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'90s may be decade for physician payment reform.

'90s May Be Decade for Physician Payment Reform

Under the Omnibus Budget Reconciliation Act of 1989 (OBRA-89), Medicare payments to physicians will undergo a complete overhaul. Medicare physician payment reform has three principal components to be phased in over the next seven years. Beginning this year, Medicare Volume Performance Standards (MVPS) will create overall expenditure targets for physician services. Next year, in a significant expansion of the Maximum Allowable Actual Charge (MAAC) concept, Medicare will phase in an absolute ceiling on the amount a nonparticipating physician can charge a Medicare beneficiary on an unassigned claim. Finally, beginning on January 1, 1992, Medicare will begin to phase in a comprehensive fee schedule for physician services based on a resource-based relative value scale (RBRVS).

RBRVS Payment

RBRVS is the heart, and perhaps the most controversial aspect, of physician payment reform. RBRVS has been widely publicized as having the potential to significantly change physician payment rates; primary care physician fees are expected to rise and specialty physician fees are expected to fall. While RBRVS is at present intended only for Medicare payments, private health insurers may well follow }e icare's lead. The Health Insurance Association of America has already commissioned a study of the implications of RBRVS for commercial insurers.

The RBRVS system determines fees according to the overhead costs, skills, intensity, and time associated with specific physician services. Like other relative value scales, RBRVS produces a weight for each service that, when multiplied by a standard payment amount, produces the payment level for that service. The statutory formula for determining the fee schedule involves the relative value for the service, a "conversion" factor for the year, and a geographic adjustment factor.

In order to determine a "relative value" for a particular physician service, the law divides the physician service into three components--work, practice expense, and malpractice. The "work component" encompasses the resources (i.e., the physician's time and intensity) used to furnish the service. This would include the services the physician furnishes before, during, and after patient contact. For surgical procedures, the work component would include both pre- and postoperative services. The "practice expense component" is an overhead component, including office rent and office staff wages, but excluding malpractice expense (which is a separate component) and the physician's compensation. The "malpractice component" would reflect malpractice expenses used in furnishing the services.

For each of these components, the Medicare program will determine a number of relative value "units." These will be combined to produce a single relative value for each physician service in each locality. A percentage that, on the basis of national data, takes into account differences in physician specialties will also be developed for each relative value component. Finally, a geographic adjustment factor applicable to the overhead and malpractice components will be applied.

A conversion factor will be applied each year to update the fee schedule. Conversion factor recommendations may include changes in the number of relative value units for physician services for which there has been excessive growth in volume or intensity of services or inadequate access. According to the statute, neither the number of relative value units nor the conversion factors for a particular physician service can be valued on the basis of whether or not a physician is a specialist.

Implementation of RBRVS is supposed to be accomplished on a budget-neutral basis. It is not supposed to result in an immediate change from the charge-based system in Medicare expenditures for physician services. Although yearly conversion factors are purportedly designed to provide updates to the fee schedule, physicians should not expect to reap a windfall. Physicians should expect fees, at best, to remain stagnant and, at worst, to decrease over time.

The fee schedule is also designed to encourage physicians to become Medicare "participating" physicians. Medicare "participating" physicians sign an agreement to accept "assignment" on all Medicare claims for a 12-month period. On "assigned" claims, the physician agrees to accept as payment in full the Medicare payment for the service, and to collect from the beneficiary no more than any outstanding Medicare copayment and deductible amounts. Once the fee schedule becomes effective, "participating" physicians will be paid the lesser of their actual charges or the fee schedule amounts. Nonparticipating physicians, in contrast, will receive only 95 percent of the fee schedule amount for claims they accept on assignment. for claims not accepted on assignment, the payment limits described below would apply.

