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CMA Comments on the Medicare 2014 Fee Schedule

Click Here to Access the Below Letter in PDF
Click Here to Access the Multi-state Letter to CMS
Click Here to Access an Excel Spreadsheet on the Impact of the Proposed CY 2014 GPCI Cost Share Weights on Locality GAFs

September 6, 2013

Marilyn B. Tavenner
Centers for Medicare & Medicaid Services
U.S. Department of Health and Human Services
Hubert H. Humphrey Building, Room 445-G
200 Independence Avenue, SW
Washington, DC 20201

Re: Payment Policies under the Physician Fee Schedule Proposed Rule for CY 2014
78 Fed. Reg. 43,281 (July 19, 2013); CMS-1600-P; RIN 0938-AR56

Dear Administrator Tavenner:

The California Medical Association (CMA) appreciates the opportunity to provide comments on the Centers for Medicare & Medicaid Services’ (CMS) 2014 Medicare Physician Fee Schedule proposed rule. The principal CMA recommendations are set forth below. The CMA also works closely with the AMA and concurs with the comments submitted by the AMA as outlined in this letter.

Of particular concern to California physicians is the $46 million Medicare payment reduction in California as a result of shifting non-physician clinical personnel wages, such as nurse practitioner (NP) and physician assistant (PA) wages, from the physician practice expense geographic practice cost index (GPCI) to the physician work GPCI. NPs and PAs are not defined as physicians by Medicare and therefore, it is our opinion that CMS lacks the authority to include non-physician wages in the physician work calculation. Moreover, the change significantly reduces reimbursement in high cost regions of California and the rest of the country. We strongly urge CMS to withdraw this proposal. Our detailed comments on this issue are outlined below.

I. California Specific Issues

A. Medicare Economic Index (MEI) Technical Advisory Panel Recommendations

CMA applauds CMS for convening the MEI Technical Advisory Panel (MEI-TAP) because many economic factors impacting physician practice need to be updated. However, we have concerns with two issues.

1. The proposed physician productivity factor is nearly double (0.9%) the productivity factor for Ambulatory Surgery Centers (0.5%) and Hospital Outpatient Departments (0.4%) despite the fact that these productivity adjustments should be based on ten year averages of private non-farm business multifactor productivity growth. The application of the physician productivity factor as proposed results in lower reimbursement for physicians compared to other providers which is unreasonable and unfounded.

2. CMA Opposes Inclusion of Non-physicians in the Physician Work GPCI

CMA is opposed to CMS adopting an issue raised by the MEI panel related to the classification of non-physician clinical personnel wages. We believe the panel asked CMS to review whether the agency has the authority to include non-physicians in the physician work geographic practice cost index (GPCI) yet no legal rationale was provided in the proposed rule.

CMA is opposed to the proposal that would inappropriately include non-physician clinical personnel wages, such as nurse practitioner (NP) and physician assistant (PA) wages, in the definition and calculation of Medicare “physician” wages for purposes of computing the “physician” work component of the geographic practice cost index (GPCI).

– It is our opinion that CMS does not have the authority to include these non-physician practitioner wages in the calculation of physician work. NPs and PAs are not defined as physicians in the Medicare statute.

– Moreover, it is inappropriate to remove NP and PA wages from the physician practice expense GPCI. Physicians incur significant practice expenses when they employ nurse practitioners and physician assistants and these costs should be captured by the Medicare practice expense GPCI.

This change results in a 2.6% shift in the weight of the practice expense which harms physicians in high cost regions like California.

– Furthermore, inclusion of non-physicians in the physician work GPCI distorts physician wages and negatively impacts physician payment in California and other states which will harm access to care for seniors in California.

– As recommended by MedPAC and IOM, CMS needs to implement comprehensive reform of the physician work gpci and adopt more accurate physician income data sources. This proposal does not address those problems and further exacerbates the inaccuracy of the physician work GPCI.

– And finally, CMS failed to provide a detailed disclosure to physicians as to the exact payment impact by locality. We urge CMS to provide a transparent analysis of the true impact on physician practices before any change is contemplated.

Therefore, we strenuously urge CMS to withdraw this proposal. A more detailed discussion of our concerns is set forth below.

Statutory Authority

Section 1842(b)(3) of the Social Security Act generally states that prevailing charge levels for determining Medicare physician reimbursement may not exceed the level from the previous year except to the extent that the Secretary finds, on the basis of appropriate economic index data, that such higher level is justified by year-to year economic changes. The Medicare Economic Index (“MEI”) is seen to be authorized under Section 1842(b)(3), and it serves as the measure of economic change justifying adjustments to prevailing charge levels. The MEI has always been composed of two broad categories – physician compensation and physician expenses. See Revision of the Medicare Economic Index, Nov. 25, 1992, 57 Fed. Reg. 55896-01 at 55896 (MEI “attempts to present an equitable measure for changes in the costs of physicians’ time and the operating expenses of physicians”); id. “Since its inception, [MEI] has consisted of two principal components or expense categories. One measures changes in general earnings levels applied to the physicians' net income portion, and the other reflects changes in physicians’ practice expenses”).

