The Health Care Financing Administration (HCFA) is in the process of developing new relative value units for the practice expense component of the resource based relative value scale (RBRVS). The RBRVS is used by Medicare and many other private insurers to determine reimbursement levels. These changes threaten the long-term viability of many specialty practices. Although a number of specialties would face serious reductions in income as a result of the proposed changes, neurosurgery would be especially hard hit. In fact, neurosurgeons face a 25Â35% reduction in total income if HCFA implements its current proposal on January 1, 1998, as now planned.
This situation has galvanized much of organized medicine, prodding many groups to initiate counter measures aimed at preventing the implementation of this plan. Neurosurgery is at the forefront of this effort and has taken a very aggressive stance on the issue. The goal of this article is to provide you with background on the practice expense controversy and to detail what your professional organizations are doing about it.
Overview of HCFA Practice Expense Project and Implications for Neurosurgery
Up until 1992, Medicare reimbursed physicians under the usual customary and reasonable (UCR) charge system. There were many critics of this system and in the mid-1980’s, Congress decided to explore new ways to reimburse physicians.
Legislative and Regulatory History of the RBRVS
Based on Congressional mandates contained in the Consolidated Omnibus Reconciliation Act of 1985, the Omni-bus Reconciliation Act of 1986, and the Omnibus Reconciliation Act of 1987, HCFA began its efforts to develop a physician fee schedule based on a relative value scale. The research was performed by a research team at Harvard University School of Public Health, led by William Hsaio, PhD. The two main objectives were to construct a system that was more equitable (i.e., would increase primary care and general internal medicine’s fees with a corresponding decrease in the fees for surgeons and medical proceduralists) and would help constrain Medicare physician expendi-tures. This was strongly supported by the American Society of Internal Medicine, with additional support by the other primary care societies. In 1989, Hsaio completed the initial research, “A National Study of Resource Based Relative Value Scale for Physician Services.” The Physician Payment Review Commission (PPRC), primary care organizations, and the AMA supported the concept (the American College of Surgeons opposed this effort). As a result, Congress enacted new physician payment rules as part of the Omnibus Reconciliation Act of 1989. Through a series of rulemaking and refinement panels, HCFA transformed the Hsaio research into relative values for most CPT codes. The final fee schedule became effective on January 1, 1992.
Components of the RBRVS
The RBRVS has three components — work, practice expense, and malpractice expense. Each component is multiplied by a geographic adjustment factor or GPCI (geographic practice cost index). The product of each component is then added to one another to arrive at the total relative value for a given service. The total relative value units (RVUs) are then multiplied by a dollar conver-sion factor to arrive at the fee for the service. Currently there are three different conversion factors: one for surgical services, one for primary care services, and one for all other services. Thus, the payment formula is calculated as follows:
PAYMENT = CF x [RVU work x GPCI work ) + (RVU practice x GPCI practice ) + (RVU malpractice x GPCI malpractice )]
Practice Expense Component
The work values of the RBRVS are generally considered to be valid estimates of the physician resources required to perform a service. Currently, only the work component is “resource-based.” The practice and malpractice expense components, on the other hand, are calculated from historical Medicare allowed charges and from data on practice expense and malpractice expense revenue shares for different specialties. Many argue that the current practice expense methodology produces a bias in payments in favor of surgical and invasive procedures and against evaluation and management services. Since the inception of the RBRVS, numerous groups (including the PPRC, AMA, primary care and general internal medicine organizations) have advocated that the practice expense component should be resource-based.
Since the inception of the RBRVS, several pilot projects to develop resource-based practice expenses have been completed by researchers under the sponsorship of HCFA, the PPRC, and other private organizations. In 1992, the PPRC issued a report outlining their proposed methodology for calculating resource-based practice expenses. This methodology divided practice expenses into direct and indirect costs for each service. Direct expenses are those costs attributed to a specific CPT code, e.g., clinical labor and equipment. Indirect expenses are those costs common to all procedures, e.g., rent, telephone, some labor. This approach assumes that those specialties that are hospital based, i.e., surgery, have fewer practice expenses than those that are office based, i.e., primary care. In its 1993 Annual Report to Congress, the PPRC formally recommended that Congress revise the practice expense component to be resource-based.
