Docs Take Deeper-Than-Expected Cut in Latest Round of Medicare Regs

August 10, 2006

By John Reichard, CQ HealthBeat Editor

As Congress began taking its summer repose this week, Centers for Medicare and Medicaid Services staffers scrambled to assemble hundreds of pages of new regulatory proposals — a process that culminated late Tuesday in the release of proposed major payment revisions for physician, hospital outpatient, imaging, specialty hospital and ambulatory surgery center services. Among the surprises: a proposal for quality measures for hospital outpatient care that would lessen payment increases next year if data on quality isn’t reported.

But perhaps the loudest expressions of pained surprise will be heard from doctors and ambulatory surgery centers. Under a proposed regulation for Medicare physician payments in 2007, doctors are scheduled to take a 5.1 percent cut on Jan. 1, rather than the original CMS estimate of 4.6 percent. “In mathematical terms, it’s 11 percent uglier than the original estimate, and that estimate was 100 percent ugly,” said Washington, D.C., consultant Alec Vachon, a former Senate Finance Committee staffer. “Ambulatory surgery centers get creamed in this rule,” Vachon added. “Industry lobbyists told me they were prepared to hate the rule. Now I believe them.”

Doctor Cuts

The higher-than-expected payment cut to physicians means that the cost of legislation to block that reduction, widely expected at the end of this year, will be more than $1 billion more expensive than expected. That puts other types of providers in line to see cuts to come up with that extra money.

During a telephone press briefing late Tuesday, CMS Administrator Mark B. McClellan sought to apply balm to that news by emphasizing new coverage of preventive services in the payment rule. For example, the proposal would implement a statutory requirement that Medicare’s colorectal screening benefit is no longer subject to the Part B deductible in Medicare. McClellan also highlighted the fact that doctors would receive payment incentives to spend more time with their patients. But American Medical Association Board Chairman Cecil Wilson said seniors and doctors “are stuck wondering if 2007 will be the year access to care erodes as we wait for congressional action to stop the Medicare cuts.” Wilson also complained that the proposed rule “imposes cuts on imaging services that are used by physicians to make specific and accurate diagnoses of patient illnesses.” Use of many imaging services have been encouraged through new screening benefits, he noted.

McClellan, however, suggested the proposal seeks to blunt imaging cuts. The proposed rule would continue to impose a 25 percent reduction in payment for preparing additional medical images of contiguous body parts. CMS said last year that it would slice payments by half in 2007, not 25 percent, for the added images, but the latest proposal retreats on that prediction.

The proposed rule also would implement a statutory requirement that payments for certain types of medical imaging in the doctor’s office be capped at the same amount paid to hospital outpatient departments. By applying those caps after making the reductions for multiple images, imaging payments will be higher, McClellan said.

Dialysis facilities received a bit of good news, however, in the proposed reg. Certain add-on payments received by the facilities for drug products would be slightly higher under the proposal, Vachon said.

Hospital Outpatient Departments

McClellan said that because of fast-rising spending on hospital outpatient care, the status quo must not continue. “Doing nothing is not sustainable from the standpoint of Medicare costs and beneficiary premiums, and we want public input on the best approaches to promoting high-quality, affordable care,” he said in a press release on the proposed rule for 2007 payments for the sector.

Citing what he called Medicare’s “equitable adjustment authority,” McClellan said the proposal would require hospitals to report data on quality performance measures starting in 2007. If hospitals next year failed to report the inpatient quality-of-care data necessary to receive a full payment increase, the update they receive for outpatient care would be two percentage points lower, CMS said. Thus instead of receiving an increase next year of about three percent for outpatient care, facilities would get an increase of about one percent. CMS said that pending the development of quality measures specific to outpatient care — something CMS plans to do — it’s fair to tie payments to reporting of data on inpatient measures because they cover many of the same activities as in outpatient care. The outpatient rule also expands the set of quality measures on which hospitals must report data to receive a full payment update for inpatient care in fiscal 2008. Added measures assess the satisfaction of patients with the care they get at a facility, post-surgical complications, and death rates at a facility for heart attack, heart failure and pneumonia patients within 30 days of receiving treatment.

Consistent with a mandate in the 2003 Medicare overhaul law (PL 108-173), CMS also is proposing a new payment system for ambulatory surgery centers that would take effect in 2008. CMS said the proposed rule would “allow payment to an ASC for any surgical procedure that does not pose a significant safety risk, greatly expanding the list of surgical procedures for which Medicare pays an ASC facility fee.”

But payments to the surgery centers would be tied for the first time to the “Ambulatory Payment Classifications” (APCs) used for payment of hospital outpatient departments. The proposal calls for ambulatory surgery centers to receive 62 percent of the APC level, a relatively low percentage, analysts said.

Specialty Hospitals

McClellan also announced the release of a regulatory plan for doctor-owned specialty hospitals, which critics say have carved out more lucrative procedures and patients for themselves in an example of “cream-skimming” harmful to the Medicare program.

Release of the plan effectively lifts a CMS administrative moratorium on the enrollment of new specialty hospitals as Medicare providers. But CMS will require facilities to disclose the percentage that individual doctors own of a facility and the terms of their compensation. Specialty hospitals also will be required to inform patients before they receive care that staff physicians have an investment interest in the hospital.

Hospitals may be found in violation of anti-kickback regulations if the compensation of doctors is out of proportion to the percentage of the facility they own. And hospitals that fail to report physician investment and compensation arrangements will face fines of up to $10,000 a day. That enforcement effort will begin with specialty hospitals that did not fully respond to a recent CMS survey to determine their investment and compensation arrangements.

The hospitals that responded reported compensation proportional to investment percentages, but 53 percent of the specialty hospitals polled did not provide the requested data.

CMS noted that traditional hospitals have complained that specialty hospitals can better coordinate the delivery of care with staff doctors because of the opportunity for physician ownership. To “level the playing field,” CMS said it will do a pilot test easing hospital-doctor collaboration on more efficient care, including a “gain-sharing” demonstration in which traditional hospitals can share profits with doctors from increased efficiency.

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