To the extent physicians employ allied health professionals such as physician assistants or nurse practitioners, the MEI accounted for such arrangements under the category for physician expenses. See 57 Fed.Reg. 55896-01 at 55897.

Under Medicare rules and state law of some states, nurse practitioners may independently bill for their services. Based in large part on this fact, CMS is proposing to add nurse practitioner costs into the calculation for figuring physician compensation for the following reasons:

  • These types of practitioners furnish services that are similar to those furnished by physicians.
  • If billing independently, these practitioners would be paid at a percentage of the physicians’ services or in certain cases at the same rate as physicians.
  • The expenses related to the work components for the RVUs would include work from clinical staff that can bill independently. Therefore, it would improve consistency with the RVU payments to include these expenses as physician compensation in the MEI.

CMS essentially is mixing apples with oranges. And without proper authority, CMS is inappropriately including non-physician wages in the calculation of physician work. Medicare law currently treats physicians separately from nurse practitioners. Under the section 1861 of the Social Security Act, the terms “physician,” on the one hand, and “physician assistant” or “nurse practitioner,” on the other hand, are separately defined. A physician means a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine and a chiropractor. See Social Security Act, §1861(r). “Physicians’ services” means “professional services performed by physicians, including surgery, consultation, and home, office, and institutional calls.” Id. at §1861(q) (emphasis added). By contrast, a “physician assistant” or “nurse practitioner” is defined in a separate section and means a “physician assistant or nurse practitioner who performs such services as such individual is legally authorized to perform (in the State in which the individual performs such services) in accordance with State law (or the State regulatory mechanism provided by State law), and who meets such training, education, and experience requirements (or any combination thereof) as the Secretary may prescribe in regulations.” Social Security Act, §1861(aa)(5).

The MEI is intended to be a reflection of physician compensation and physician expenses. It must conform to the definitions of “physician” and “physicians’ services,” which necessary includes affirmation of the distinct definitions of physician and nurse practitioner. The reasons offered by CMS for its proposal fail to account for this foundational distinction in definitions. To lump the two definitions together, which is what CMS is doing, is not justifiable and in excess of authority. See 5 U.S.C. §706(a)(A) (prohibiting agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance of law”).

Moreover, Sec. 1848 [42 USC 1395w-4] relating to the geographic adjustments factors, including the physician work index, states

(e) Geographic Adjustment Factors.—
(1) Establishment of geographic indices.—
(A) In general.—Subject to subparagraphs (B), (C), (E), (G), (H) and (I) the Secretary shall establish—
(i) an index which reflects the relative costs of the mix of goods and services comprising practice expenses (other than malpractice expenses) in the different fee schedule areas compared to the national average of such costs,
(ii) an index which reflects the relative costs of malpractice expenses in the different fee schedule areas compared to the national average of such costs, and
(iii) an index which reflects 1/4 of the difference between the relative value of physicians’ work (emphasis added) effort in each of the different fee schedule areas and the national average of such work effort.

Again, Section 1848 only lists the value of physicians’ work, as defined by Medicare, to be used in determining the physician work component of the GPCI.

Therefore, the law precludes CMS from treating non-physician clinical personnel wages as physician work.

Nurse Practitioner, Physician Assistant and Other Non-Physician Wages Should Not Be Included in the Physician Work GPCI

There is an important distinction between physician work and the work performed by nurse practitioners, physician assistants and other non-physician clinical staff that require a separate practice expense and work gpci classification. Including non-physicians in the physician work gpci is not an accurate reflection of physician work. In many states, NPs and PAs are only licensed to practice within a more limited scope of practice than physicians and must be supervised by physicians. Moreover, in some states they cannot bill independently. Even the Medicare Physician Fee Schedule reimburses these practitioners at different levels for certain services. Generally, NP and PA wages are relatively lower than physician wages. Therefore, we do not believe it is appropriate to include wages for these non-physician practitioners (as defined by Medicare) in the physician work component. It further distorts the physician work component and results in inaccurate payment.

The Institute of Medicine and MedPAC have both been critical of the accuracy of the current physician work GPCI. They have recommended that the Secretary study the use of different data sources for physician work that more accurately reflects physician income and the geographic variation in those costs across the country. At the very least, this proposal should be delayed until the Secretary performs a more comprehensive review of the work GPCI.

Negative Impact on Physician Payment In High Cost Regions
Medicare Payment Should be Accurately Based on Local Costs to Provide Care

The elimination of NPs, PAs and other non-physician clinical staff from the physician practice expense GPCI inappropriately reduces the weight of the practice expense in the Medicare Physician Fee Schedule. It is a 2.6% shift and reduction to the wage component of the physician practice expense GPCI. Physicians incur significant costs paying these practitioners and those costs should continue to be reflected in the fee schedule and appropriately weighted. Moving these non-physician practitioner wages from the physician practice expense GPCI to the physician work GPCI substantially reduces physician payment in high cost wage areas of the country. For instance, this proposal reduces overall payments to physicians in California by $46 million, New York $36 million, Florida $35 million and New Jersey $20 million.

