ACS Views on Legislative, Regulatory, and Other Issues

Medicare Physician Fee Schedule for 2004—

ACS Comments to Acting Administrator, 3/8/04

ACS Comments to Acting Administrator, 12/22/03

Letter to Thomas A. Scully, 10/6/03

March 8, 2004

Acting Administrator
Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1476-FC
Room 445-G
Hubert H. Humphrey Building
200 Independence Avenue, S.W.
Washington, D.C. 20201

RE: CMS-1372-FC: Medicare Program; Changes to Medicare Payment for Drugs and Physician Fee Schedule Payments for Calendar Year 2004

Dear Acting Administrator:

On behalf of the 66,000 Fellows of the American College of Surgeons, the following comments are submitted in response to the interim final rule on Changes to Medicare Payment for Drugs and Physician Fee Schedule Payments for Calendar Year 2004 published in the January 7, 2004 Federal Register. The College addresses the following provisions of the final rule:

• The continued need for CMS to make administrative changes to the flawed sustainable growth rate (SGR) methodology
• Supplemental practice expense surveys
• Remaining concerns regarding making adjustments to the work and practice expense relative values to match new Medicare Economic Index (MEI) weights
• The change in the Geographic Practice Cost Indices (GPCIs) for professional liability insurance
• Related comments about medical liability insurance portion of the fee schedule and the need for CMS to look at alternative proposals during the Five-Year Review of Professional Liability Insurance (PLI) relative value units (RVUs).

The final rule largely implements prescriptive requirements of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). This statute does not permit CMS to exercise its discretion on a number of provisions included in the final regulation for the 2004 Physician Fee Schedule. Specifically, the major provisions requiring changes to Medicare"s payments for drugs were rigidly established in statute and we understand that, for this reason, CMS did not consider any alternatives. Similarly, the provisions regarding the new "floor" for work GPCIs and the work, practice expense and malpractice GPCI levels for the state of Alaska were all narrowly legislated by Congress.

The College believes that CMS has performed exemplary work in implementing the MMA requirements and we applaud the agency for completing the sizeable amount of work it had to accomplish in the limited time it had to do so. Due to the recognition of CMS' constraints in developing policies in many of these areas, we have we have limited our comments to those provisions of the rule over which CMS has some degree of latitude.

The Sustainable Growth Rate

The College continues to stand by all its previous comments regarding the many areas where CMS has discretion in constructing the SGR. The focus of our comments here will be on administratively removing drugs from the SGR and legislatively adjusting the SGR to account for the 1.5 percent increase in the conversion factor.

The SGR includes not only physicians' services, but also services and supplies furnished incident to physicians' services, such as drugs. According the final rule for the Medicare Fee Schedule published in the November 11, 2003 Federal Register, drugs make up 12.3 percent of allowed charges included in calculating the SGR for 2002, which is a 41 percent increase over two years. It is worth noting that in 2002, the last year for which data is available, 20 drugs are in the 100 fastest growing services. This growth was greater than the other two categories of SGR spending—laboratory services and physician services. Furthermore, spending for major procedures has remained constant.

The growth in drug utilization has been largely a result of the introduction of new and generally very expensive drugs. New drugs are going to continue to be introduced and with life expectancy continuing to grow, people will use drugs for chronic conditions for a longer period of time. With all of these factors combined, we believe spending on drugs will continue to escalate for many years.

Finally, the use of drugs varies significantly by specialty. CMS states in this rule that six small specialties received more than 40 percent of their Medicare income from drugs. Sixteen specialties, including the large specialties of internal medicine, family practice, general practice, obstetrics-gynecology, and general surgery, had five percent or less of their Medicare income from drugs. Thus, the administration of drugs by a few specialties of small size has the unintended consequence of reducing payments for all specialties.

CMS clearly has the authority to remove drugs from the SGR calculation. At one time, two different definitions of "physicians' services" appeared in statute—one that applied generally to the fee schedule and one that only applied to computing the SGR. The one that applied generally to the fee schedule permitted the Secretary some discretion to define in regulation what to include. In the final fee schedule regulation for 1992, drugs were excluded from the definition of "physicians' services". The other definition, the one that applied to computing the SGR, did include drugs. However, the Deficit Reduction Act of 1997 deleted the section containing that reference. Consequently, we would argue that CMS must remove drugs from the SGR calculation.

Our second concern with the SGR involves the MMA which contained a provision giving physicians a positive update of 1.5 percent in 2004 and 2005. Ironically, the law went on to say this modification is not to be reflected in the SGR calculation as a change in law. No rationale is offered in the report language. This sabotages the point of the SGR by keeping it from rising to reflect legitimate increases in spending originating in the law. By not adjusting the SGR to account for this increase in spending, expenditures will far exceed the SGR and the result will be years of negative updates. On the other hand, if fundamental changes in the update can be agreed to, the cost of making the changes will be artificially inflated by not including the updates in 2004 and 2005 in SGR. It is entirely possible that this "cliff" will be so great that it will cause the defeat of a proposal which is otherwise acceptable. We urge CMS to support legislation that would include in the SGR the increases in spending resulting from use of the new MMA benefits, as well as any additional services that are triggered by these benefits.

Supplemental Practice Expense Surveys

CMS established a process in its May 3, 2000 rule on Criteria for Submitting Supplemental Practice Expense Survey Data under which it will accept and use data collected or developed by entities and organizations to supplement the data it normally collects in determining the practice expense component of the physician fee schedule. This rule was developed for data submitted for use in computing the practice expense RVUs for the 2001 and 2002 physician fee schedules and has been used by CMS to evaluate subsequent supplemental data submitted to them by medical specialty societies. The College believes there has been and likely will be in the future a legitimate need for specialties to submit supplemental data for various reasons, the most common being a sample size from the SMS survey that is too small. A prime example of this is in the case of thoracic surgery and vascular surgery where sample size from SMS data were considered to be too small to provide valid data.

