2008 Final Medicare Physician Fee Schedule Rule Summary

November 15, 2007 – The 2008 Final Medicare Physician Fee Schedule will be published in the Federal Register on November 27, 2007. This final rule with a comment period can be found in its entirety on the Centers for Medicare and Medicaid (CMS) Web site.

Comments will be accepted until December 31, 2007. Unless otherwise indicated, the provisions of this final rule with comment period are effective January 1, 2008. The following are the major provisions of the final rule.

• Physician Fee Schedule Update
• Physician Work Value Changes and Budget Neutrality
• Practice Expense Changes
• Revisions to Geographic Practice Cost Indices (GPCIs)
• Impact on Specialties
• Physician Quality Reporting
• Part B Drugs and Biologicals
• Miscellaneous Issues (telehealth services, clinical lab fee schedule, imaging services reduction)

Physician Fee Schedule Update

CMS announced a -10.1 percent reduction in the payment rate for physician services for 2008. This negative update is the result of the application of the Sustainable Growth Rate (SGR) formula which requires a negative update when the actual rate of spending on physician services exceeds a set target rate. The SGR is a spending target that links physician payment updates to the Gross Domestic Product (GDP). It is considered flawed by many and has been at the center of the Medicare physician payment debate for several years.

The negative update reduces the conversion factor from the 2007 rate of $37.8975 to $34.0682 for 2008. Since 2002, CMS has announced negative updates, but Congress has intervened to prevent them from taking place every year since 2003. Many anticipate that this will occur again in 2008.

The chart below provides a history of the conversion factor from 1998 to 2008.

Physician Work Value Changes and Budget Neutrality

In this rule CMS finalized its proposal to increase the anesthesia conversion factor and announced interim values for new and revised CPT codes reviewed by the AMA RVS Update Committee (RUC). New and revised values are always considered interim values for the first year. All of these changes impacted the budget neutrality adjuster that is applied to work Relative Value Units (RVUs).

The changes made to relative values resulted in an increase in expenditures greater than $20 million. CMS is required by law to maintain budget neutrality when this threshold is met. In 2008 CMS will achieve budget neutrality by applying a separate budget neutrality (BN) adjustor to the work RVUs. CMS will apply a work adjustor of 0.8806 or a reduction of 11.94 percent to all work RVUs. This represents an increase in the reduction of work RVUs from the previous year.

Practice Expense Changes

Practice Expense (PE) Relative Value Units (RVUs) represent the resources used in furnishing supplies, office rent/lease, equipment and personnel wages (excluding malpractice expense) when providing physician services. In this final rule CMS addressed several proposed practice expense changes:

• Year two of transition to new PE methodology
• Equipment usage percent and interest expense policy
• Revision to radiology PE methodology

Year two of transition to new PE methodology: In CY 2007 CMS implemented a new methodology for calculating PE RVUs. CMS is implementing this new methodology over a four year period. CY 2008 will be the second year of this transition. The new methodology will be fully implemented by 2010. Practice expense for any new codes created during this period will be based on the new methodology.

The impact of the new methodology on individual codes has been mixed. CMS stated that they received comments from individuals and groups about the decreases to PE RVUs for chemotherapy administration services under the new methodology. CMS has acknowledged that some services have been negatively impacted, but overall they feel that the new method better reflects the typical resources used to provide services.

Equipment usage percent and interest expense policy: The proposed rule contained a discussion of several issues relating to the calculation of equipment costs including (1) the assumption that all clinical equipment is used 50 percent of the time and (2) the use of an average interest rate of 11 percent as a proxy for financing costs of equipment. These assumptions have a direct impact on the calculation of PE RVUs. CMS invited comments on these issues.

Based on comments received and their own analysis, CMS concluded that there was not any strong empirical evidence to suggest a change in the current equipment usage percentage and interest expense policy assumptions, and CMS will not be making any change to these policies at this time, but they will continue to monitor the issue.

Additionally, CMS finalized a number of PE changes to individual codes.

Revisions to Geographic Practice Cost Indices (GPCIs)

To calculate the payment for every physician service, the components of the fee schedule (physician work, PE, and MP RVUs) are adjusted by a geographic practice cost index (GPCI). GPCIs reflect the relative costs in an area compared to the national average costs for each component. In this final rule CMS addressed several proposed changes to GPCIs:

• Work GPCI floor removed
• Update to GPCIs
• CMS declines to make changes to California payment localities

Work GPCI floor removed: Section 102 of the MIEA-TRHCA required the application of a 1.00 floor on the work GPCIs in payment localities where the work was less than 1.00. This legislation, which is set to expire in 2007, in effect protected rural localities. The CY 2008 values reflect the removal of this floor.

