“It is imperative that physicians utilize appropriate avenues to inform their patients and the U.S. Congress about the constraints that are being placed upon the practitioner, which are resulting in reduced access to care and a reduction in the workforce.”
President Bush’s January 2003 announcement of support for professional liability reform focused considerable attention on the impact of skyrocketing professional liability insurance (PLI) premiums upon high-risk specialists like neurosurgeons. Comparatively little focus, however, has been placed upon addressing the growing PLI costs in the Medicare Physician Fee Schedule.
This Coding Corner will review the methodology used by the Centers for Medicare and Medicaid Services (CMS) to determine physician costs including PLI and evaluate their proposed method for addressing these exponentially growing costs in the fee schedule.
Through the Omnibus Budget Reconciliation Act of 1989, the resource-based relative value system (RBRVS) was developed as the method for determining physician payment through Part B Medicare. A system of relative value units (RVU) was created to measure physician work, practice expense, and professional liability costs. The Relative Value Update Committee (RUC) of the American Medical Association (AMA) was formed to develop recommendations to the CMS regarding the physician work component of the total RVU. With the congressional mandate to develop a resource-based method for measuring practice expense, the Practice Expense Advisory Committee (PEAC) of the RUC has gradually refined the practice expense component to better reflect the resource costs of providing a physician service down to the Current Procedural Terminology (CPT) code level. However, the RUC has not previously addressed the PLI component of the total RVU directly.
CMS Methodology
In the proposed rule published in the Federal Register on Aug. 15, the CMS discussed its methodology for allocating funds in the Part B Medicare to the PLI component of the fee schedule as well as for distributing funds regionally to account for varying expenses in different states and localities. Although the PLI component represented 5.6 percent of total RVU in 1992, it has gradually been reduced to only 3.18 percent in 2003. Acknowledging the rapidly escalating costs of PLI, the CMS has proposed to change the “weighting” of the PLI component to 3.87 percent. While this may seem like an inadequate proportion of a neurosurgeon’s payment to cover PLI costs, this percentage reflects the total proportion of the physician payment allocation to PLI costs for all physicians, regardless of specialty.
Once the pool of funds has been allocated to the PLI component of RVU, the funds are distributed to each individual CPT code based upon a weighted frequency of the actual specialties providing the service. Each specialty has a calculated risk factor based upon the average national premium for that specialty divided by the average national premium for the lowest-risk specialty. For example, thoracic surgeons are assigned a risk factor of 8.14 compared with dermatologists who are assigned a risk factor of 1.12. The weighted-average risk factor is calculated based upon the specialties providing the service and then multiplied by the total work RVU provided for that service.
A scaling factor is developed from the total risk-adjusted PLI RVU and the money assigned to each individual CPT code. For procedures performed nearly exclusively by neurosurgeons, the proportion of the physician payment attributable to PLI is approximately ten percent. Finally, a budget neutrality adjustment must then be made if this component of the fee schedule increases.
PLI Workgroup Raises Concerns
Several concerns were raised at the PLI Workgroup meeting of the RUC in September, and these concerns will be included in a comment letter addressed to the CMS regarding the proposed rule. In the past, the CMS has used an average of PLI data over a three-year period to update the weighting of the PLI component. For example, the current weighting has been in place since 2001, and is based on PLI premium data collected between 1996 and 1998. Naturally, the significant time interval between data collection and inclusion in the fee schedule creates a substantial underestimation of the true current costs of PLI premiums.
The CMS proposes to use a five-year average based upon 1999-2002 PLI premium data and estimates of 2003 data to develop weighting for the 2004 fee schedule. Given the exponential growth of premiums in the last few years, this method would again significantly underestimate the actual resource-costs of PLI currently. The RUC recommended developing estimates of 2004 PLI premiums based on the exponential growth of 2001-2003 premiums and using only estimated 2004 premiums in their calculations.
Secondly, the CMS currently obtains PLI premium data on the 20 highest-volume medical specialties from insurance carriers on a voluntary basis. Only three of the 20 specialties are considered high-risk specialties (orthopedic surgery, general surgery, and emergency medicine); neurosurgery and obstetrics are not among the highest-volume specialties. Moreover, the premium data obtained only examines mature $1 million/$3 million claims-made premiums. Although patient compensation funds such as the Pennsylvania Catastrophic Fund are considered, the cost of “tail” coverage is not included. The RUC recommended that premium data should be collected from all specialties and that the tail coverage should be included as well.
In addition, the method for assigning PLI RVU to a particular procedure requires a weighted-average of the surgical risk factors of all the specialties providing a particular service. According to the Medicare database, many of the CPT codes used by neurosurgeons are also used by orthopedic surgeons and neurologists. The weighted-average method results in an under-accounting of the true cost borne by the highest risk specialty. In support of a comment letter previously submitted by a group of medical specialty societies that included the American Association of Neurological Surgeons (AANS) and the Congress of Neurological Surgeons (CNS), the RUC recommended that the CMS use the risk factor of only the specialty performing more than 50 percent of the service. If less than 50 percent are preformed by a single specialty, then a weighted-average of the highest volume specialists performing more than fifty percent of the service should be done.
Moreover, the volume calculations should omit CPT codes submitted by surgical assistants, which likely accounts for the observed coding of surgical procedures by internists and neurologists. Although this method will continue to exacerbate the relative overpayment for the lower risk specialists performing the procedure, it allows for the least reduction for the highest-risk specialist without developing a differential payment policy among physicians in different fields.
CMS Recommendation of Most Concern
Finally, the recommendation made by the CMS in the proposed rule that generated the most concern involved the method to be used in adjusting for the expected growth of the PLI RVU component. The CMS proposed to adjust the work and practice expense components of the RVU so that a change in the conversion factor to maintain budget neutrality would not be required. Alternatively, the CMS suggested that the work RVU component could be left stable (as had been previously recommended by the RUC) and the changes would be made to the practice expense RVU and an adjustment to the conversion factor. However, the PLI Workgroup noted that the recommended option would simply redistribute the cost of PLI among the other components, resulting in little change in the total RVU and therefore little change in payment.
Although physicians do not wish to see a reduction in the conversion factor (the multiplier of the total RVU that determines Medicare payment), a scaling of the other two components fails to address the impact of escalating PLI costs. Consequently, the RUC recommended that the work and practice expense RVU remain stable. Although budget neutrality constraints would require the CMS to reduce the conversion factor to account for the anticipated growth in PLI costs, the RUC further recommended that the CMS support congressional legislation to increase the funding of Medicare Part B and prevent a reduction in the 2004 conversion factor.
Obviously, the issues regarding the Medicare Physician Fee Schedule are quite complicated as well as politically influenced. Consequently, the AMA and specialty societies including the AANS and CNS are drafting comment letters to address the proposed rule from the CMS. As the spread between reduced payments and increasing costs widens to unsustainable proportions, it is imperative that physicians utilize appropriate avenues to inform their patients and the U.S. Congress about the constraints that are being placed upon the practitioner, which are resulting in reduced access to care and a reduction in the workforce.
Gregory J. Przybylski, MD, is professor and director of neurosurgery at JFK Medical Center in Edison, N.J. He represents the AANS on the AMA Relative Value Update Committee (RUC), and he is chair of the RUC’s PLI Workgroup. He also is on the faculty for AANS coding and reimbursement courses.