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Focus on Healthcare: Proposed Regulations Reduce the Physician Fee Schedule by 21 percent in 2010

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As Congress debates healthcare reform, the Center for Medicare & Medicaid Services (CMS) continues to issue regulations to implement laws that are currently in place.
October 8, 2009

As Congress debates healthcare reform, the Center for Medicare & Medicaid Services (CMS) continues to issue regulations to implement laws that are currently in place. In July of this year, the CMS proposed regulations that will significantly impact Medicare reimbursement to physician practices for calendar year 2010.

Since 1999, the physician fee schedule (PFS) rates have been adjusted under the substantial growth rate (SGR) methodology. The general concept under SGR is that the growth in total expenditures for physicians’ services is limited to sustainable levels. If expenditures exceed a statutorily determined percentage increase amount, the PFS update for the following year is reduced. The SGR is a cumulative system, so, if spending exceeds the target in a single year, the following year’s rate must be adjusted to reduce annual expenditures, as well as recoup the difference between the target and actual spending in the prior year. Over the years the actual spending has consistently exceeded targeted spending. In these years, when the PFS should have been reduced, Congress maintained or increased the reimbursement rate on the PFS, resulting in widening the variance between that actual and targeted spending.

As of March, 2009, the CMS estimates that the variance between the cumulative target and actual spending, from the base year period of 1997 through 2009, is estimated to be $69.7 billion dollars. As a result, the CMS estimates that the physician fee schedule will be reduced by 21.5 percent for calendar year 2010. Since there are limits to how much PFS rates can be reduced in a single year and the 21.5 percent reduction will not fully account for the variance between the targeted and actual spending, the CMS is further estimating that the PFS will be further reduced by 5 - 6% over the next several years.

To illustrate the impact of the proposed reductions, let’s say that for 2009 for CPT code 99213 (office or other outpatient visit for an established patient) the relative value unit is 1.70 and the conversion factor (CF) is $36.066, thus, yielding a payment of $61.31 for this office visit. Assuming the 21.5 percent decrease in 2010, the CF would be $28.3208 and reimbursement for the same office visit would be $48.15 or a reduction of $13.16 per visit (or 21%). For a practice that averages 35 Medicare patients (billed under CPT code 99213) a week, the decline in net revenue will be approximately $24,000/year. The net revenue decline in a practice would depend on the volume of Medicare patients and the services provided to such patients.

As it stands, it will take an act of Congress to avert the reductions of the physician fee schedule in 2010. Congress has intervened in the past, but given that Congress is pre-occupied with debating healthcare reform and is looking to reduce healthcare spending, there is a level of uncertainty on whether they will act.


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