New Medicare reform boosts pay for rural physicians

From the March ACP Observer, copyright © 2004 by the American College of Physicians.

By Brett Baker

Q: Did Congress pass a law that improves Medicare payments to physicians for services performed in rural and other underserved areas?

A: Yes. The recently enacted Medicare Prescription Drug Improvement and Modernization Act of 2003 includes provisions that increase payments for physician services furnished in rural and other underserved areas.

A few provisions of the legislation improve payment for rural services in 2004 in addition to the 1.5% across-the-board payment increase for all physician services. (That increase was also mandated by the Medicare reform legislation.) Another provision in the law further boosts Medicare payments in 2005 in areas that have a poor physician-to-beneficiary ratio.

ACP supported the law's provisions that increase physician payments for services in rural and underserved areas. These provisions increased the overall pool of money allotted for physician services without a corresponding cut for services provided in urban and nonrural settings.

These provisions also account for some of the Medicare reform legislation's $11 billion increase in payments to providers, physicians and suppliers over the next five years.

Q: What will the law do to reduce regional differences in the costs assigned to physician work? Will there be a smaller gap between areas designated as "high cost" and "low cost"?

A: The legislation made important changes to the portion of the payment formula known as the geographic practice cost index.

The government applies the geographic practice cost index to the physician work component of the Medicare fee schedule to adjust for the relative practice cost differences in Medicare's 89 payment areas.

In 2003, 58 localities with relatively low operating costs had an index of less than 1.0. These values ranged from 0.881 for Puerto Rico to 0.998 for New Orleans.

In 2004, the Centers for Medicare and Medicaid Services (CMS), in accordance with the new law, increased the geographic practice cost index for each of these areas to 1.00. As a result, Medicare is paying more for physician services in these areas. For more information on how the increased rates will affect the pay of some physicians, see "How rural physicians will be helped by the new Medicare law."

The factor for the other 31 areas—where the value is already equal to or higher than 1.00—remains unchanged. Click here to see the impact of the new 1.00 work value for each of Medicare's 89 payment areas.

The good news is that when the CMS increased its geographic cost index for rural areas, the government did not take away money from other parts of the Medicare program to make up for the new increase. In other words, payment areas that already had a geographic practice cost index of at least 1.00 will not see their payments reduced to pay for the increases in other areas.

Q: Did the new Medicare law change the program that provides a 10% payment bonus for services provided in physician shortage areas?

A: The legislation makes it easier for physicians to collect the 10% Medicare incentive payment bonus in health professional shortage areas.

The new law requires carriers to automatically pay physicians the 10% payment bonus for services furnished in either rural or urban shortage areas. Before the law was passed, carriers merely notified physicians that these shortage areas existed and required physicians to take the initiative to collect the bonus. Doctors had to identify services furnished in a shortage area by appending a modifier to the procedure code when billing for services.

Q: How do I know if I should be receiving the 10% Medicare incentive payment bonus?

A: The U.S. Public Health Service defines shortage areas based on census data. Although shortage areas span entire counties in some cases, they typically represent only sections of counties. Physicians should use notice of shortage area designations provided by their Medicare carrier.

Q: Will Medicare make additional bonus payments in the future to physicians for services furnished in rural areas?

A: Yes. The Medicare reform law calls for a physician scarcity bonus payment of 5% between 2005 and 2007. Physicians who provide primary and specialty services in "scarcity" areas will receive a 5% Medicare incentive payment for services furnished between Jan. 1, 2005 and Dec. 31, 2007.

Medicare will pay a scarcity bonus to physicians in counties that account for 20% of Medicare beneficiaries. This law instructs the CMS to calculate a scarcity ratio—based on the number of active physicians per Medicare beneficiary—for primary and specialty physicians, to determine which counties make the bonus payment.

The CMS will also publish a list of areas that qualify as primary or specialty care scarcity areas in the annual update to the physician fee schedule for 2005-2007.

Brett Baker is a third-party specialist in the College's Washington office.

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Revised Work GPCI and Impact 1.0 Percent Work GPCI

Source: Federal Register, Jan. 7, 2004

Note: The "percentage change" column shows the percentage the 2004 work GPCI increased from the 2003 value. It is not meant to indicate that the actual Medicare payment for each physician service increased by that percentage in that locality.

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