The rapid growth of the pharmaceutical and device industries has led to exciting technological advances that have improved the quality of life of our patients with safer and more effective treatments. In fact, physicians typically embrace our colleagues in industry and work as partners to advance the availability of these products. Naturally, the tremendous cost associated with new technologies must be recovered. However, most physicians may not realize the direct and indirect effects of this cost upon physician reimbursement; it is precisely these effects that are the focus of this Coding Corner.
New CPT Codes Accommodate New Device Use
The most obvious way that technology is introduced to the physician payment system is through creation of a new Current Procedural Terminology (CPT) code. The Coding Corner in the Spring 2004 Bulletin examined the methods by which industry and physicians bring CPT codes forward. As that article notes, CPT is the standard method for tracking and billing physician services. Although CPT describes physician work rather than specific devices, new codes are developed to accommodate the use of a particular device during a procedure. For example, carotid stent placement and percutaneous intradiscal electrothermal therapy have procedure codes that describe physician work involving placement of a device or use of a new technology.
The financial impact of new technology on physician procedures is influenced in large part by the Centers for Medicare and Medicaid Services (CMS). To be able to pay physicians for performing new procedures, Congress has set aside $25 million annually that can be added to the Part B Medicare fund without applying budget neutrality adjustments. In other words, rather than reducing the relative value units (RVUs) of existing procedures in order to constrain growth of the Part B Medicare portion of the federal budget, CMS can add a limited amount of new RVUs to the system to account for technological advances. In short, the Part B Medicare’s physician pool of dollars can grow to accommodate new procedures made available by technological advances.
However, growth of Part B Medicare is a double-edged sword. It is important for physicians to understand that the methods by which Congress budgets for physician and hospital payment by CMS are quite different. The budget neutrality adjustment that limits growth of physician payment does not apply to Part A Medicare dollars for hospital reimbursement. As a result, the cost of new technology in the forms of equipment and implanted devices purchased by the hospital is often passed through in part or in total to the insurer. For example, the important development of bone morphogenic protein was recognized by CMS, and a new diagnostic-related group (DRG) was created to account for this additional cost. Although on the surface this would not seem to influence the physician dollar pool in Part B Medicare, there is a significant indirect impact that must be recognized.
Statutes Force CMS to Constrain Growth of Part B Medicare
Since the combination of prior limited economic growth coupled with higher-than-expected cost of physician services resulted in failure of physicians to meet expected “spending targets,” statutes force CMS to reduce the conversion factor applied to the RVUs in order to maintain constrained growth of Part B Medicare. In other words, greater than expected payments this year are paid for by reduced payments in subsequent years. Moreover, when Congress allocates more dollars to Part A Medicare, there is less flexibility to increase the budget of Part B Medicare.
Although the cost of new devices does not have a direct impact on the formula used to calculate the available dollars for physician reimbursement, the cost of prescription drugs has a significant influence. When pharmaceutical cost increases, the physician dollar pool in Part B Medicare is reduced despite the limited influence physicians have on the market price of these drugs. This means that prescribing a new brand-name, nonsteroidal anti-inflammatory agent in lieu of a less expensive generic brand will reduce the physician dollar pool in future years.
Finally, performing procedures in the outpatient setting rather than in the inpatient setting has a direct and substantial influence on physician payment. The RVUs allocated to CPT codes include the three components of physician work, professional liability costs, and practice expense. The practice expense component may represent on average 45 percent of the total RVUs used to calculate physician payment for a procedure. While the costs of implanted devices or tools to place these devices are not included in the practice expense of services performed in inpatient setting, they must be included in services performed in the outpatient setting. Although many outpatient procedures are being performed in ambulatory surgical centers, others are being performed in physician offices. Consequently, CMS calculates two different practice expense values, one for facility settings and one for non-facility settings. Therefore, expensive devices used in the office cause a substantial increase in the practice expense allocation of RVUs.
Although it seems logical for the physician to capture the real cost to the practice of a device or of the tools used to place it, the budget neutrality constraints require a reduction in practice expense RVUs in other areas to maintain budget neutrality. For example, RVUs for performing a lumbar vertebroplasty in the hospital total 13.63, compared with 98.92 when the same procedure is performed in the office. Although the physician work component is the same, the staggering difference in total RVUs is accounted for by the cost of the instruments and devices that are part of the practice expense component. However, to account for this additional practice expense, the budget neutrality statutory limitation requires a proportional reduction in the dollars available for other practice expenses. Consequently, it is the physician who ultimately bears the cost of these new devices as a result of the reduction in payment for other services provided.
For Appropriate Reimbursement, Physicians Must Understand the System
In conclusion, it is critical that physicians begin to grasp this complicated system of payment that has been developed by Congress. For the last several years, medical advocacy groups have lobbied Congress annually to prevent substantial reductions in physician payment that are mandated to occur by statute. Given that new technology will continue to impact the practice of medicine, we must increase our understanding of the Medicare payment system, as well as our support of neurosurgery’s advocacy efforts, in order to maintain an appropriate level of reimbursement in the future.
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 he is on the faculty for AANS coding and reimbursement courses. He is also council director of socioeconomic affairs for the North American Spine Society and program chair of its coding update courses.
Previously in the Coding Corner
Przybylski, GJ. “CPT Coding Proposals: Difficulties Facing Industry and Physicians.” AANS Bulletin. Spring 2004;13(1):27. www.AANS.org, Article ID 21840
Related Article
Orrico, KO. “Congress Halts Cuts in Medicare Fees.” AANS Bulletin. Spring 2003;12(1):18. www.AANS.org, Article Id 9893