The negative payment impact by state is provided in the attached chart. Because CMS did not provide a detailed impact statement, the California Medical Association is providing CMS with a comprehensive and extensive analysis of the impact on physician payment by locality across the entire country.

In the proposed rule, CMS only provided an estimate of the FY2014 impact of the proposed MEI revise by locality showing GAFs with and without the MEI changes. The GAF (geographic adjustment factor) is a surrogate for the sum of the three GPCIs but does not include the impact of the RVU changes that will occur due to the MEI revision. CMS did not publish an impact of the MEI revision by locality showing the full impact of the several changes that would occur for each locality based on actual RVUs and GPCIs specific to that locality.

The CMA analysis (attached) shows a more specific impact by locality based on proposed RVU changes using the CMS county GPCI/RVU file which provides the RVU detail necessary to more completely forecast the impact of the proposed rule. An assumption was made in this analysis that both work and practice RVUs would be changed due to the MEI and that no conversion factor budget neutrality change would be needed. Actual published FY2014 GPCIs were used in this analysis; not the GAFs as modeled by CMS. Holding work RVUs unchanged and doubling the impact on the devaluation of the practice RVUs with a budget neutrality conversion factor change would not significantly alter the estimated impact on each locality.

It is important to note that CMS failed to provide a detailed disclosure to physicians as to the exact payment impact by locality. We urge CMS to provide a transparent analysis of the true impact on physician practices before any change is contemplated.

The states listed above are regions that experience higher practice costs, including non-physician labor (nurses, NPs, PAs, clerks, accountants, janitors) and rent – costs that are beyond a physician’s control. California has some of the highest cost regions of the country. It is extremely expensive to practice in these regions. Moreover, physician wages can be relatively higher in these regions yet the ? work gpci under current law does not fully account for these higher wages. Thus, many high cost regions are experiencing shortages of physicians due to the low reimbursements and high practice costs. Access to care problems are being reported in these regions.

Reducing reimbursement for physician practice expenses and changing the composition of the physician work GPCI concurrently hit physician practices in high cost areas with a substantial payment reduction. It disproportionately harms physicians practicing in high cost areas and inaccurately represents true costs to provide care.

As you are aware, Congress adjusted the physician work GPCI to assist rural areas by only applying ? of the work gpci to physician payment. IOM, MedPAC and others have been critical of the ? work GPCI calculation as it does not accurately reflect the value of physician work. High cost regions are harmed by this adjustment because payment does not fully account for the higher physician wages in these areas. Thus, the current CMS proposal further distorts the physician work GPCI and significantly reduces payments in high cost regions.


For these reasons, CMA is opposed to the CMS proposal. We question CMS’ authority to include non-physicians in the calculation of physician work because nurse practitioners and physician assistants are not defined by Medicare as physicians. We are also opposed to CMS’ move to further devalue physician work and the practice expenses of employing nurse practitioners and physician assistants in the Medicare fee schedule. Our goal as a state medical association is to ensure that CMS is accurately paying physicians based on appropriate cost factors. This proposal produces even greater payment inaccuracies in the Medicare fee schedule.

And its impact reaches far beyond the Medicare fee-for-service program. This proposal will negatively impact Medicare Advantage payments in California, the ACO expenditure benchmarks and reimbursement in California, and our private PPO contracts that are tied to Medicare rates.

We hope CMS will comply with the Medicare laws, especially the laws defining physicians separate from nurse practitioners, so as to respect Congress’ intent if not to avoid further discord and potential legal action. We also urge CMS to provide a full and transparent analysis of the impact of this proposal on physician payment by locality.

CMA is eager to work constructively with CMS to improve the accuracy of physician payment and to appropriately classify the practice expenses and wages of non-physician clinical personnel.

3. CMA Supports the Other MEI Recommendations and Updates

CMA supports the other proposed changes to the cost categories and weights that are aimed at improving the accuracy of the MEI as a description of the costs incurred by medical practices. The proposed changes to the price proxies generally move away from broad price measures to those more closely associated with physicians.

  • CMA supports the increase in the physician benefits share of the index. The MEI-Technical Advisory Committee concluded that retirement benefits are currently excluded from the physician benefits portion of the MEI. Increasing the benefits share would correct that oversight and ensure consistency with the benefits price proxy.
  • CMA supports professional workers’ earnings being used as the price proxy for the physician compensation portion of the index. The price proxies for physician compensation would be changed from general economy-wide earnings and benefits to wage and benefits indices for “Professional and related occupations.” The CMA has long advocated for physician compensation measures based on workers facing market conditions similar to those of physicians. However, we urge further reform in this area to ensure more accuracy of the physician work gpci.
  • CMA applauds CMS’ proposal to use commercial rent data rather than the HUD residential rent data in computing physician practice expenses. The CMA has long been critical of the use of residential rent data as a proxy for physician office expenses. However, many have studied this issue and few have found an affordable, alternative data source. In fact, some alternative sources have not been as accurate as the HUD data in California. While we support CMS’ attempt to move to commercial rent data, we would urge CMS to provide a detailed crosswalk of the differences between the residential rent data and the commercial rent data by COUNTY before making such changes.
  • CMA supports a health sector wage category within the index. The current MEI lacks a nonphysician wage category specific to health care workers. The proposed “Health related, nonphysician wage” category would improve the accuracy of the MEI if changes in health workers’ wages differ from the norm.
  • CMA supports the creation of an “all other professional services” category. This category would encompass purchased services such as contract billing, legal, and accounting services. The proposed category would employ appropriate wage/salary proxies in place of the economy-wide inflation measure used for the current “Other professional expense” category. CMA applauds the inclusion of this new category. CMA has commented in previous years that physicians employ or contract with a broad array of professionals, including HIT/EHR experts, and the MEI must be updated to capture these new contractors.

