Like the practice expense component of Medicare’s resource-based relative value scale, the professional liability insurance portion of relative value units became based upon the resource cost to the physician in 2000. With significant nationwide attention on the exponentially rising costs of liability insurance in states lacking liability reform, one would anticipate a substantial rise in the PLI RVUs for high risk specialties such as neurosurgery. However, a closer examination reveals a methodology that fails to properly capture the rapidly growing cost.
According to statute, the Centers for Medicare and Medicaid Services must reexamine and update PLI RVUs no less than every five years. Therefore, the CMS hired a contractor to examine PLI data and provide recommendations for updating the 2005 Medicare Physician Fee Schedule with new PLI RVUs at the individual code level.
The CMS has based PLI RVUs on three-year averages of PLI premium data obtained from major national carriers that held representative market share. Because the data was provided voluntarily by insurers, there was a discrepancy between the data set and the year of the survey. For example, neurosurgery’s current PLI RVUs are based on a three-year average of premiums collected between 1996 and 1998. But for many states, the rapid rise in PLI costs did not begin until 2000. Rather than using the subsequent three-year interval (which would still fail to reflect the current premium environment), for the currently proposed update, the contractor used 2001 and 2002 data and extrapolated 2003 data.
Data from this time interval include premiums charged by insurers that no longer write PLI policies for physicians. These data also do not include tail coverage, which represents a substantial and growing cost to physicians. Moreover, it is important to realize that averaging the nonlinear growth of PLI costs continues to underestimate the financial impact of these real and significant costs.
The CMS recognized physicians’ increasing PLI costs and adjusted the weighting of the PLI component from 3.2 percent to 3.8 percent of total RVUs. Although 0.6 percent is a substantial increase, the CMS has failed to acknowledge the larger proportion of practice costs that PLI represents in many specialties. In neurosurgery, PLI RVUs represent approximately 10 percent of total RVUs for a particular service. Current CMS methodology, by which the high risk provider will be underpaid and the low risk provider will be overpaid, uses averaging of the insurance risk factors of all specialties providing a particular service, including assistants at surgery. A review of the provider profiles for neurosurgery procedures identifies many non-neurosurgeons as well as non-surgeons providing some of these services to Medicare patients.
Consequently, the American Medical Association’s Relative Value Update Committee, known as the RUC, requested that the CMS remove the assistants at surgery from the weight-averaged calculation of risk. Moreover, the RUC supported a recommendation put forth by the American College of Surgeons that would use a dominant-specialty method rather than a weight-averaged method.
Using the current methodology, the CMS contractor determined that neurosurgery PLI RVUs would actually decline in 2005. In fact, neurosurgery is estimated to have the fourth largest reduction in PLI RVUs among the medical and surgical specialties. However, using a dominant-specialty method would result in increases, thereby better reflecting the true experience of practicing neurosurgeons.
But even if using a dominant-specialty method, the CMS proposes that the anticipated increase in PLI RVUs should be adjusted for budget neutrality through a reduction of the work and practice expense RVUs. Although this would preserve the conversion factor and result in relatively small changes in the work and practice expense components, it actually would eliminate the impact of rising PLI cost by “paying” for it out of current work and practice expense pools. The RUC has advocated strongly that the statutory requirement of a budget neutrality adjustment be made in the conversion factor. This not only would preserve the integrity of the critically measured work and practice expense components, but also directly would acknowledge these increasing costs by a reduction in the conversion factor, thereby further stimulating Congress to critically examine the Medicare physician payment methodology.
The RUC is continuing to work with the CMS to make recommendations that will result in better acknowledgement of growing PLI costs. In addition, the recently established PLI work group, part of the RUC, is exploring alternative methods that better reflect PLI premiums. In fact, since PLI costs are not substantially related to the type and volume of procedures performed within a specialty, the relative value system may actually be an inappropriate method for attributing these costs to specific physician services.
Gregory J. Przybylski, MD, is professor and director of neurosurgery at JFK Medical Center in Edison, N.J. He is a member of the AANS/CNS Coding and Reimbursement Committee and is on the faculty for AANS coding and reimbursement courses. He also is council director of socioeconomic affairs for the North American Spine Society and program chair of its coding update courses.