College of American Pathologists
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Fee schedule cut stirs broad opposition

December 2001
Carl Graziano

A looming 5.4 percent cut to Medicare physician fees set to start Jan. 1 has spurred an intense campaign on and off Capitol Hill by the College, the American Medical Association, and scores of other groups to avert the potentially devastating reduction.

Their fight won support in Congress when, on Nov. 8, Sens. James Jeffords (I-Vt.) and John Breaux (D-La.) introduced legislation that would permit a payment reduction of no more than 0.9 percent. The Jeffords-Breaux bill, the Medicare Physician Payment Fairness Act of 2001, also would direct the Medicare Payment Advisory Commission to suggest by March 1, 2002 a replacement for the formula behind Medicare’s annual fee schedule updates.

Jeffords and Breaux introduced their bill as S. 1660 and, about a week later, reintroduced it as S. 1707. The newer version clarifies that higher payments next year that result from the bill’s improved conversion factor would not be considered in subsequent updates to the conversion factor and sustainable growth rate, the amount by which aggregate expenditures are allowed to rise each year without penalty.

While the fate of the Jeffords-Breaux bill was not clear at press time, supporters remained confident it would prevail, given the weight of the more than 1 million physicians and other providers represented by the groups behind the legislation.

The Centers for Medicare and Medicaid Services published its final rule for the 2002 fee schedule Nov. 1, including in it the 5.4 percent reduction to the fee schedule conversion factor, the dollar amount by which a service’s relative value is multiplied to calculate payment. Under the final rule, the conversion factor for 2002 is $36.20, down from $38.26 this year.

Physician groups, the Medicare Payment Advisory Commission, and others had seen the cut coming long before the final rule’s publication, and the College and other groups representing providers lobbied for changes to eliminate or minimize it. The reduction results from the formula Congress mandated for updating payments to the fee schedule conversion factor and the sustainable growth rate.

The formula considers estimated changes in payment amounts for physician services, the change in the number of Medicare beneficiaries, projected growth in the real gross domestic product, and changes stemming from law and regulation, such as coverage of specified screening services. In recent years, medical inflation has been relatively low and the GDP has been strong, producing strongly positive Medicare updates for the past two years. But recent increases in medical inflation and declines in the GDP combined for a negative update for 2002.

CMS predicted last March that the update would be -0.9 percent, but later estimates by the AMA and the Medicare Payment Advisory Commission suggested that continued changes in medical inflation or a downturn in the economy, or both, would portend a more dire outlook for the update factor. When both scenarios occurred, the formula produced the 5.4 percent reduction. And in its Nov. 1 final rule on the physician fee schedule, CMS warned that when the final figures on growth for 2001 are in, the outlook for future years may prove even more bleak.

One day before the final rule’s publication in the Federal Register, a coalition of more than 70 medical groups, led by the AMA and including the College, sent letters to Congress and the Bush administration calling for a delay in the 2002 fee schedule update and revisions to the formula used to calculate the annual update.

"Currently, Medicare officials are required to use a seriously flawed formula to calculate physician conversion factor updates," the groups said in their letter. They pointed out that a fee schedule reduction next year would be the fourth in the past 10 years and that during that period, Medicare payments had risen by an average of 1.7 percent annually, or 13 percent less than the rise in practice costs.

The groups warned, "The gap between cost inflation and Medicare’s payment updates is already starting to take its toll and a negative update could greatly exacerbate the situation." They noted that previous Medicare payment cuts have caused access problems in some areas.

Stephen N. Bauer, MD, who chairs the College’s Practice Expense Work Group, says, "Pathology services that have been subjected to repeated Medicare payment cuts during the past decade should not have payment reduced again because of factors unrelated to the real worth of the services or general declines in cost of medical care." The work group meets frequently throughout the year to develop practice expense data sets for pathology services, which CAP leaders approve before they’re submitted to the AMA/Specialty Society Relative Value Update Committee. "I am very optimistic that Congress will recognize that physician services cannot withstand such cuts and act, even next year retroactively, to adjust the conversion factor for 2002 so that it’s closer to the factor for 2001," Dr. Bauer says.

In addition to joining the coalition letter-writing campaign, the College mobilized its grassroots Pathology Advocacy Network. In an Oct. 30 alert, the College asked pathologists to contact key lawmakers and stress the importance of the issue and the need for action before Jan. 1, when the update and reduction will take effect if Congress does not act. The College activated its grassroots network again on Nov. 12, with an alert calling on pathologists to seek the support of their senators for the Jeffords-Breaux bill.

The College and other groups earlier this year tried to work with the Centers for Medicare and Medicaid Services to avert the expected conversion factor cut. But the agency said it could do little to adjust the statutorily defined formula behind the annual update. So physicians turned to Congress, and Sens. Jeffords and Breaux responded.