B. Geographic Practice Cost Indices (GPCIs)

CMA urges CMS to Update and Reform the Physician Payment Localities

CMA appreciates the GPCI updates and supports the use of more current Bureau of Labor Statistics wage data and medical malpractice premium data for the GPCIs. However, we are concerned that without an appropriate locality update, the GPCI update exacerbates the already inaccurate payments to California physicians and physicians across the country. Because CMS has failed to update the national and California payment localities since 1997, San Diego, Sacramento and other urban California counties are still designated as rural. Thus, physicians in 14 California counties are underpaid (according to CMS’ own data) by up to 10% annually. These physicians are not paid according to their local costs to provide care.

In fact, physician practicing in these 14 counties experience some of the highest practice costs in the nation and the lowest reimbursement which has resulted in severe physician shortages in these areas causing access to care problems. Some of these regions have the worst physician-patient ratios in the state, particularly the Central California Coast and Inland Empire Regions (“California Physician Facts and Figures,” California Health Care Almanac, California Health Care Foundation, July 2010.)

MedPAC, IOM, GAO, Urban Institute and many others have studied the issue and all agree that the Medicare physician localities are terribly outdated and result in Medicare paying physicians inaccurately. They recommend that CMS move the county-based physician localities to Metropolitan Statistical Area (MSA) localities. The hospitals are organized and paid by Medicare according to MSAs. CMA strongly supports the move to MSAs. Because of the distributive effect on physician payment, we would urge a transition period and policies that help to protect rural physicians from subsequent payment reductions.

A locality update is long overdue and should occur before the GPCIs are updated. It is irresponsible for CMS to allow this level of payment error in the Medicare system to continue. CMS commissioned Acumen more than five years ago to model several different approaches, including the MSA proposal. We urge CMS to be more proactive in transitioning payment localities to MSAs. We urge CMS to work with CMA and Congress to enact locality reform.

Please see the MEI section for a discussion of the GPCI data source updates.

C. Telehealth Services

CMA applauds CMS for expanding the geographic locations where telehealth services may be covered by Medicare, as well as the codes eligible for reimbursement for services delivered via telehealth. Given California’s extensive rural regions and the shortages of physicians, physicians are using more medical telehealth services to serve patients in need. These proposed policies will help to expand access to such services.

D. Complex Chronic Care Management (CCCM) Services

CMA commends CMS for proposing to pay for Transitional Care Management Services (TCM) and Complex Chronic Care Management (CCCM) Services that do not require face-to-face visits with patients. However, we have serious concerns with two components of this proposal. First, CMA opposes the burdensome requirement that physicians must be certified as medical homes to qualify for payment. Any physician that meets the practice requirements and provides such services should be eligible for payment. Moreover, we believe it is difficult and inappropriate for CMS to mandate that physicians employ advance practice nurses and physician assistants in order to receive payment under this program. Physicians in all modes of practice in California – from solo to large groups – should qualify for payment as long as they meet the general criteria. In fact, physicians in California’s medium to large medical groups are already being paid by the private plans for such services. Each practice should make the determination as to the appropriate levels of staffing that are necessary to serve their patients.

E. Liability for Overpayments

The CMA strongly opposes the proposed five-year look-back period for without fault overpayments. Extending this time period requires physicians to be subject to unnecessary audits, recovery initiatives, and other burdens for an additional two years despite inadvertently or unknowingly receiving such overpayments. This places an extremely difficult burden on physician practices. CMS should maintain a three-year look-back period to encourage consistency and avoid confusion with existing CMS overpayment initiatives.

F. Physician Compare Web Site

The CMA strenuously urges CMS to fix the current problems with the accuracy of the database, prior to posting quality measure performance information on a public Medicare website.

California physicians in both small and large practices have learned from their experiences with the California private payers that such data can be incomplete and inaccurate. Many California physician groups have participated in quality reporting programs with the private payers for years. But it took many years to improve the accuracy of the data on the group level. When these sophisticated physicians and payers next attempted to report data for individual physicians, the data was fraught with problems. The attribution methodologies are still inadequate and many physicians do not have a statistically valid numbers of patients on which to be judged for certain measures.

