It happens every year: A new Medicare physician fee schedule recommends a painful reduction in the rates the government doles out for more than 7,000 types of medical services performed by hospitalists, primary-care doctors, and other healthcare providers. And then Congress intervenes to keep the reduction from going into effect.

This year, however, the fee updates and policy proposals have become intertwined in the larger debate over comprehensive healthcare reform and a push toward what SHM calls a “value-based health delivery system.”

Few think the whopping 21.5% reduction proposed for 2010 rates, which are due to be published Nov. 1, actually will go into effect in January. A combination of other proposed changes to the fee schedule could soften any reduction. But the larger issue of how fees are currently calculated has become a rallying point for SHM and other healthcare-reform advocates who’d like to see the entire formula scrapped in favor of a more equitable distribution that focuses on outcomes. SHM has expressed concern that the current fee-for-service payment system “fails to provide providers with incentives to improve efficiency or quality of care, and encourages overutilization of services.”

The removal of physician-administered drugs from the broken Medicare physician payment formula is a major victory for America’s seniors and their physicians.

—J. James Rohack, MD, AMA president

The current fee formula, known as the sustainable growth rate (SGR) and stipulated by the Balanced Budget Act of 1997, has resulted in a proposed rate cut every year since it went into effect in 2002. Congress consistently overrides the reimbursement cuts in one way or another, usually enacting modest increases or, such as in 2006 and 2007, an across-the-board freeze.

Hospitalists and other physicians have greeted another high-profile proposal with more enthusiasm: the removal of physician-administered drugs from the definition of “physician services,” thereby eliminating a high-cost item from the SGR formula. A Centers for Medicare and Medicaid Services (CMS) spokeswoman says the agency previously felt it lacked the authority to propose the removal. But a review earlier this year reversed that position, leading to the change. The removal, she says, “wouldn’t change the 21.5% percent decline in 2010, but it could have an impact in future years.”

American Medical Association President J. James Rohack, MD, joined the chorus of approval with a statement that asserted, “The removal of physician-administered drugs from the broken Medicare physician payment formula is a major victory for America’s seniors and their physicians.”

Consultation Change

A separate physician fee schedule proposal would eliminate payments for consultation codes in both outpatient and inpatient settings in favor of codes for evaluation and management services that carry lower reimbursement rates. Doctors would have a new way to bill for tele-health consultations, however. Leslie Flores, director of SHM’s Practice Management Institute, said the proposal has generated a high level of misinformation and misunderstanding among hospitalists who fear CMS will no longer reimburse for inpatient consultations. “It’s not that they won’t allow the work to be done anymore,” Flores says. “They’re just instructing people to bill in a different way for that work.”

CMS notes that the savings would be redistributed to increase payments for existing evaluation and management services codes, making the change cost-neutral. But Flores says a lack of details about the “crosswalk” from the old codes to the new codes, especially as they relate to transfers of care, is fueling hospitalists’ confusion over the true impact on their reimbursements.

“Our biggest concern with this consultation proposal that is now on the table is that CMS has not done anything to clarify how these transfers of care would be treated,” she says. For example, would hospitalists bill an admission code the first time they see a patient after being asked by a surgeon to take over that patient’s diabetes care? If so, “this proposal could actually result in some pretty good revenue increases for a lot of hospitalist practices that are doing a lot of surgical comanagement,” she says.

If hospitalists are instead required to bill a work-intensive transition of care under the code for a subsequent visit, which CMS has enforced since a 2006 rule clarification, Flores explains, HM could lose anywhere from 1% to 18% of reimbursements, depending on the exact code used.

Quality Reporting

The proposed fee schedule also is generating disappointment about what will not be included in Medicare’s Physician Quality Reporting Initiative (PQRI) for 2010. The pay-for-performance PQRI, which rewards physicians for reporting on quality measures by paying them an additional 2% of their estimated charges for covered services, will streamline some reporting requirements and increase the overall number of reportable measures. But several care-transition measures sought by SHM were not endorsed in time and will not be among them. Those measures include:

Reconciled medication lists received by discharged patients;

Transition records with specified elements received by discharged patients (including one measure for an inpatient discharge to home or self-care, and another for an ED discharge to home, ambulatory, or self-care); and

Timely transmission of transition records.

“It was really a question of timing,” says Jill Epstein, senior advisor of SHM’s Performance and Standards Committee. The National Quality Forum, the nonprofit organization charged with signing off on all new measures, was not able to fully vet the recommended additions by the July 1 deadline, Epstein says, postponing their inclusion. “Our hope is that the measures will be included for 2011, of course.”

Separately, the PQRI proposal seeks to add an electronic-health-record-based mechanism to the list of eligible reporting methods. Although that addition is welcome news, Epstein says, SHM is expressing its concern about the shift toward patient-registry-based reporting, including a proposal to lessen or perhaps even discontinue claims-based reporting after 2010. “The issue for hospitalists, as well as for any specialty,” she says, “is that not every group will have access to a qualified PQRI registry as early as 2011,” particularly rural-based groups with fewer resources.

A similar change would streamline the E-Prescribing Incentive Program’s rules for how often e-prescribing codes must be reported. It also will offer more choices for how to report them, including through qualified registries. In the past, the program had little direct impact on hospitalists, but the new proposal recommends adding reporting codes specific to nursing homes, where some hospitalists provide care and could benefit from the incentives.

Paul Fishman, an economist at the Group Health Center for Health Studies in Seattle, says the increased focus on incentives in Medicare’s fee schedule suggests a growing realization of how such incentives can drive the delivery of healthcare services. “We know with absolute certainty that physicians make choices based on how things are reimbursed,” he says. Developing good outcome measures, then, will be critical for establishing pay-for-performance standards as part of a fee package that he says should include a blend of capitation and service-based and outcome-based reimbursements to strike a fairer balance.

“In healthcare, we’ve incented people to do more and more stuff, whether they improve outcomes or not, but we have to figure out a way to incent improvements in outcomes, while still retaining the long-term incentive to keep people healthy,” Fishman says. If better transitions of care result in a healthier population that is rehospitalized less often, for example, how can outcome-based incentives prevent hospitals from losing money in the long run? “We want to create the incentives to make the improvements in health outcomes, but we don’t want to punish the better actors because they are consistently lowering costs and also lowering reimbursement levels,” he says.

Achieving that balance in both Medicare and the broader healthcare system, he and other observers agree, is still very much a work in progress. TH

Bryn Nelson is a freelance writer based in Seattle.

Payment Purgatory