The conversion factor decline not only would directly reduce payment rates, but also would compound the negative effect of ongoing practice expense relative value reductions for some specialties.

Likely to be hit hardest are cardiologists, ophthalmologists, radiologists, radiation oncologists, and rheumatologists, all of whom were predicted to experience net decreases in Medicare payment, even with a static conversion factor. Had the conversion factor not changed, hospital-based pathologists were predicted to receive a net three percent increase in Medicare payment in 2002 as a result of other payment policy changes.

Shortly after CMS published its final rule, the AMA Center for Health Policy Research released an impact table (Table 1, page 5) showing the effect since 1999 of changes in the Medicare physician fee schedule, including the transition to resource-based practice expense relative values, changes to physician work relative value units during the period, and the annual change to the conversion factor. Although hospital-based pathologists were predicted in 1998 to experience a 13 percent decline in Medicare payments through 2002 as a result of the transition to resource-based practice expense relative value units, the AMA analysis shows that pathologists actually will receive a six percent boost in payments overall, despite a four percent net decline in 2002 due to the conversion factor problem.

The turnaround stems in part from changes to practice expense data the College has advocated since 1998. CMS made additional changes that benefit pathology relative to other specialties. High conversion factor updates in 2000 and 2001 and the fact that many hospital-based pathologists who do reference pathology work benefit from the technical component increases also contribute to the turnaround.

Says Dr. Bauer: "The College has devoted considerable resources to ensuring that pathology practice expenses are considered in revisions made to the practice expense relative values over the past few years. From the impact table prepared by the AMA, it’s clear those efforts have made a difference."

Pathology did score a significant victory in CMS’ decision to update its practice expense database to account for 1999 expenses of physician practices. No other specialty gained more by that change, which will give each pathologist in a practice credit for $66.90 in practice expenses per hour of practice. Overall, only general surgery fared better in the Medicare fee schedule policy changes for 2002. That specialty was predicted to receive a four percent increase in payment absent the conversion factor change. Anesthesiology, which has a separate conversion factor because its payments are based in part on time units, is negatively affected, with a 6.8 percent reduction to its factor.

But the conversion factor change significantly reduces 2002 Medicare payment for the high-volume 88305 surgical pathology professional component, or PC. The 88305-PC relative value already was scheduled for a decrease because of the ongoing transition to resource-based values. Although adoption of the 1999 expense data made the 88305-PC reduction two percent less than previously planned, it still was scheduled for a 3.5 percent decline in 2002. The conversion factor change makes for an 8.7 percent reduction to the 88305-PC next year.

Pathology practices that also provide technical component, or TC, services might still see increases in payments, even with the conversion factor effect. In general, technical component payments for pathology services have been on the rise because of practice expense revisions. The 88305-TC payment would have gone up 27 percent next year with no conversion factor change. After factoring in the change, Medicare payment for the 88305-TC will rise 20 percent in 2002. This means an overall increase of 5.7 percent for the 88305 global service (PC and TC)—not the increase in the high teens that had been predicted but positive nonetheless.

The 2002 fee schedule final rule did bring good news regarding Medicare practice expense relative value unit revisions for pathology services requested by the CAP and the AMA/Specialty Society Relative Value Update Committee. CMS accepted all the CAP and committee pathology recommendations for 2002.

The final rule includes practice expense RVU refinements for 42 pathology services, including most cytopathology procedures, special stains, clinical pathology interpretations, and surgical pathology services other than the 88304 and 88305, which were previously revised. Changes to practice expense values for selected services subject to refinement under the 2002 fee schedule are in Table 2.

CMS also accepted the College recommendation that the new CPT code for mechanical or laser capture microdissection by physicians, 88380, not be given a national relative value for 2002 but be priced at the local level by individual Medicare Part B carriers. This gives pathologists who provide this service the opportunity to work with their local carriers to determine an appropriate Medicare payment amount. When there is sufficient experience with the service, national relative values for the physician work and practice expenses will be developed.

CMS also accepted a CAP request that Medicare fee schedule payment for electron microscopy technologists’ services be priced using the wage rate for cytotechnologists. CMS proposed in August to price electron microscopy personnel at the rate used for histotechnologists, but the College said training and salary costs are closer to those of cytotechnologists. In the final rule, the histotechnologist wage rate adopted by CMS is 37 cents per minute, including benefits, and based on American Society of Clinical Pathologists’ data. The wage rate adopted for cytotechnologists and electron microscopy technologists is 45 cents per minute, including benefits, based on Bureau of Labor Statistics cytotechnology data. The CAP Practice Expense Work Group developed the CAP practice expense recommendations.

Carl Graziano is CAP TODAY Washington editor and CAP manager of government communications.

The list of all 2002 pathology relative values can be downloaded at in the Advocacy section. The complete final rule for 2002 is posted also.