We believe that inaccurate data can misrepresent physician practices and mislead patients. It is in everyone’s best interest to ensure the data is as accurate as possible. Please see the attached CMA correspondence with the California Physician Performance Initiative for a more detailed explanation of these issues.

The CMA also urges CMS to allow physicians the flexibility to select between various survey instruments and quality measures to ascertain patient satisfaction.

G. The Value-Based Payment Modifier (VBM)

The CMA continues to register our grave concerns with the rapid implementation of the Value-Based Payment Modifier and we are urging Congress to repeal this flawed payment system. Even though CMA was successful in obtaining amendments to ensure that the payments would be adjusted for California’s higher practice costs and the health status of patients, it is still an imprecise instrument to measure quality and spending and will not appropriately influence unnecessary utilization. Moreover, it is too complex for CMS to administer accurately.

At the very least, this program should remain focused on large physician groups rather than small practices as proposed in the payment rule. California medical groups have been reporting similar information at the group level, not the individual physician level, to the Medicare Group Practice Reporting Organization (GPRO) program. These groups have more experience with quality and expenditure standards and have benefitted from a phase-in period and more accurate group level data.

The Institute of Medicine (IOM) recently studied this payment policy (“Variation in Health Care Spending: Target Decision Making, Not Geography,” IOM, July 24, 2013) in the context of reforming the geographic variation in Medicare expenditures across the country and concluded that it would not appropriately impact individual physician behavior nor would it resolve the problems it was meant to address. According to the IOM and a recent viewpoint published by the IOM Committee Chairmen in JAMA, September 6, 2013, 73% of geographic variation in Medicare spending is attributed to post-acute services (home health, skilled nursing facilities, long term care facilities and hospice). Such data demonstrates that the Value-Based Modifier is a failed payment policy and needs to be abandoned or seriously reformed by CMS. Congress and CMS should better target payment policies to address post-acute care rather than care provided in physician offices.

According to CMS’s own estimates, 30 to 40 percent of physicians could see both a two percent PQRS and a two percent VBM penalty in 2016. When added to a potential two percent sequester reduction, and possibly another two percent EHR penalty, this could push some older physicians and even rural physicians to retire or close their practices to Medicare patients.

As stated above, the CMA believes the proposed VBM expansion is too rapid. CMA is opposed to increasing the VBM penalty from one percent to two percent; mandating participation in the tiering option; and making Medicare Spending Per Beneficiary an additional cost measure without a more appropriate framework and data. We also recommend that the modifier be required only for medical groups who are already participating in the Group Practice Reporting Program (GPRO).

Moreover, the CMA opposes CMS’ persistent reliance on measures that were never developed by physicians, for physicians and tested in physician practices. These measures must at least be tested prior to requiring physicians to participate in a mandatory, tiering process.

Neither the National Quality Forum nor the Measures Application Partnership have approved the use of a Medicare Spending Per Beneficiary measure in the physician setting. As currently proposed, physician payment would be reduced if the individual physician spending per Medicare patient was above the national average. While the Integrated Healthcare Association in California is contemplating an expenditure measure, it has not been tested and implemented. 

The CMA concurs with CMS that adjustment for physician specialty is appropriate. But the fact that CMS’ proposed approach to specialty adjustment could result in a “high cost” designation for nearly 15 percent of geriatricians, geriatric psychiatrists, neurosurgeons, and medical and surgical oncologists suggests a serious problem with the methodology.

Finally, CMA implores CMS to ensure that the expenditures are adjusted for geographic differences in input costs, the GPCIs, the health status and socioeconomic status of the patients, and the hospital wage index.

H. Practice Expense Relative Value Methodology

The CMA urges CMS to correct its current practice expense (PE) methodology in order to appropriately reimburse the actual PE direct costs involved in providing each service and to accept the PE recommendations and relative value units (RVUs) submitted by the AMA/Specialty Society Resource-Based Relative Value Scale/RBRVS Update Committee (RUC).

In 2010, CMS completed a transition to a practice expense (PE) RVU methodology, whereby actual direct practice expense costs for clinical labor, supplies, and equipment are artificially decreased to obtain the direct PE RVUs for each service. Actual labor, supply, and equipment costs are multiplied by a direct budget neutrality adjustment resulting in adjusted labor, adjusted supplies, and adjusted equipment costs; then converted into RVUs by dividing them by the current conversion factor. The CMA is concerned that this methodology leads to inaccurate results, since it accounts for only a percentage of the actual PE direct costs to provide a service. CMS considers this consistent with the overall Physician Fee Schedule budget neutrality requirements, and calls this direct adjustment a “scaling” factor.

While there has been improvement in the percentage of direct PE costs since 2010, we remain opposed to this adjustment methodology. In 2009, the direct costs covered were 62.5 percent and then dropped to 50.8 percent in 2010, under the new “bottom-up” PE RVU methodology. In 2011, that percentage dropped further to 50 percent and then in 2012 appropriately increased to 55 percent and again in 2013 to 60 percent. The CMA is disappointed that the percentage of direct costs covered by CMS has dropped again this year and has been proposed at less than 55 percent for 2014. We urge CMS to revise the methodology to accurately reflect the actual PE direct costs that physicians incur to provide each service.