In 1993, Congress first responded with an interim approach in an effort to reduce some of the practice expense RVUs for procedures that were deemed to have excessive reimbursement for their practice costs. The Omnibus Reconciliation Act of 1993 included a provision that reduced the practice expense component to no greater than 128% of the work RVUs (the initial proposal was 110%). Services performed in the office more than 75% of the time were exempted from this reduction. This had the greatest impact on the surgical procedures (for neurosurgery, the spine procedures took the biggest hit), many of which had practice expense relative values in excess of 140% of the work RVUs. In October 1994, Congress passed the Social Security Act Amendments. This law directed the Secretary of Health and Human Services to develop a resource-based system for determining practice expense RVUs. In developing the methodology, the Secretary was directed to consider the “staff, equipment, and supplies used in the provision of various medical and surgical services in various settings.” If Congress does not intervene, the new system will be implemented on January 1, 1998.
HCFA Research
In November 1994, HCFA issued a request for proposals to develop data on practice expenses and case mix. In the spring of 1995, HCFA awarded the practice expense data collection contract to Abt Associates, Inc. The Abt approach was similar to that originally developed by the PPRC, wherein practice expenses are divided into two categories: direct and indirect. These two “pots” are then added together to produce the total practice expense RVUs. The agency also funded two other projects to produce alternative methods of allocating indirect costs using existing data and a formula-based approach. HCFA awarded these contracts to Daniel Dunn and Eric Latimer of Harvard University and Gregory Pope and Russell Burge of Health Economics Research, Inc.
After a series of meetings and preliminary work, Abt began the actual data collection process in February 1996 (nearly one year after being awarded the contract). The first part of the data collection process involved efforts to measure the non-physician time and labor that comprise the direct expenses of procedures. Abt. convened Clinical Practice Expert Panels (CPEPs), which collected the direct cost data that could be attributed to specific services and procedures. Follow-up CPEP II meetings were held in June 1996 and were designed to extrapolate to the entire group of CPT procedures from the initial samples in CPEP I.
The second part of the data collection process involved a national mail survey to physicians. In April 1996, Abt sent Phase I of the survey to 1,700 physician practices. The purpose of the survey was to collect data on indirect costs and service mix. In September 1996, because of a poor response rate, HCFA canceled the mail survey. As a substitute, the agency decided to use the research of Dunn and/or Pope to develop the indirect expense component. In January 1997, HCFA released its preliminary impact analysis.
Impact on Neurosurgery
HCFA estimates that overall practice expense changes will cut neurosurgery’s total Medicare (and non-Medicare if private insurance carriers adopt the fee schedule as is) income by 25% to 35%, depending on the methodology selected. (See Table 1 for some examples of common neurosurgical procedures) These figures are based on 1995 numbers and therefore do not reflect the recent adjustments made to the fee schedule during the 5-year review of work RBRVS. The impact will be slightly larger, when HCFA includes those downward adjustments. They also do not reflect the proposal to adopt a single conversion factor for all providers, which would produce an additional 10% reduction in all reimbursements for surgery.
Neurosurgeons are not the only specialty adversely affected by HCFA’s proposal. The hardest hit is Cardiac Surgery, which faces total reductions from 32% to 44%. Thoracic Surgery, Cardiology, Vascular Surgery, and Gastroenterology will face reductions ranging from 17% to 40%. General Surgery, Orthopedic Surgery, and Plastic Surgery can expect reductions of 8% to 19%. The principal reason for the reductions is that HCFA’s methodology assumes that when the surgeon is in the hospital doing surgery, he or she is not incurring any overhead expenses – an obviously faulty assumption.
Given that they have been the most vocal proponents of this new system, it is ironic that under the current proposal general Internal Medicine will at best receive only a 4% increase. Family Practice fares better with increases ranging from 9% to 19%. The big winners, however, are the non-physician providers (as was the case in the 5-year review of work RVUs). Chiropractors will receive increases of 27% to 54%, Optometrists 35% to 40%, and Podia-trists 23% to 41%. These specialties have significant increases because they perform all of their services in an office setting.
Access to Neurosurgical Care
The AANS and CNS are very concerned these cuts will have a significant impact on access to quality neurosurgical care. Because of low Medicaid reimbursement, many physicians are reluctant to accept Medicaid recipients as patients. The same may be true for Medicare beneficiaries if reimbursement levels reach a point where physicians are no longer able to maintain their practice because they cannot meet their marginal costs for the services provided. This problem is likely to be even more acute in the future given the fact that cost shifting is becoming ever more difficult with a shrinking base of indemnity patients.
A survey of neurosurgical practices in twenty states compared the relationship between Medicare and Medicaid fees given a 20% to 30% decrease in Medicare rates. In thirteen of these states, Medicare reimbursement for common neurosurgical procedures would reach or dip below current Medicaid rates. (See Figures 1-10 for examples from 10 states.) It is a mixed bag and highly dependent on the Medicaid payment levels. New York, for example, pays virtually nothing for neurosurgical services provided to Medicaid patients. It is not likely that Medicare rates will ever approach this low level. Nevertheless, the comparison illustrates the potential access problems associated with significant reductions in Medicare reimbursement.
