CMS revises its estimates of reasonable earnings
Estimates of FTE annual average net compensation levels
and other physicians, all too often the target of Medicare
Part B payment cuts, received positive news on the Part A side recently:
updated reasonable compensation equivalent, or RCE, limits.
RCEs are in the final regulation for the 2004 inpatient hospital
payment system. The RCEs are the federal government’s estimates
of reasonable annual earnings for various physician specialties.
They provide an important tool in negotiations between pathologists
and hospitals to establish Medicare Part A compensation for managing
clinical laboratory services.
RCEs define allowable compensation for physician services that “benefit
patients generally,” as opposed to those provided to individual
patients. Examples include administrative services, committee work,
teaching, and supervision. Directing a clinical laboratory is one
such “administrative” service long considered under
the province of the RCE system.
Medicare includes payment for directing a clinical laboratory in its diagnosis-related
group system for Part A payments to hospitals for inpatient services.
But hospitals are under no obligation to pass through a specific
amount and, instead, are encouraged to negotiate Part A payment
rates with pathologists. This is where the reasonable compensation
equivalents come into play.
“Many hospitals continue to use reasonable compensation equivalents as
the measure for Part A reimbursement,” says CAP president-elect
Thomas M. Sodeman, MD, of Lake Success, NY. “So an adjustment
to that rate is important because it hasn’t been adjusted for a while.”
The Centers for Medicare and Medicaid Services’ RCE update in its Aug.
1 inpatient prospective payment system final rule represented only
the second time since 1985 that the agency has adjusted the figures.
The only other update came in May 1997.
Under the final rule, the RCE for pathologists in nonmetropolitan areas will rise
from $180,000 annually to $208,000. For those in metropolitan areas
with fewer than 1 million residents, the figure will rise from $190,000
to $219,500. In metropolitan areas with populations of greater than
1 million, the RCE will increase to $215,700 from $186,700. CMS
adjusts the RCEs for metropolitan statistical areas and rural counties.
The RCE portion of the final rule, including the complete list of geographic adjustments,
is on the CAP Web site at www.cap.org/statline/RCEupdates.pdf.
While the RCE updates are only a small part of the hefty inpatient payment rule,
their importance to pathologists must not be overlooked, Dr. Sodeman cautions.
“The key is to make pathologists across the country aware that there has
been an adjustment, so if a hospital uses the RCEs in any form,
they understand that there’s a new rate,” he says.
For pathologists, the RCEs make for a good “ballpark figure” when negotiations
turn to a discussion of payment rates, says former CAP governor
Richard J. Hausner, MD, of Houston.
“As a starting point for what may constitute fair market value, consider
the RCEs,” Dr. Hausner advises. “But remember that the
payment is for time spent full- time for a practice that does only
Medicare. A large laboratory may need more than one FTE to handle
the percent of the clinical pathology practice that is Medicare,
a smaller laboratory less than one FTE.”
The improved RCE limits are welcome news on the academic front, too, says Carl
G. Becker, MD, of the Medical College of Wisconsin, Milwaukee.
“A major issue—and you’d probably get this answer from every
academic chair of pathology—is that for most medical schools,
their survival is increasingly dependent on their clinical income,”
Dr. Becker says. He points to estimates that the supply of medical
school graduates is expected to fall short of demand by 45,000 in
2015. “We need that money for the educational process, and,
increasingly, the cost of training is coming out of clinical money.
So it’s an investment in the future of health care and pathology.”
The RCEs represent
a work year of 2,080 hours (40 hours a week). When Medicare established
the limits in 1983, it based them on American Medical Association
Socioeconomic Monitoring System survey data and consumer price index
inflation updates. In October 1997, CMS revised the method to use
the Medicare economic index, adjusted by the consumer price index,
for updates. CMS made the change to make the method for updating
the RCEs consistent with that used to update Part B payments under
the physician fee schedule.
The Aug. 1 RCE updates will apply to cost reporting periods beginning on or after
Jan. 1, 2004. The final rule says Medicare intermediaries can grant
exceptions to the RCE limits if a hospital, particularly those that
are small or in rural areas, can demonstrate that the limits make
it difficult to recruit or maintain an adequate number of physicians.
The College has worked since the start of Medicare’s inpatient prospective
payment system to preserve Part A payments to pathologists for directing
clinical laboratories. Hospitals sometimes attempt to negotiate
contracts that pay pathologists no or token payment for laboratory
oversight, a practice that Medicare, at the urging of the CAP, has
labeled a potential violation of fraud and abuse statutes. A 1991
Department of Health and Human Services Office of Inspector General
report, “Financial Arrangements Between Hospitals and Hospital-Based
Physicians,” said agreements that compensate pathologists
for less than the fair market value of the goods and services they
provide to hospitals or require pathologists to pay more than the
fair market value for goods and services provided by the hospital
is a potential violation of anti-kickback statutes of the Social
Security Act. In 1997, in its “Compliance Program Guidance
for Hospitals,” the OIG reaffirmed and strengthened the language
by saying that token or no payment for Part A management services
may violate the anti-kickback statutes.
Carl Graziano is CAP manager of government communications.