CMS Releases 2004 Medicare Fee Schedule Proposed Rule


CMS officially released the 2004 Medicare Physician Fee Schedule Proposed Rule on Aug. 15, 2003. Estimated average specialty level impacts of payment rates range from a zero net affect for radiology and interventional radiology to a negative 3 percent impact for radiation oncology and a positive 8 percent impact for oral maxillofacial surgery.

These estimates do not reflect changes in the conversion factor, which is currently at a point estimate of negative 4.2 percent. If Congress does not act to prevent further cuts in the conversion factor, cumulative impacts could range from negative 4.2 percent for radiology and interventional radiology to negative 7.2 percent for radiation oncology. It should also be noted that this estimated cumulative impact does not take into account proposed changes (both increases and decreases) in relative value units as a result of CMS rebasing and revising the Medicare Economic Index. The estimated impact also fails to take into account changes in practice expense values that would result if CMS moves forward with a revised policy for payment of outpatient drugs. For these reasons, it is difficult to know the true affects of the MFS payment rate changes based on this proposed rule.

Practice Expense RVUs

Shortly after releasing the 2004 MFS proposed rule, CMS issued a proposed rule on payment reform for Part B drugs that has implications for specialties such as radiology and radiation oncology that fall under the nonphysician work pool. The proposed rule indicates that if payment reform for Part B drugs moves ahead, the nonphysician work pool specialties will see an approximate 3 percent increase in practice expense RVUs. This potential increase is not reflected in the 2004 MFS proposed rule.

Medicare Economic Index

As a result of rebasing and revising the Medicare Economic Index, CMS is proposing to slightly decrease physician work and practice expense RVUs and increase malpractice RVUs. See the sidebar below for details.

Utilization Data Effects on Radiation Oncology

For additional reasons, radiation oncology will experience larger cuts in Medicare physician payment as certain radiation oncology codes are affected by an updated CMS methodology to calculate practice expense RVUs using more current calendar year 2002 utilization data. This has an effect on codes established in 2002. For example, it affects IMRT treatment delivery (CPT® code 77418) and IMRT radiotherapy planning (CPT® code 77301), and translates into a larger impact on the overall specialty since IMRT treatment delivery had higher than estimated utilization (IMRT represented 8 percent of Medicare revenues to radiation oncology in 2002).

Geographical Practice Cost Indices

The MFS proposed rule also outlined suggested revisions to the malpractice geographical practice cost indices, since the Social Security Act requires CMS to review and potentially update GPCIs every three years. CMS will base malpractice GPCIs for 2004 upon actual 2001 and 2002 malpractice premium data and projected 2003 data by Jan. 1, 2004. The revised malpractice GPCIs will be published in the final rule, but will be considered interim and subject to public comment.

National Payment for Selected Category III CPT® Codes

CMS is also proposing to create a national payment policy to price selected new technologies based on specific tracking codes (i.e. category III CPT® codes) when there is a significant programmatic need. Local carrier medical directors, on occasion, have asked CMS for guidance on how to price these new technology tracking codes.

Congressional Action

It is possible that congressional action will prevent cuts in the negative 4.2 percent conversion factor update. House bill H.R.1, the Medicare Prescription Drug and Modernization Act, includes a provision that the MFS update cannot be less than 1.5 percent for 2004 and 2005. The Senate version of the bill, S.1, includes language that would call for the enactment of legislation to prevent anticipated cuts in 2004 and 2005.

The ACR is analyzing this proposed rule and will comment to CMS before Oct. 7, 2003. For a copy or detailed explanation and summary of the MFS proposed rule, please contact the ACR Economics and Health Policy Department at (800) 227-5463, ext. 4774.

Changes to the Medicare Economic Index Proposed

CMS is proposing to rebase the Medicare Economic Index to reflect more current physician expenses by moving from a base year of 1996 to a base year of 2000. CMS is also revising the MEI weights for physician work, practice expense and malpractice for calendar year 2004.

Rebasing and revising the MEI has triggered the following RVU adjustments:

  • Physician work: CMS is proposing to reduce physician work RVUs by a 0.9965 adjustment.
  • Practice expense: CMS is proposing to reduce practice expense RVUs by a 0.9885 adjustment.
  • Malpractice: CMS is proposing to increase malpractice RVUs by a 1.217 adjustment.

CMS has proposed these revisions to ensure budget neutrality and not violate the $20 million threshold for changes in Medicare expenditures from year to year. CMS has indicated that it is proposing reductions to the RVUs rather than a further reduction in the conversion factor to ensure budget neutrality. CMS also has indicated that the total net change in RVUs resulting from changes in the MEI will be minor.

Overall, the forecasted MEI for the 2004 physician fee schedule is an increase of 2.5 percent, nearly identical to the 2.4 percent increase forecasted using the 1996-based MEI.

The MEI is a measure of the national average increases in the price of inputs used in operating a private medical practice and is one of three factors used in the physician payment update formula. The MEI is the weighted average of annual price changes of the input expenses (with an adjustment for productivity).