AANS/CNS Effort to Ensure Accuracy
Organized surgery, including neurosurgery, has been an active participant in the debate over resource-based practice expenses. Again, the underlying theory of resource-based practice expenses is that hospital-based specialties (primarily surgeons) have fewer practice expenses because they are not incurring overhead expenses while working out of the office. Since the beginning of this debate, the AANS and CNS have challenged this fundamental premise. We have attempted to interface at every level to ensure that the final outcome represents a reliable, fair, and accurate product. The following briefly outlines our interactions with the various players in the practice expenses debate.
Practice Expense Coalition
The Practice Expense Coalition (PEC) first met in November of 1992 as a result of a PPRC conference on practice expenses (this first meeting arose out of the discussions between AANS/CNS member Dr. Pevehouse and Dr. Rufus Stanley of the American Academy of Orthopedic Surgeons). Initially, the coalition was led by the American College of Surgeons, but over time, the College relinquished its lead role as more non-surgical organizations became interested in participating in a joint effort. Over the years, the coalition has consisted of a loose confederation of over 25 specialty organizations (including all major surgical organizations and other groups such as anesthesiology, pathology, radiology, psychiatry, gastroenterology, cardiology, and dermatology). Its principal purpose has been to ensure that the new system provides a fair and accurate measure of physician practice expenses. We have used the PEC as a vehicle for keeping the federal policy makers focused on this premise.
The PEC has been instrumental in minimizing the negative effects of the practice expense reductions and will continue its efforts until all parties are satisfied that the final HCFA product is methodologically sound and accurate. Over the past several years, the PEC has accomplished a number of things:
- In 1993, the PEC opposed President Clinton’s budget proposal to limit practice expense RVUs to 110% of work RVUs. The PEC successfully lobbied Congress to raise the 110% figure to 128%. The PEC also implemented a strategy to defeat legislation mandating resource-based practice expenses, or at the least ensure that Congress did not spellout in detail the specific methodology that HCFA must use in developing new practice expense RVUs. Lan-guage requiring resource-based practice expenses was stripped from the final budget bill.
- In 1994, the PEC had multiple meetings with Congressional staff to refine the language that mandated the adoption of resource-based practice expenses. These meetings resulted in changes to the proposed language and pushed the implementation date from January 1997 to January 1998.
- In 1996, at the PEC’s behest, Reps. Whitfield (R-KY) and Hall (D-TX) introduced a bill extending the implementation date to January 1999. Unfortunately, the bill died when Congress adjourned last fall.
Since 1995, the PEC has also interfaced on an ongoing basis with HCFA and other Clinton Administration officials. These efforts have helped assure that this entire process is conducted in the “sunshine.” The AANS and CNS will continue to be very active participants in the PEC as we fight the implementation of these arbitrary reductions.
Physician Payment Review Commission
The AANS and CNS have followed the activities of the PPRC very closely since the Commission first began significant work on practice expenses in 1992. Our principal means for communicating our ongoing concerns about this project has been in our testimony before the Commission.
- In 1993, we objected to HCFA’s continued use of a site-of-service payment differential, arguing that a neurosurgeon’s practice expenses may actually increase when he/she performs services in the hospital setting. We reiterated our strong opposition to the reduction of practice expense RVUs to 128% of the work RVU. Finally, we criticized the approach the PPRC took in developing preliminary resource-based practice expense for a small sample of procedures and recommended that the Commission delay making any final recommendations to Congress pending further study.
- In 1994, we reiterated our position that any changes to the practice expense component of the RBRVS should fairly and accurately reflect the costs associated with the practicing neurosurgeon’s delivery of quality health care.
- In 1996, we recommended that the entire practice expense project be revised so that the actual costs associated with the delivery of neurosurgical services will be fairly and accurately reflected. We urged the Commission to recommend a one-year delay and a three-year transition period for new practice expense RVUs. We also provided the Commission with data showing that the proposed cuts will reduce neurosurgeons’ Medicare fees below current Medicaid rates and noted the potential access to care problems associated with such reductions.
Congress
Much of the AANS and CNS interface with Congress has been in conjunction with our participation in the Practice Expense Coalition and with the American College of Surgeons. We have had a number of contacts with Congress, independent of the PEC and ACS.
- In 1993, we activated our Key Person Network requesting that neurosurgeons contact members of Congress urging them to reject the 110% proposal. Key Persons also wrote members of Congress expressing our concerns about legislation mandating the development of resource-based practice expense RVUs.
