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Practical Implications of Congress' Inability to Stop July 1 Medicare Payment Cut

June 27, 2008

Medicare payments for claims with a date of service beginning July 1, 2008 will be paid 10.6% less than the payment for the first six months of 2008 because of the flawed Sustainable Growth Rate (SGR) formula that is used to update physician payments and because the Congress failed to pass legislation to avert the cut before it recessed for the Independence Day holiday. A description of the events that resulted in Congress' failure to act in a timely manner and the legislative environment going forward, including the prospects for near-term action are at http://www.acponline.org/private/advocacy/letters/medicare08.htm [ACP Members only].

Claims Processing Issues

SGR Payment Update Implications

As background, Congress passed a law in December 2007 that averted a 10.1% payment cut scheduled to take effect January 1, 2008 by replacing it with a 0.5% increase in payments over the 2007 level. The law, however, only provided the 0.5% increase through June 30, 2008. The payment update for the period beginning July l again is determined by the flawed SGR formula because Congress did not pass that overrides that 10.6% cut.

Medicare applies the cut through a 10.6% reduction in the conversion factor, the dollar multiplier that converts the relative values assigned to each service into a payment amount. The conversion factor that will be used to determine payments for services provided beginning on July 1 is $34.05, which is 10.6% less than the conversion factor in place for the first six months of 2008.

It is still possible that the Congress will change the law to halt the 10.6% payment cut, retroactive to July 1, once it returns for official business after its Independence Day holiday recess on July 7, or it may increase future payment rates by a small amount to make physicians "whole" for the losses experienced while the cut was in effect. However, until legislation actually passes and is signed into law by the President, ACP members should not count on being made whole for the losses experienced because of the 10.6% SGR cut. The timing of Congressional action has implications for how Medicare will process and pay your claims.

The law requires Medicare contractors to wait a minimum of 14 days to issue payment after receipt of an electronic claim for services and a minimum of 29 days for a paper claim. The law also requires contractors to pay electronic and paper claims within 30 days. Considering the payment floor and ceiling standards, the earliest a contractor would pay a claim with a July 1 date of service is July 15 and the latest would be July 30.

Depending on how if and how soon Congress acts after it returns on July 7 (assuming that the President promptly signs the legislation into law), it is possible that contractors still could avoid making payments that reflect the 10.6% reduction. It is likely, however, that the contractors will make payments that reflect the cut. It is our understanding that it will take contractors 10 days from the time a new payment update is established through a law change to make the system adjustments needed to pay the new amounts. Assuming that a law change makes the fix retroactive to July 1, contractors will automatically determine and pay the additional amount owed to each physician. In nearly all cases, physicians will not have to resubmit claims to receive the additional payment. While beneficiaries will be responsible for making additional co-payments on the adjustment claims/amounts, CMS is in the process of determining whether physicians can routinely waive these additional co-payments realizing that some physicians may determine collection is not worth the effort.

If Congress changes the law to fix the cut on or after July 7 without making it retroactive to July 1, the claims processing scenario will be even more complex. One option may be for Congress to direct CMS to increase future payments to make physicians "whole" for any losses experienced while the 10.6% cut was in effect. ACP will provide additional guidance in the unlikely event that any of these scenarios happen.

Implications of Other Factors Affecting Payment Rates

A provision in current law that sets a floor by which the geographic adjustment applied to the physician work portion of each service/procedure cannot go below expires June 30. This floor-set at the national average-will lower payments for all services furnished by physicians in geographic areas that are determined to have labor costs that are below a national average. Over half of the 89 distinct geographic areas that Medicare maintains will experience payment reductions beyond the SGR-induced cut.

We expect that Congress will extend the work geographic adjustment floor when passing legislation to fix the SGR-induced cut and that the change will be retroactive to July 1. Physicians who practice in the areas of the country affected by the expiration of this provision will feel the sting of this additional lost revenue at least in the interim.

Further, a provision in current law that provides a 5% bonus payment for services furnished by primary care physicians in designated scarcity areas expires June 30. Physicians in those areas will experience an additional payment reduction with the discontinuation of this bonus payment. Medicare pays this bonus for services furnished in counties that account for 20% of Medicare beneficiaries, with CMS identifying the counties with the lowest primary care physician-to-beneficiary ratio. A similar bonus is paid for services in areas with relatively few non-primary care physicians.

Medicare Participation Status

CMS will not provide a mid-year participation decision period that would enable physicians to change the status they have on file with Medicare despite the 10.6% payment reduction. CMS extended the period during which physicians could change their 2008 participation status, e.g. from participating to non-participating, through mid-February 2008, which is 45 days beyond the usual December 31 closing date. During this election period, the agency provided physicians with the Medicare payment amounts for the first half of 2008 and informed them that payments would be cut for the second half of the year unless there is a change in the law. Accordingly, CMS believes that physician participation decisions were made based on the complete information pertaining to 2008. The agency expects the 2009 participation decision period to begin November 15, 2008.

Physicians who maintain participating status can opt out of Medicare entirely on a quarterly basis. Non-participating physicians can opt out at any time. This option requires that physicians notify Medicare and their Medicare patients that they are opting out of the program to enter into private contracts with beneficiaries. Physicians who opt out are not permitted to accept any Medicare payments for services provided to beneficiaries for a two year period going forward from the date of the opt out (although they can be paid for furnishing emergency services). The American Medical Association document describing this option and providing guidance on how to opt out of Medicare if interested is at http://www.ama-assn.org/ama1/pub/upload/mm/399/medicarepayment08.pdf [PDF].

Ability to Earn a Small Bonus for Reporting Quality Information

The Medicare pay-for-reporting program, known as the Physicians Quality Improvement Initiative (PQRI), provides a mechanism to slightly increase the revenue you receive from Medicare in 2008. CMS will pay a bonus to physicians who successfully report quality measure codes on the claims they submit for their services. Internists who successfully report on three quality measures relevant to their practice throughout 2008 will receive a bonus payment in the amount of 1.5% of the Medicare allowed charges for all of the services they furnished during the year. CMS is adding new reporting options that become available on July 1 that enable physicians to earn a bonus even if they have yet to report quality measure codes during the first half of 2008. The new method most applicable to internists is reporting on measure groups. One group contains measures that pertain to diabetic patients. Reporting the measures included in this group on a claim for 15 consecutive eligible diabetic beneficiaries at any point during the last six months of 2008 will earn physicians a bonus payment equal to 1.5% of Medicare allowed charges for that time period.

ACP is co-hosting a forum via conference call with the CMS to discuss internist participation in the Medicare 2008. The toll-free call will take place on Tuesday, July 15, 2008 from 3:30 to 5:00 p.m. EST. Internists and/or a designated staff member, such as an office manager, are invited to dial in to hear about PQRI participation options, including new mechanisms available beginning July 1. Members who wish to participate should call-in at (800) 837-1935 and enter the conference ID number: 53531371.

Information on PQRI reporting options is also available at: http://www.acponline.org/running_practice/practice_management/payment_coding/pqri_jul08.pdf [PDF].

The potential for a PQRI bonus payment is no substitute for an SGR payment fix. ACP continues to support positive bonus payments that reward and not punish physicians for engaging in measurable efforts to improve quality. Congress remains likely to continue the PQRI program in 2009 and beyond. In addition, it may include other incentives that enable physicians to increase their Medicare revenue in future years. The College continues to stress that quality improvement initiatives-even those that provide positive rewards-will only succeed in an environment of stable, positive, and predictable baseline updates for physician services. ACP continues to work with the Congress and other policymakers to realize a long-term fix to the SGR problem that will facilitate more meaningful and lasting reforms.

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