Update to GPCIs: CMS is required by law to review and, if necessary, adjust the GPCIs at least every three years. CY 2008 is the first year in a two-year transition for this update. The update to GPCIs will begin in 2008 and will be fully implemented by 2009.

CMS declines to make changes to California payment localities: In the proposed rule CMS outlined alternative locality configurations to the current California payment locality reflecting changes in recent shifts in relative demographics and economic conditions among a number of counties. For CY 2008 CMS has declined to implement any of the proposed alternatives outlined in the proposed rule.

Impact on Specialties

Table 38 from the final rule shows the impact of the proposed work value and PE changes by specialty. This does not include the effect of any change in the conversion factor. For the most part, the projected impact on specialties is a function of the additional 1 percent budget neutrality reduction and the continued phase in of the PE changes in 2007.

Based on this analysis, hematology is estimated to experience an impact of -1 percent from the practice expense and work changes in the 2008 proposed rule. Once practice expense changes are fully implemented in 2010, the specialty is estimated to maintain a -1 percent impact on allowed charges. An excerpt from the chart is below.

Table 38: Combined Total Allowed Charge Impact for Work and Practice Expense RVU Changes

For information on the impact to other specialities, please see the full impact table from the final rule.

Physician Quality Reporting

Section 101 (c) of the MIEA-TRHCA authorizes "Transitional Bonus Incentive Payments for Quality Reporting. "This program was named "Physician Quality Reporting Initiative." The final 2007 PQRI Quality measures compromised of 74 measures, which are applicable to specific combinations of patient conditions. The reporting period for 2007 was from July 1, 2007, to December 31, 2007. Feedback reports and for those individuals achieving satisfactory reporting results, bonus payments will be received in mid-2008.

In this final rule CMS outlines the 2008 PQRI program and addressed several issues related to physician quality reporting:

• Use of the Physician Assistance and Quality Initiative Fund (PAQI)
• 2008 PQRI Measure Criteria
• 2008 PQRI Measures
• Registry Reporting
• Electronic Health Record (EHR) Reporting

Use of the Physician Assistance and Quality Initiative Fund (PAQI): The PAQI provides $1.35 billion for physician payment and quality improvement initiatives. The legislation is generally interpreted to mean that CMS has the option to either use the fund to buy down the negative update or to provide bonus payments to physicians reporting the PQRI measures.

CMS has announced that as it had done for CY 2007, it will use the $1.35 billion to fund bonus payments to be made in 2009 for 2008 reporting. CMS currently estimates that the bonus payments will be approximately 1.5 percent of allowed services. The Agency also noted that other legislation will provide an additional $325 million to be used as a part of the PAQI Fund for payment with regard to services furnished in 2009. Additionally, the legislation will also provide $60 million for payment with respect to physicians’ services furnished on or after January 1, 2013.

2008 PQRI Measure Criteria: The legislation that established PQRI requires that measures used for 2008 be identified by the Secretary as having been endorsed or adopted by a consensus organization and have been developed through the use of a consensus-based process. Two consensus organizations were referenced in the legislation: the National Quality Forum (NQF) and the AQA Alliance. Both of these organizations have been involved in the review of measures.

In the proposed rule CMS explained their interpretation of the legislation on the development of appropriate policy on the roles of NQF and AQA as they relate to endorsement and adoption of the 2008 measures. In this final rule CMS reiterated its interpretation of the legislation and how it applies to the implementation of the 2008 PQRI program:

• Measures Eligible for 2008 PQRI
• Measures endorsed by NQF by November 15, 2007
• Measures adopted by AQA (or other comparable consensus organization) and where there is no NQF-endorsed measure available and the measure has not been specifically declined for endorsement by NQF
• Measures NOT Eligible for 2008 PQRI
• Measures NQF has considered and declined to endorse even if the measure was previously adopted by AQA

2008 PQRI Measures: In the proposed rule CMS published 148 measures for consideration for the 2008 PQRI program. In this rule CMS announces the final 2008 PQRI quality measures. Only measures that were included in the list published in the proposed rule were eligible for consideration for the 2008 program. The measure specifications will be published on the CMS Web site no later than December 31, 2007. The 2008 measures fall into seven broad categories.

