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March 2003


Legislative Watch

By George G. Olsen, JD
The Centers for Medicare & Medicaid Services (CMS) rang in the new year by publishing a lengthy final rule in the December 31, 2002, Federal Register setting out revisions to payment policies under the physician fee schedule and updating the payment rates for physicians, outpatient therapy providers, and other nonphysician practitioners for calendar year 2003. The regulation contains a number of provisions of importance to facilities that furnish rehabilitation services.

FEE SCHEDULE UPDATE

Effective January 1, 2002, all providers subject to the physician fee schedule sustained a 5.4% reduction in Medicare payments pursuant to the fee schedule. The reduction was caused by operation of a specific statutory provision that required CMS to adjust the rate schedules based on estimates for a sustainable growth rate (SGR) and Medicare volume performance standards (MVPs). Although CMS recognized that these factors would lead to lower payment rates, it concluded that it had no legal option but to implement the reduction. By operation of that law, a further decrease of 4.4% was scheduled to take effect on January 1, 2003. Additional cuts would be experienced in 2004 and 2005 as well.

CMS is clearly dissatisfied with this state of affairs and believes that if a proper methodology were directed by Congress, a positive update to the fee schedule would result in the current year as well as subsequent years. In the preamble to the rule, CMS stated that “although we have exhaustively examined opportunities for a different interpretation of law that would allow us to correct the flaw in the formula administratively, current law does not permit such an interpretation. Accordingly, without Congressional action to address the current legal framework, the Department is compelled to announce herein a physician fee schedule update for CY2003 of – 4.4%.”

As a result, the physician fee conversion factor, which adjusts the base calculation for all services paid pursuant to the physician fee schedule, is reduced by 4.4%, commencing on March 1, 2003. The new conversion factor for 2003 is therefore $34.5920. By way of comparison, the conversion factor for calendar year 2002 was $36.1992.

As matters stand at this writing, unless Congress passes, and the President signs, legislation addressing the reduction now scheduled for March 1, 2003, all providers reimbursed pursuant to the fee schedule will suffer a diminution in their reimbursement. Fortunately, Congress is deeply concerned about the impact of such a cut on beneficiary access to physician and nonphysician practitioner services. For this reason, on January 23, 2003, the Senate passed an omnibus appropriations bill for FY 2003 that includes a provision extending the conversion factor used in 2002 for the period March 1, 2003, through September 30, 2003. This provision would forestall the 4.4% reduction and give Congress an opportunity to develop a permanent solution to the flawed methodology that led to the sequential fee schedule reductions. The House and the Senate will conduct a conference to reconcile differences between the FY 03 omnibus appropriations bills recently passed by each body. It is expected that an agreement will be reached in mid to late February and that it will include the extension of the 2002 conversion factor.

ENROLLMENT OF PTS AND OTS AS THERAPISTS IN PRIVATE PRACTICE

On November 2, 1998, the Department of Health and Human Services issued a final regulation that defined private practice for physical therapists or occupational therapists to include a therapist “whose practice is in an unincorporated solo practice; unincorporated partnership; or unincorporated group practice.” The rule also said that the term “private practice” includes an individual who furnishes therapy services as an employee of one of the foregoing entities, a professional corporation, or other incorporated therapy practice. Since that time, some Medicare carriers and intermediaries have interpreted the rule to mean that physical therapists and occupational therapists employed by physicians cannot be enrolled as therapists in private practice. Under these circumstances, therapy services furnished in a physician’s office must be billed as incident to a physician’s service.

In the fee schedule rule published on December 31, 2002, CMS proffered several clarifications to its rule governing the enrollment of physical and occupational therapists as therapists in private practice.

First, CMS will amend the regulation “to reflect that carriers and fiscal intermediaries can enroll therapists as PTs or OTs in private practice when the therapist is employed by physician groups or groups that are not professional corporations, if allowed by State law.”

Second, CMS will modify the Medicare Carriers and Fiscal Intermediaries Manuals to “reflect that carriers and fiscal intermediaries ‘will’ enroll Medicare therapists as PTs or OTs in private practice for purposes of Medicare when the therapists are employed by physician groups or groups that are not professional corporations.”

Finally, CMS rejected a request that it not enroll physical therapists who are employees of physician’s offices as physical therapists or occupational therapists in private practice. The agency also refused to adopt a proposal that it should establish a separate section of the regulations that would govern the issuance of provider numbers to physical therapists who are employees in physician’s offices and give these therapists a different designation. CMS refused to accept this recommendation because “the regulations reflect actual practice patterns, will permit more flexible employment opportunities for all therapists, and also increase beneficiary access to therapy services, particularly in rural areas.” CMS also recognized that therapists should have the flexibility of providing outpatient therapy services incident to a physician’s service “if they so choose.”

METHODOLOGICAL CHANGES

The final fee schedule rule also made a number of changes to the methodologies employed in the development of the fee schedule including, inter alia, productivity adjustments to the Medicare Economic Index (MEI), use of more accurate survey data on the practice expenses incurred in owning and operating physical therapy practices, the cross walking of utilization for therapy services to the physical and occupational therapy practice expense pool, and the establishment of several new HCPCS codes for calendar year 2003, which are used to describe services billed by rehabilitation providers.

A copy of the final fee schedule rule is available at www.cms.gov.

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 Agencies and Providers.

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