I. Collecting Data on Services In Off-Campus, Hospital Provider-Based Departments

CMS notes that the growing trend in hospitals acquiring and integrating physician practices has led to a rise in physician services furnished in a hospital outpatient setting, and billed under the OPPS. Many of these are performed in what are considered “off-campus provider based departments” under the OPPS. To collect information regarding the frequency, type and payment for services furnished in these off-campus provider-based hospital departments, CMS is considering creating either a new place of service code as part of item 24B of the CMS-1500 claim form, or a new HCPCS modifier to be reported with every code. CMS is also considering requiring hospitals to more consistently break out their costs and charges for these departments, as outpatient cost centers on the Medicare hospital cost form, 2552-10.

If this proposed collection of information is finalized, the CMA would not support the addition of a new HCPCS tracking modifier. There are currently numerous modifiers, in addition to other reporting requirements, which must be considered when billing current Part B services. Adding another modifier, which would have to be appended to every physician service delivered in the hospital outpatient setting, would increase both the administrative burden and the likelihood of future billing errors. As a simpler and reasonable alternative, the CMA would prefer adding a new site of service code that specifically identified Medicare claims for services delivered in off-campus provider-based hospital departments. Finally, CMA supports the collection of this important information to differentiate site of service and payment differentials.

II. National Issues

The CMA supports the detailed comments submitted by the AMA on the issues below which CMA has supplemented with California specific comments.

CMA Opposes Physician Payment Cap at OPPS or ACS Rates

The CMA and AMA strongly oppose the CY 2014 PFS proposal to cap payment rates for 211 physician services at Hospital Outpatient Prospective Payment System (OPPS) or ambulatory surgical center (ASC) rates. The proposal will reduce payments for some services by 50 percent or more, potentially driving them out of physician offices altogether and requiring patients to obtain these services in a more costly, less convenient facility setting. We urge CMS to withdraw this proposal.

CMS proposes to begin capping payments to services performed in the non-facility setting when those payments are greater than what is paid when the same service is performed in either the hospital outpatient or ambulatory surgical center facility setting. The agency offers two arguments to support the appropriateness of this proposal. First, the proposed policy is premised on the idea that there are significantly greater indirect resource costs when a service is performed in a facility compared to the non-facility setting. Second, CMS assumes that the cost data is more reliable in the OPPS and in the payment structure for ASCs, compared to cost data collected under the resource-based relative value scale (RBRVS). Therefore, the agency concludes:

“We believe that this proposal provides a reliable means for Medicare to set upper payment limits for office-based procedures based on relatively more reliable cost information available for the same procedures when furnished in a facility setting where the cost structure would be expected to be somewhat, if not significantly, higher than the office setting.”

Services provided less than five percent of the time to hospital outpatients are supposedly exempt from the cap. However, as the cap was actually applied in the proposed policy, any of the 211 listed codes meeting that utilization threshold would have its PFS payment capped at the ASC rate, whether or not it exceeded the OPPS payment cap and whether or not it was provided at least 5 percent of the time in an ASC. As a result, the proposal would expand codes affected by the policy by more than a third and reduce payment rates for these services to 40 percent below the OPPS level, since ASC payments are just 60 percent of the OPPS rate for the same service.

An AMA analysis found that, for 82 percent of the codes with proposed reductions, the direct expenses alone (i.e., clinical labor, supplies, and equipment employed in the service as adopted and implemented by CMS) exceed the proposed payment rate. Also, only eight of the 112 codes that are being tied to the ASC payment rate are actually provided in an ASC at least 5 percent of the time, and only 34 of these codes would have hit the OPPS payment cap. In other words, 78 of the 211 services for which CMS proposes to reduce payments to the ASC level are already paid less under the PFS than the OPPS rate, meaning that Medicare and patients will actually pay more, not less, if these services are driven out of physician offices and into hospital outpatient departments.

This proposal’s underlying premise is irreparably flawed. CMS has ignored fundamental differences in Medicare payment methodologies between the statutorily-required RBRVS that is the basis for the PFS and the ambulatory payment classifications (APCs) used for OPPS and ASC rates. These differences render service-by-service comparisons inappropriate and inaccurate. APCs are the bundled payment method that averages low- and high-margin hospital services within a single APC. In contrast, the RBRVS captures the relative resource costs of each individual service. While hospitals can make up for losses on one service with profits on another, physicians will have no opportunity to make up their losses because CMS does not propose to increase payments for the thousands of codes where the PFS rate is lower than the APC rate.

In addition, as many services targeted by the CMS proposal are rarely even provided in hospitals, it is easier for a hospital to absorb the lower rate than it would be for a physician practice that provides the services more frequently. This also means that the services’ costs may not be accurately reported by hospitals and not adequately reflected in the APC calculations. For individual services within an APC, guidelines allow for up to a two-fold difference in costs, although for low-volume services the actual gap can be much wider. If the frequency with which they are provided in a hospital is low enough, even very high cost services do not show up in APC rates because higher frequency, lower cost services bring down the average payment for the entire APC bundle.