• Eligible 2007 PQRI measures (59 measures)
• New for 2008 AMA or Physician Consortium measures which have achieved either AQA adoption or NQF endorsement by October 31, 2007 (38 measures)
• Measures developed by Quality Insights of Pennsylvania. These measures were largely developed to afford expanded reporting opportunities for non-physician providers who had few or no measures available in 2007. Some measures may also be applicable to physicians. (seven measures)
• Structural measures which were required in 2008 by the legislation (two measures)
• Additional AQA Starter measures (five measures)
• Other NQF endorsed measures (six measures)
• Podiatric measures developed by the American Podiatric Medical Association (two measures)

Hematology/Oncology Related Measures for 2008
The four 2007 hematology/oncology-related measures are eligible for the 2008 PQRI program:

• Myelodysplastic Syndrome (MDS) and Acute Leukemias: Baseline Cytogenetic Testing Performed on Bone Marrow
• Myelodysplastic Syndrome (MDS): Documentation of Iron Stores in Patients Receiving Erythropoietin Therapy
• Multiple Myeloma: Treatment with Bisphosphonates
• Chronic Lymphocytic Leukemia (CLL): Baseline Flow Cytometry

Detailed specifications provide guidance on the accurate reporting of the measures. CMS noted that in some instances the 2007 specifications may have been updated or modified during the NQF endorsement process during 2007. The detailed 2008 PQRI measure specifications for any given measure may, therefore, be different from detailed specifications for the same measure used for 2007. Detailed specifications will be posted on the CMS PQRI Web site sometime prior to December 31, 2007.

Registry Reporting
In acknowledgement of the burden of participating in the claims-based PQRI program, in the proposed rule CMS requested comments on five options for submitting data on quality measures via a medical registry, For CY 2008, while claims-based submission will remain the only mechanism of PQRI quality measure data submission, the Agency will be testing two methodologies of registry-based data submission. In the future, CMS envisions that registry-based submission of quality data will be an alternative means of submitting data but not a requirement.

The two methodologies CMS will be testing in 2008 are:

• Registries that provide the quality codes and diagnosis codes to CMS
• Registries that calculate the reporting and performance rates for Medicare beneficiaries only and submit this to CMS

Registries interested in participating should self nominate to CMS by January 4, 2008. A group of registries that comply with statutory and regulatory requirements will be selected.

Electronic Health Record (EHR) Reporting:
CMS is also considering how EHRs could ease the burden of claims-based reporting. In the proposed rule CMS indicated that it would explore the operational feasibility of accepting clinical quality data for a limited number of PQRI measures from EHRs.

For CY 2008 CMS will partner with several self-nominated EHR vendors to develop and test EHR clinical quality and data submission methods. This exercise will only be for testing purposes. Practitioners will need to submit quality data codes through the claims process for a 2008 bonus payment.

Companies interested in participating in the testing program must self nominate by January 4, 2008.

Part B Drugs and Biological Products

The CY 2008 final rule included several provisions related to Part B drugs and biological products including:

• Payment for Intravenous Immune Globulin (IVIG) Add-On Code for Preadmission-Related Services
• Reporting of Anemia Quality Indicators
• Part B Drug Payment—Average Sales Price (ASP) Issues
• Part B Drug Payment—Widely Available Market Price (WAMP) and Average Manufacturer Price (AMP) Threshold
• Part B Drug Payment—Clotting Factor Furnishing Fee
• Part B Drug Payment—Competitive Acquisition Program (CAP)
• Compendia for Medically Accepted Indications for Off-Label Uses of Drugs and Biologicals in an Anti-Cancer Chemotherapeutic Regiment

Payment for Intravenous Immune Globulin (IVIG) Add-On Code for Preadmission-Related Services
Intravenous immune globulin (IVIG) is a unique product derived from plasma. This drug is paid for under the average sales price (ASP) methodology and the administration of this drug is reported using CPT codes for the first hour and second hour infusion for therapeutic, prophylactic and diagnostic services.

CMS has recognized the shortage of this important product and the difficulties providers face in obtaining it. In CY 2006 and 2007, CMS established payment, through the creation of a special G-code, G0332, for preadministration services when provided in the physician office. This code, reported in addition to the payment for the product (IVIG) and administration of the product, is designed to compensate physicians for the extra resources required to be expended due to market conditions to locate and obtain the appropriate IVIG products and to schedule patient infusions.

For CY 2008 CMS has continued the payment for preadministration services through G-code G0332. The code has been assigned a value of 1.97 RVUs, the same value it was assigned in previous years.