- In 1996, several neurosurgeons met with Rep. Thomas (R-CA), Chairman of the House Ways and Means Health Subcommittee reiterating our view that, as currently configured, the concept of resource-based practice expense is fundamentally flawed. The AANS and CNS issued a “Changing Times” fax broadcast to all neurosurgeons urging them to contact their member of Congress in support of the Whitfield/Hall bill. Finally, at their request, AANS/CNS Washington staff met with House Commerce Committee staff and detailed the status of the HCFA project and associated problems.
Health Care Financing Administration and ABT Associates
The AANS and CNS have interfaced with HCFA on numerous occasions throughout the development of new practice expense RVUs. We have done so through personal meetings, correspondence, comments to proposed rule-making, and through our participation in the Practice Expense Coalition and with the American College of Surgeons.
- In 1994, we met with HCFA staff regarding the agency’s plans for the development of resource-based practice expenses and to determine the advisability of the AANS/CNS undertaking our own practice expenses study. We were advised that it was premature to conduct our own study at that time. Nevertheless, based on a methodology developed by Drs. Pelofsky and Roski (with independent validation by a Harvard accounting professor), we conducted an internal survey of a cross-section of neurosurgical practices to ascertain the impact of practice expense. We then sent the results of this study to HCFA for evaluation.
- In 1995, we submitted comments to Abt regarding the formation of the Clinical Practice Expert Panels (CPEPs). We suggested that neurosurgeons should be represented on several CPEPs other than neurosurgery’s own CPEP. This resulted in the AANS/CNS getting representation on the Orthopedic CPEP. We wrote to Abt suggesting changes to the reference services selected for review. Abt made some of these changes. We nominated Drs. Florin and Lippe to the CPEP Technical Expert Group (TEG). Out of many nominations from many specialty organizations, Dr. Florin was selected and helped develop the process by which the CPEPs would operate. Finally, we nominated several neurosurgeons to participate on the Neurosurgery CPEP. Drs. Pelofsky, Travis, Roski, Cooper, Florin, and Kusske were selected to participate. Two CPEP sessions were conducted — February and June 1996.
- In 1997, we submitted comments to HCFA in response to the preliminary practice expense data. We suggested corrections to some of the data collected by the CPEPs and registered our ongoing complaints about the flawed nature of the project.
American Medical Association
The AANS and CNS have interfaced with the AMA at multiple levels. At numerous meetings held in Washington, DC, since the inception of the project, staff have continued to raise our concerns. In addition, Dr. Florin, through his participation on the AMA Relative Value Update Committee (RUC), has continued to voice our concerns.
Most recently we actively sought changes to official AMA policy through the House of Delegates process. In June 1996 the AANS and CNS successfully led an effort to get the AMA House of Delegates to adopt a policy in support of a one-year delay in implementation and legal action, if necessary. In December 1996 we participated in a successful effort to modify AMA policy, which now requires the AMA to strongly advocate that resource-based practice expense RVUs be based on actual physician practice expense data. In addition, the AMA should only support new RVUs that are methodologically sound and will not have a negative effect on the ability of physicians to provide high-quality medical services.
American College of Surgeons
As stated above, since the inception of this project, the AANS and CNS have worked closely on a number of levels with the College. The College has also been very active over the past years on all fronts — Congress, PPRC, HCFA, etc. Like the AANS and CNS, throughout the process the College has continued to strongly object to the direction HCFA is taking on this project. We are currently involved with a College study of surgeons’ practice expenses. This study is being conducted by Lewin-VHI, Inc., a health research firm, and will hopefully produce a favorable alternative to HCFA’s proposal.
Gathering Data
The AANS and CNS recently commissioned The Gary Siegel Organization to collect practice expense data from several neurosurgical practices. The purpose of this project is to provide independently collected data to validate the data generated by the Abt and Lewin projects.
If favorable, we will likely use the results to influence changes to the HCFA data when the proposed rule is issued in May. We may also need to use these data in conjunction with our efforts to show Congress (and possibly the courts) that the HCFA project contains inaccurate data that does not reflect the actual practice expenses of neurosurgeons.
Future Activities to Prevent Implementation
The AANS and CNS will be aggressive in their efforts to prevent the implementation of the current practice expense project and we are prepared to challenge this proposal at every level of government. It is clear that the effort to redesign the system has failed and most organizations agree that regardless of whether you are a “winner” or “loser” there are serious questions as to the validity of the data, and the current January 1, 1998, implementation date needs to change.
The implications of the HCFA practice expense estimates are profound and reach far beyond the immediate impact on physicians’ incomes. Congress therefore needs to direct HCFA to move down another path. No amount of refinement, transition, or delay will solve the problems with this study.
