College of American Pathologists
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Fee cuts proposed; CAP to pose alternatives

August 2002
Carl Graziano

The College is working with Congress, federal health officials, and other laboratory organizations to avert payment cuts for pathology services under a proposed rule for the 2003 Medicare physician fee schedule.

The June 28 proposed rule from the Centers for Medicare and Medicaid Services would reduce Medi-care’s conversion factor by 4.4 percent and revise the way the agency calculates relative values. The calculation revision would further depress payments to hospital-based pathologists and independent labs.

But the proposed conversion factor reduction may not materialize because Congress appears likely to pass legislation that would require Medicare to change the way it calculates annual conversion factor updates and increase the factor by two percent next year. The House, responding to strong lobbying by the College and numerous other medical organizations, passed the Medicare Modernization and Prescription Drug Act of 2002 (H.R. 4954) in June, and Senate action to im-prove Medi-care pay-ments is expected.

Less clear is what will happen to provisions in the CMS proposed rule that would change how the agency calculates practice expense relative values. The change, if carried out, would reduce payments overall to hospital-based pathologists by two percent. The proposed rule’s changes to global relative value calculations would lower overall payments to independent laboratories even more—eight percent, according to CMS. And another change to the way nonphysician clinical staff are used to allocate costs would take an additional one percent off independent laboratory payment but would not affect hospital-based pathologists.

The sum of all proposed changes, including the 4.4 percent conversion factor drop, would give hospital-based pathologists a six percent decline in payment overall, if Congress fails to act on the conversion factor issue. Independent laboratories would see a 12 percent drop. For each practice, the number could be higher or lower depending on the practice’s mix of services.

The major relative value reductions in the proposed rule would result from changes in the relationship between the professional components (PC), technical components (TC), and global values of diagnostic services. Now, CMS separately calculates the PC and TC of a service using defined methods. But when it calculates the global service using the same methods and compares the two, the sum of the PC and TC does not equal the global, because the data are volume weighted using the frequency of billing for the various components. The agency is left in the position of making adjustments to rationalize the relationship of the components.

In its proposed rule, CMS adopted a suggestion by the Lewin Group, a CMS consultant. Lewin advised the CMS to first calculate a global value and then derive the TC by subtracting the professional component from the global. The CMS reasons that because many more global and PC charges are billed than TC charges, the data for the first two are more robust and the TC should be calculated as the residual. The problem for pathology is that the value for CPT code 88305, the highest-volume pathology service, drops significantly under this plan.

Under the Lewin Group method, the PC relative value of 88305 would drop 0.8 percent, the TC would fall 11.6 percent, and the global value would decrease 6.98 percent. The reductions would be made to the practice expense, or PE, portions of the relative values. Other services, such as the 88304, are expected to see technical component, and thus global, relative value increases under the proposed method Table 1. The 88305 is such a dominant service in most practices, however, that the overall impact is negative.

A major component of the reason for the problem is the practice-expense-per-hour (PE/Hr) data used in the calculation Table 2. Several years ago the CAP succeeded in getting the pathologist PE/Hr data adjusted to ensure that time spent on services not paid for under the Medicare Part B fee schedule was not counted in the formula. Since the number of countable hours went down, the PE/Hr ratio went up.

The CMS has no data source for the PE/Hr for independent laboratories, so the agency assigned the "all physician" average to the labs. The proposed change in method has highlighted the need for more accurate independent lab data. The relatively low number used as a default reduces the share of overall Medicare spending allocated to pathology services and thus reduces payment to pathologists based in both independent labs and hospitals.

The College is analyzing the proposed rule and communicating with CMS representatives about alternative approaches that would restore pathology payments. The proposed changes would cause current Medicare payment for pathology services to flow out to other specialties for their services, because physician fee schedule changes are subject to budget neutrality adjustments across all specialties.

"Any CAP alternative proposal would need to ensure that the result does not inadvertently shift relative value, and thus payment, from pa-thol-ogy PCs to pathology TCs, and thus not benefit the specialty overall," says Mark S. Synovec, MD, chair of the CAP Professional and Economic Affairs Committee that analyzes the annual changes to the fee schedule. "This is not a PC-TC issue, and we don’t want to make it one," he says.

In other changes, the proposed rule also would establish a new code for billing bone marrow aspirations and biopsies performed on the same date of service through the same incision. Now, Medicare will not pay for both services when billed by the same physician. The agency proposes a relative value of 4.92 when the service is provided outside of a hospital and 2.20 when provided inside the hospital. Proposed 2003 relative values for the two separate services when not provided through the same incision on the same day are 5.70 for the aspiration and 6.11 for the biopsy when provided outside the hospital. When provided inside the hospital, the values are 1.54 for the aspiration and 1.95 for the biopsy.

Says Dr. Synovec, "The College opposed the Medicare Correct Coding Initiative edit that eliminated payment for both bone marrow services by the same physician, but CMS advisors who feel that economies are present refused to routinely pay for both services." Now the agency is proposing a compromise solution, a Medicare alphanumeric code that would allow some extra payment for the combined service. The proposal is based on the idea that the typical case involves aspiration and biopsy through the same incision.

"The committee is looking at the proposal and will communicate with the hematology and oncology organizations to learn their thinking before making recommendations to the CAP on how to respond," Dr. Synovec says.

The Medicare physician fee schedule proposed rule is on the CAP Web site,, under Advocacy, From the Government. Appendix B toward the end of the document includes the proposed relative values for all pathology services subject to the fee schedule. Comments on the proposals are due Aug. 27; the final rule is scheduled for publication in early November.

Carl Graziano is CAP manager of government communications.