CMS Finalizes 5% Physician Pay Cut—Again


Physicians may be feeling a sense of déjà vu with the announcement from Medicare that physician payments will be cut 5% as of Jan. 1, 2007.

This is the fifth year in a row that physicians have been threatened with a payment cut under Medicare. Medical specialty societies have been urging Congress to step in and avert this most recent across-the-board cut, as they have for the past 4 years.

The cut, announced in early November by officials at the Centers for Medicare and Medicaid Services, is part of the Medicare Physician Fee Schedule final rule, which is issued annually. This year's rule also sets the Medicare conversion factor—a multiplier used to calculate payments for each service physicians provide—at $35.98.

The 5% cut is required under a payment formula passed by Congress several years ago. That formula, known as the sustainable growth rate (SGR), “was designed to adjust the update to make actual [expenditures] and target expenditures equal over time,” according to CMS policy. “If outlays under the fee schedule are higher than the [spending target set by the government], the update is decreased. Conversely, if outlays are lower than the target, the update is increased.” The cut announced by CMS is slightly less than the 5.1% figure that the agency estimated earlier this year.

The final rule also includes some good news for physicians who spend a lot of time performing evaluation and management services. CMS has finalized plans to increase the work relative value units (RVUs) for evaluation and management services, which make up much of the practice of primary care and other cognitive specialties. Each physician service in the fee schedule has a certain number of RVUs associated with it; the RVUs are then multiplied by the conversion factor to arrive at a charge for the service.

The increases for evaluation and management services were recommended by the American Medical Association (AMA) Relative Value Scale Update Committee (RUC) as part of a 5-year review. However, they may be largely offset by the 5% across-the-board payment cut, according to the AMA. “For the great majority of primary care physicians, the overall physician payment cut due to the flawed payment formula will negate any payment increases specific to physician office visit payments,” Dr. Cecil B. Wilson, AMA board chair, said in a statement.

CMS estimated in the final rule that internal medicine will experience a 1% overall cut in allowed charges under Medicare due to the combination of the changes to work and practice expense RVUs, the SGR cut, and other cuts called for under the Deficit Reduction Act of 2005.

Family physicians will break even once all factors are calculated. CMS estimates that only four specialties will see positive updates in 2007 once all the payment changes are factored in—emergency medicine (2%), endocrinology (1%), infectious disease (4%), and pulmonary disease (1%).

One area of physician services greatly affected by the final rule is imaging services. Starting Jan. 1, physicians who perform multiple imaging procedures on contiguous body parts during the same session will be paid in full for the first procedure and then will receive a 25% cut in the technical component payment for additional imaging procedures.

In addition, the final rule implements imaging cuts called for under the Deficit Reduction Act. Under this provision, the payment for the technical component of certain physician-performed imaging services is capped at the hospital outpatient amount for the same service. This cap does not apply to mammography services.

The AMA and other medical specialty organizations called on Congress to take action when it returns for a short lame-duck session. The groups have been lobbying for months for Congress to pass stopgap legislation that would eliminate the cut this year and give legislators time to agree on a new formula for determining physician payment under Medicare next year.

There is reason to think that Congress will act to reverse the payment cuts. From 2003 to 2006, Congress stopped Medicare payment cuts scheduled to take effect under the SGR formula. And currently, 80 senators and 265 representatives have signed on to letters to the congressional leadership calling for the cuts to be stopped.

In the final regulation, CMS officials are giving with one hand and taking away with the other, said Dr. Rick Kellerman, president of the American Academy of Family Physicians. For example, the regulation outlines increases to the work RVUs for evaluation and management services often performed by primary care physicians, but uses an inappropriate mechanism to apply budget neutrality to the changes, he said. CMS is required by law to keep the changes budget neutral, so officials at the agency will apply a 10.1% across-the-board cut to work RVUs without changing the number of RVUs assigned to each service. Making this adjustment to the work RVUs distorts the relative value system, he said. The budget neutrality adjustment should instead be made in the conversion factor, where the cut would be more transparent, he said.


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