An example helps to illustrate the problem. In the PFS, the practice expense for peritoneal chemotherapy infusion through an indwelling catheter (96446) is valued at $185 while the practice expense associated with pleural cavity chemotherapy infusion, including thoracentesis (96440) is pegged at $806. Both services are grouped together in APC 439 and will be subject to a payment cap of $146.21 according to the proposed rule. The pleural cavity code requires a disposable catheter with an invoice cost of $329, so the catheter cost alone is nearly double the CMS proposed payment rate for the service. The payment rate for APC 439 is actually driven by a non-chemotherapy infusion code that is paid at $75 under the PFS and is responsible for 90 percent of the OPPS volume for this APC. Clearly, the $146 payment rate for the APC bears no relationship to the costs of performing either the high or low end of the APC services in physician offices.

As required by law, the proposal must be implemented in a budget neutral manner for the PFS overall, yet the impacts on the affected codes and about 20 specialties that provide them are far from neutral. CMS has not provided an estimate of the total dollars involved, but it appears that more than $500 million per year would be redistributed among specialties. In pathology, for example, which CMS projects would see total Medicare revenues fall by 6 percent as a result of this proposal, the direct practice expenses for nearly 40 codes exceed the APC payment by amounts ranging from just over $3 to more than $400. Dermatologists, physicians who provide angiography, and several other specialties report that their procedures are being capped at the ASC rate even though they are virtually never done in the ASC. Radiation oncologists have 16 codes on the list even though they are already undergoing a comprehensive review at the request of CMS. The proposed cap would cut radiation oncology payments for breast and lung cancer treatment episodes by 13 percent. Neurology faces a 25 to 75 percent reduction for 16 neurology diagnostic testing services.

While the AMA, CMA and affected specialties agree that, if properly structured, a comparison of facility and non-facility practice costs might be an appropriate screen to identify services for review as potentially misvalued, we are confident that the PFS data are the most accurate data available, not the APC data. For starters, the APCs are based on hospital charge data that, as detailed in recent press reports, can be highly inconsistent and, as laid out in the recently proposed OPPS/ASC rule, subject to a variety of methodological manipulations. We note that elsewhere in the proposed PFS rule, CMS states that it has “considered asking hospitals to break out the costs and charges for their provider-based departments as outpatient service cost centers on the Medicare hospital cost report” because currently “this practice is not consistent or standardized.”

In addition, APC data is much more volatile than the information used in the PFS, creating the potential for significant yearly payment shifts that will exacerbate the instability in PFS rates due to the SGR. There are numerous examples of codes that have experienced payment swings of 10 to 20 percent or more in a given year for reasons that appear to be related to the particular vagaries of hospital charging practices and the mix of hospitals in the data rather than any actual change in service inputs. The proposed rule indicates concern that physician specialties do not always submit sufficient verification of the costs of equipment and other supplies. Yet each list of the resources needed to provide services in the physician office is collected using standardized processes, carefully examined by a cross-specialty panel, and is typically submitted with invoices for expensive equipment and supplies. CMS participates in all deliberations and makes final decisions on the practice expense values.

As noted above, for 82 percent, or 172 of the 211 codes subject to the proposed cap, the new payment rate would not even cover the direct practice expense component of the current PFS payment. Besides the cost of the disposable catheter used in code 96446, we offer the following examples of services which are rarely provided to hospital outpatients and for which the capped rate would not even cover a single high cost supply that is needed each time the service is provided, as shown by current paid invoices:

  • CPT code 88367 Insitu Hybridization Auto is commonly performed in the non-facility setting (65 percent). This service requires CMS supply code SL196 HER-2/neu DNA probe kit costing $157. The total payment for this code in the non-facility setting is currently $258.23. The proposed cap would allow a total payment of $103, which is a 60 percent cut and is $54 below the cost of the DNA probe kit alone.
  • CPT code 91120 Rectal sensation test is performed almost entirely in the physician’s office (99.77 percent). This service requires a custom barostat catheter (CMS supply code SD216) with a price point of $217. The current total payment in the non-facility setting is $427. The proposed cap would lower the total payment to $138, a decrease of 68 percent and $79 below the cost of the barostat catheter.
  • The code descriptor for CPT code 65778 Placement of amniotic membrane on the ocular surface for wound healing; self-retaining clearly includes the amniotic membrane itself. In 2011, however, only 39 percent of OPPS claims for the APC for this service included the V2790 code for amniotic membrane products. The supply code for amniotic membrane (SD248) is quite expensive, $895. The fact that 61 percent of hospital claims did not include the device means that CMS was missing a considerable amount of cost information when it set the 2013 payment rate for this service and used it to propose a 14 percent cut in the PFS payment rate.

With payments that often do not cover the direct costs of care, the only alternative for physicians in many cases will be to send patients to hospitals, where care may be more fragmented, further away, less convenient, and more costly. Patients will face disruption in longstanding relationships with their physicians and may be forced to seek care outside their local community, creating significant obstacles for those whose condition or treatment makes driving risky or impossible. Moreover, for the 78 services where OPPS payments exceed PFS payments, both the Medicare program and patients may actually pay more, not less, for their care than they do currently.