Charge Limits,

Nonparticipating Physicians

Next year, physicians will experience a significant expansion of the MAAC concept. nonparticipating physicians have been subject to limits on the amounts that they can charge Medicare beneficiaries since OBRA-86 first introduced the MAAC. The MAAC, in essence, was a limit on the amount by which a nonparticipating physician could increase charges to Medicare beneficiaries each year. Specifically, nonparticipating physicians whose actual charges for a service in the preceding year equaled or exceeded 115 percent of the prevailing charge were permitted to increase their charges by no more than one percent. Because the MAAC under OBRA-86 merely limited a physician's increase in actual charges from year to year, physicians who were charging significantly in excess of the Medicare reasonable charge prior to adoption of the MAAC were still entitled to charge and collect amounts well above the Medicare reasonable charge for a service, as long as the yearly increase in fees did not exceed the MAAC.

In January 1991, however, physicians will be limited not merely with respect to annual charge increases, but also will be subject to an absolute ceiling on the amounts that they can charge Medicare beneficiaries. Specifically, physicians with a MAAC limit at or below 125 percent of the reasonable charge payment amount for nonparticipating physicians in 1990 will be frozen at that limit for services provided in 1991. Physicians with MAAC limits above 125 percent of the Medicare reasonable charge for nonparticipating physicians will be limited to 125 percent of that charge. As a result, physicians who have historically charged Medicare beneficiaries a lesser amount will continue to be limited on the basis of these lower charges. Physicians with higher historical charges will also be limited, but at a higher rate.

This new type of MAAC limitation on the physician's charges will continue to apply once the new fee schedule begins in 1992. Indeed, by 1993, a nonparticipating physician's charges will be limited to 115 percent of the Medicare payment amount for nonparticipating physicians, but in no event may exceed 120 percent of the new fee schedule amount. Sanctions for repeatedly billing over the new limits are the same as teh current sanctions for billing above the MAAC limits--i.e., exclusion from Medicare and other programs for up to five years and/or imposition of civil monetary penalties.

These new charge limits finally may induce many nonparticipating physicians to decide in favor of participation. Because the payment limit amount will not be much in excess of the Medicare fee schedule payment amount, the administrative disadvantage of billing and collecting for amounts in excess of the Medicare payment amount is likely to outweigh the potential of collecting additional amounts. Thus, OBRA-89 may well be remembered as a watershed for the Medicare participation program.

Medicare Volume

Performance Standards

In addition to the charge limitations for nonparticipating physicians, this year the Medicare program begins implementing a new method of establishing annual aggregate target rates of increase for physician payment expenditures, known as "Volume Performance Standards." The new performance standards are intended to slow the increase in expenditures for physician services due not to increases in charges but to increases in the volume and intensity of physician services. Although failure of the physician community to comply with the performance standard rate of increase will not result in withholding of payments, the fee schedule update for the following year would be adjusted accordingly.

The standards will be established by Congress or, if Congress fails to act, the Medicare program. When the standards are set by the Medicare program, the statute specifies the formula to be used, which takes into account estimated changes in physician fees and the number of Medicare beneficiaries, as well as other factors. Reports regarding compliance with the standards will be provided monthly by carriers to the Medicare program, which, in turn, will provide monthly reports to the Physician Payment Review Commission and various congressional offices.

The Volume Performance Standard for FY 1990 is 9.1 percent. The Medicare program has already announced its recommendation for the FY 1991 performance standard at 9.9 percent. The Physician Payment Review Commission must submit comments on the Medicare program proposal as well as its own recommendations by May 15. Results of the Commission's April 27 meeting indicate that its May 15 recommendation will be 11.2 percent.


As the 1980s were the decade of Medicare Part A reform, so the 1990s will be the decade of physician payment reform. As other providers of health care services (i.e., inpatient hospital services, durable medical equipment, etc.) have already found, Medicare payment "reform" is frequently simply an excuse for Medicare payment reduction.

Carroe Valiant, Esq., and Peter E. Robey, Esq., are attorneys specializing in health care law in the Washington, D.C., office of Epstein Becker & Green, P.C.
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Article Details
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Author:Robey, Peter E.
Publication:Physician Executive
Date:May 1, 1990
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