Reporting of Anemia Quality Indicators
As reported in the proposed rule, new legislation requires that effective January 1, 2008, hemoglobin or hematocrit levels must be reported with all billings for drugs (ESAs) furnished to an individual for the treatment of anemia in connection with cancer treatment. CMS announced new HCPCS modifiers which will be used for this purpose.

In this final rule, CMS clarified that this mandate does not mean that hemoglobin or hematocrit level should be drawn each time an ESA is administered. The requirement is that "the most recent" hemoglobin or hematocrit level be reported on the claim. Thus, the provider should report the most recent level preceding the ESA administration. CMS recognizes that in some instances the same hemoglobin or hematocrit value might be reported on more than one claim.

Part B Drug Payment—Average Sales Price (ASP) Issues
Since January 1, 2005, the vast majority of drugs covered under Medicare Part B that are not paid on a cost or prospective payment basis have been paid under ASP. CMS has been concerned about the accuracy of the payment methodology. The Agency has found inconsistency in how manufacturers account for price concessions in reporting ASP rates, particularly when a bundle of products are being sold.

The proposed rule outlined a policy that would require manufacturers to allocate the total value of all price concessions proportionately according to the dollar value of the units of each drug sold under a bundled arrangement.

For CY 2008 CMS is not finalizing any of the proposed policies. While the Agency is not implementing any new policy, they state that manufacturers can make reasonable assumptions for the purpose of calculating ASP regarding bundling and price concessions. Additionally, CMS will continue to monitor this issue, will accept comments on this issue and may provide further guidance in the future through rulemaking or program instructions.

Part B Drug Payment—Widely Available Market Price (WAMP) and Average Manufacturer Price (AMP) Threshold
The law gives the Secretary the discretion to disregard the ASP if surveys by the Office of the Inspector General (OIG) determine that the Widely Available Market Price (WAMP) or the Average Manufacturer Price (AMP) is lower than the ASP by a specified percentage. A 5 percent threshold is currently used for this determination. CMS has announced that for CY 2008 they will continue to use the 5 percent threshold.

Part B Drug Payment—Clotting Factor Furnishing Fee
CMS pays a fee to hemophilia treatment centers and homecare companies for services associated with the furnishing of blood clotting factor. Currently, the fee is $0.152 per unit. For CY 2008 this amount was increased to $0.158, which reflects increases in the Consumer Price Index (CPI) for medical care for 2008.

Part B Drug Payment—Competitive Acquisition Program (CAP)
The Competitive Acquisition Program (CAP) provides physicians an alternative to billing directly for the costs of Part B drugs by dealing with a vendor who will supply drugs to their office and bill Medicare. For CY 2008 CMS announced a variety of proposed claims processing, appeals process and other changes to the CAP system.

Compendia for Medically Accepted Indications for Off-Label Uses of Drugs and Biologicals in an Anti-Cancer Chemotherapeutic Regimen
Legislation provides for a list of drug compendia that may be used in determining medically accepted indications of drugs and biologicals for a cancer treatment. The current list includes: the American Hospital Formulary Service, the AMA Drug Evaluations, and the United States Pharmacopeia-Drug Information. In the proposed rule CMS requested comments on a proposed process for public notice and comment to implement changes to the list.

For CY 2008 CMS has announced that on an annual basis the Agency will accept requests to make changes to the list. In order to shorten the proposed timeline, CMS will not publish an annual notice for formal requests. Requests will be posted on the CMS Web site for public comment. CMS stated that they will use the "desirable characteristics" identified by the Medicare Evidence Development and Coverage Advisory Committee (MedCAC) in March 2006 as a framework and guidance on the review process.

Miscellaneous Issues

Telehealth Services
Medicare policy allows for coverage and payment for Medicare telehealth services including consultation, office visits, individual psychotherapy, and pharmacologic management any additional services specified by the Secretary delivered via a telecommunications system. CMS maintains a list of eligible services.

In the proposed rule, CMS discussed the appropriateness of adding several services identified by commenters for possible addition to the list, including subsequent hospital visits. For CY 2008 CMS will be adding code 96116 neurobehavioral status examination to the list of Medicare Telehealth services.

Clinical Lab Fee Schedule
In CY 2007 CMS required the inclusion of the date of service for clinical diagnostic laboratory tests that used stored specimens. In CY 2008 CMS will extend this policy to the technical component (TC) of physician pathology services. Since the collection date for both clinical lab services and the TC of the physician pathology service is similar, CMS believes it is appropriate to apply this policy to both. The Agency believes that the benefit of this policy is that it will improve claims processing and adjudication.