It is clear that the proposal to cap PFS payment rates at the OPPS and ASC rates is erroneous and misconceived, and we strongly urge that it be withdrawn. Please see the AMA comments for further examples of the absurd effects this policy would have on specific services and procedures as provided by specialty societies.

Physician Payment, Efficiency, and Quality Improvements—Physician Quality Reporting System (PQRS)

  • The growing complexity of the PQRS program poses a significant barrier to participation for many physicians. The AMA is pleased that CMS has expanded the recognition of registry reporting across its performance programs and urges the agency to use its authority to also deem other quality measurement and improvement activities as qualifying for PQRS. There are several quality measurement programs in California in which physicians participate and CMA recommends that these programs be deemed to meet the PQRS standards.

Proposed 2014 PQRS Reporting Changes

  • CMS’ proposal to increase the current reporting requirements from three measures to nine, covering at least three NQS domains in one program year, is unreasonable and disregards the existing PQRS measure portfolio. It would be far more reasonable to increase the required number of measures from three to five.
  • The AMA highly recommends that CMS undertake a study, working with the AMA-convened Physician Consortium for Performance Improvement (PCPI) and other affected stakeholders, to better evaluate the current PQRS measure portfolio.
  • It is imperative that CMS maintain the current option of electing to report one measure or one measures group, and the option of electing to report via administrative claims, in order to avoid the 2016 PQRS and Value-Based Modifier (VBM) penalties.

PQRS Quality Measure Development and Updates

  • The AMA continues to support the agency’s ability to use non-NQF endorsed measures in its performance programs, including PQRS. Quality measures should be developed through a multi-stakeholder, public and transparent process, which ensures measures are meaningful to users, uphold national standards, and are harmonized with existing measures in widespread use. Also, prior to finalizing updated specifications and measures, CMS should engage affected stakeholders on the mechanics and anticipated impact of this proposal.

PQRS Measures and Measures Groups

  • The increase in the minimum number of measures in a measures group from four to six appears to be arbitrary and should be withdrawn. Measures should only be added to a group when they are substantively appropriate to the clinical topic. CMS should work with affected stakeholders to appropriately develop and revise PQRS measures groups.

Future of Claims-Based Reporting under the PQRS

  • The AMA supports a reasonable transition to registry and EHR reporting, but opposes elimination of the claims-based reporting option until it is abundantly clear that all physicians understand and are able to consistently, meaningfully, and accurately capture quality measures using EHRs or registries, while meeting other CMS reporting requirements.
  • The AMA asks CMS to provide at least a two-year look ahead for eligible professionals (EPs) to be made aware of the changing reporting modalities for their relevant measures, and allow them to allocate their resources accordingly and better understand the reporting requirements for a new modality.

PQRS Qualified Clinical Data Registries (QCDRs)

  • The AMA urges CMS to incorporate the QCDR requirements listed in the proposed rule more gradually; make the QCDR reporting option available to group practices as well as individuals; and allow QCDRs to report on measures groups as well as single measures.
  • The AMA recommends that CMS designate a grace period during which physicians are allowed to resubmit the measures that were disqualified. Also, in line with our earlier recommendation, a QCDR for the initial reporting year should be required to report a minimum of only five measures covering at least one measure domain.

Electronic Health Record (EHR) Incentive Program

  • The AMA appreciates CMS’ efforts to further recognize registry reporting across its performance programs and supports the proposals to allow QCDRs to report CQMs for the EHR Incentive Program and to require EPs to use the most recent version of the CQM specifications.

Physician Feedback Program

  • The AMA greatly appreciates the efforts by CMS staff to obtain physician input on the design of the Quality and Resource Use Reports (QRURs) and we are pleased the next round of reports will include patient names and other information essential to evaluating and responding to the reports’ findings.

Updating Existing Standards for E-Prescribing Under Medicare Part D

  • The AMA supports CMS’ proposal to upgrade electronic prescribing (e-prescribing) standards for the Medicare Part D prescription drug benefit program by replacing National Council for Prescription Drug Programs (NCPDP) Formulary and Benefit Standard 3.0 with Standard 1.0.
  • Exemptions or accommodations are needed in the e-prescribing requirements to accommodate the need for paper prescriptions for military patients, and to support physicians who are close to retirement.

Modifier 25 Edits For Childhood Immunization and Wellness Visits

  • CMS should support childhood immunizations by deactivating the edits associated with the use of Modifier 25 for billing childhood immunizations and wellness visits, effective January 1, 2013.

The CMA appreciates the opportunity to comment on the significant issues in the proposed 2014 Medicare Physician Fee Schedule. We are eager to work with CMS to resolve these issues to improve the Medicare program for California physicians and their patients. For questions or additional information, please contact Elizabeth McNeil, Federal Government Relations, CMA, emcneil@cmanet.org. Thank you.


Paul R. Phinney, MD

Cc: California Congressional Delegation

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