is also endorsed by a wide array of physician organizations including the American Medical Association, the American College of Emergency Physicians, the American College of Physicians, and the American College of Internal Medicine.

The legislative effort is not dead. When Congress returns near the end of January 2002, efforts will continue to address the fee schedule reduction. It is imperative that Congress hears from constituents about the impact of the CMS rule on providers and, most important, their patients. Rehabilitation providers should make liberal use of this information to express their views to Congress and to urge immediate legislative action.

George G. Olsen, JD, is a partner of the firm Williams & Jensen, PC, Washington, DC. He is also legal counsel for the National Association of Rehabilitation Providers and Agencies.

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