If the AANS and CNS are to be successful, specialty medicine must speak with one voice and strike one deal. Congress will not likely listen to surgery alone, so it is important to build as broad a coalition as possible. Primary care and general internal medicine (and possibly the non-physician providers such as the chiropractors) will be lobbying against us and in favor of the current proposal. They are a formidable force and in the past have been successful at painting this as a surgery only issue. The leadership recognizes this and has agreed to work closely with non-surgical organizations through our participation in the Practice Expense Coalition.
The AANS and CNS have committed significant resources to the PEC effort. At press time our strategy has not been finalized, but we will be considering the following activities:
- Conduct a technical evaluation of the HCFA proposal
- Seek relief from the Office of Management and Budget
- Seek legislative relief from Congress
- Develop an alternative legislative/ regulatory proposal for calculating practice expenses
- Review avenues for potential litigation
- Develop and implement a comprehensive grassroots action plan
- Develop and implement a comprehensive AANS/CNS membership communications plan
By the time this issue of the Bulletin is published, we will be well on our way to implementing our campaign. The issue will likely be addressed by the Congress in conjunction with the debate over the budget and Medicare reform. If Congress stays on schedule, we may have some resolution by October 1, 1997. (See Table 2 for HCFA’s Implementation Schedule)
The AANS and CNS leadership will continue to keep our members informed about this issue as we move forward to defeat this unacceptable proposal. We won’t be able to do it alone, however. We will need each and every neurosurgeon to be involved in this campaign! For more information, please contact Katie Orrico in the Washington Office at (202) 628-2072.
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KEY PLAYERS IN THE RESOURCE-BASED PRACTICE EXPENSES DEBATE
The key players in the resource-based practice expenses debate include all three branches of the federal government.
The Congress. The Congress initiated this project (when Democrats controlled both houses of Congress during President Clinton’s first term). There are three committees with primary jurisdiction over Medicare payment issues. The Finance Committee in the Senate and the Ways and Means and Commerce Committees in the House. Each committee has a health subcommittee. The Physician Payment Review Commission (PPRC) is a nonpartisan advisory body to the Congress on matters related to health care. The PPRC initiated the research on resource-based practice expenses and continues to be an influential player in this policy debate.
The Executive. The agency with jurisdiction over this issue is the Department of Health and Human Services (HHS). The Secretary of HHS has delegated the authority over matters such as these to the Health Care Financing Administration (HCFA), the agency that administers the Medicare program. HCFA, in turn, has contracted with several researchers to collect the practice expense data. The primary contractor for this project is Abt Associates, a health research firm in Cambridge, Massachusetts. Once HCFA develops the new practice expense relative values it must publish these in the Federal Register so the public has an opportunity for review and comment. Prior to publication, the proposal must first be cleared by the Secretary of HHS and by the president, through the Office of Management and Budget (OMB).
The Judiciary. We may use the courts to challenge the accuracy and validity of the new relative values or to challenge the process by which they are implemented. In general, the Medicare statute prohibits the courts from reviewing the substance of regulations promulgated by HCFA, but there may be a procedural challenge under the Administrative Practice Act.
Interest Organizations. Important non-governmental players include organized medicine — both physician and non-physician providers — and various health researchers. Additional groups that may become players include the academic health centers, nurses and the elderly.
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Table 1
| CPT CODE | DESCRIPTION | TOTAL RVU IMPACT | 1997 MEDICARE FEE | 1998 MEDICARE FEE |
| 35301 | Carotid endarterectomy | -31% | $1,361 | $ 945 |
| 61107 | Implant ventricular catheter | -21% | 462 | 365 |
| 61510 | Remove brain tumor | -39% | 2,266 | 1,388 |
| 61700 | Carotid aneurysm surgery | -37% | 2,957 | 1,876 |
| 62223 | Establish brain shunt | -34% | 1,320 | 874 |
| 63030 | Lumbar discectomy | -33% | 1,246 | 832 |
| 63047 | Lumbar spinal decompress | -38% | 1,497 | 927 |
| 63075 | Ant. Cervical discectomy | -30% | 1,661 | 1,162 |
* Note: These values represent base Medicare Fees without application of geographic adjustments, using the current surgical conversion factor.
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Table 2:
HCFA’s Timetable for Implementation
April 1, 1997
Begin Internal Clearance Process
May 1, 1997
Publish Proposed Rule in Federal Register
July 1, 1997
60-Day Public Comment Period Ends
August 1997
Conduct Data Refinement Panels
September
1997 Draft Final Rule