The May 2000 rule states that CMS would use a weighted average (based on the number of survey responses) of the supplemental data submitted to them by specialty societies and existing data from the American Medical Association's Socioeconomic Monitoring Survey (SMS) for those specialties that are already represented in the SMS data. CMS has in the past blended specialties' supplemental survey data with prior survey data from the SMS. The College believes that CMS should develop and hold to a consistent policy in regards to whether or not to use a weighted average of supplemental data and the existing SMS data already being used. While we believe there could be isolated cases in which exceptions need to be made, a strong and compelling rationale should be provided to CMS by specialty societies. In addition, for any future supplemental survey data CMS is considering using without blending with existing SMS data, the agency should include its rationale for doing so in a proposed notice that would be subject to public comment.

PLI GPCIs

As a result of the most recent escalation in the costs of PLI premiums nationwide, CMS updated the GPCIs based upon actual 2001 and 2002 premium data and forecasted 2003 premiums using a mean rate of change. We thank CMS for its methodological change in using forecasted data for 2003. However, as we outlined in our comments on the proposed 2004 physician fee schedule rule, we believe that CMS should predict 2004 premiums based on the rate of growth in the PLI premiums from 2001 to 2003, but not blend the predicted 2004 data with data from as far back as 2001. Using 2004 projected data would more accurately capture the PLI premium increases that have recently occurred, rather than diluting these increases with data from previous years.

The College appreciates CMS sharing with the AMA/Specialty Society Relative Value Update Committee (RUC) for review at its February 2004 meeting the professional liability insurance premium data utilized in establishing the PLI GPCIs. We also appreciate CMS providing the list of CPT codes with their assigned category of risk (ie, surgical or non-surgical). During this meeting, the RUC held a lengthy discussion concerning the disparity between the data provided and the actual PLI costs currently incurred by physicians. The RUC concluded that the process of averaging the data which is highly variable state by state and even among regions within a state do not provide an appropriate reflection of costs incurred by practitioners in high-risk states.

We are encouraged that CMS has indicated an interest in working closely with the RUC on additional data collections that would provide more reliable and recent data, both for the use of the GPCIs and the establishment of the MEI weights for the malpractice component of the fee schedule. The College looks forward to participating in this effort.

Adjusting RVUs to Match New MEI Weights

As CMS' impact analysis shows, adjusting the RVUs to match the new MEI weights increased the malpractice RVUs by more than 20 percent which, in turn, increases the payment for those specialties that perform services with high malpractice RVUs including anesthesiology, cardiac surgery, emergency medicine, neurosurgery, orthopedic surgery, thoracic surgery and vascular surgery, all which increase by approximately one percent.

We understand that CMS believes that by matching the aggregate pools of RVUs to the rebased MEI weights, Medicare's payments for physician work, practice expense and malpractice will more closely match the proportion of expenses incurred by physicians in these categories. We support the reweighting of the PLI component to increase the proportion of Medicare payments that go towards professional liability premiums. However, as we stated in our comments to the final rule published in the November 7 2003 Federal Register, altering work and practice expense to maintain budget neutrality compromises the integrity of the work and practice expense relative values currently assigned to codes. Due to the mandates of the MMA, which exempt some of the changes to work and practice expense RVUs from budget neutrality, the number of work and practice expense RVUs have been increased. As a result, the adjustments to the work and practice expense RVUs are less than those published in the November final rule. The revised adjustments are 0.15 percent (0.9985) for physician work, -1.320 percent (0.9868) for practice expense, and 20.61 percent (1.2061) for malpractice. Although we continue to disagree with any adjustments to work and practice expense as a means of achieving budget neutrality, we are pleased that the alterations made to these values are considerably less than originally announced.

Five-Year Review of PLI

While we appreciate the adjustments CMS has made to the PLI component of the 2004 fee schedule, these modifications are minor and because they are budget neutral, the impact on most surgeons will be minimal. As the cost of insurance continues to mount, the number of physicians experiencing a crisis in obtaining and affording professional liability insurance in this country is growing rapidly. With 19 states in crisis and insurers in state after state raising their rates or ceasing to offer certain kinds of insurance, the need for CMS and Congress to act has never been greater.

Although CMS did not mention in this rule its plans for initiating the Five-Year Review of PLI RVUs, we were encouraged to hear CMS officials announce at the February 25, 2004 Practicing Physicians Advisory Commission meeting that CMS will include in the Spring proposed notice for the 2005 Medicare Physician Fee Schedule a discussion of the Five-Year Review of malpractice RVUs. The College believes it is critical that CMS and the specialty societies invest a great deal of effort into the 5-Year Review of malpractice RVUs. We urge CMS to consider whether the current method of allocating RVUs is appropriate or whether some alternative would better meet physicians' needs.

To this end, we have included as part of our comments the proposal submitted to CMS by the American Association of Neurological Surgeons and the Congress of Neurological Surgeons in response to the 2000 Medicare Fee Schedule final rule. The details of the proposal can be found on pages 22 and in the appendix of the attached document.

Additionally, the College has previously asked CMS to "model" an approach that would calculate PLI RVUs using the PLI premium of the specialty that performs the procedure most frequently. We believe this proposed methodology would more accurately reflect the expense and risk of various services in calculating the malpractice RVUs by accounting for the specialty most commonly performing each procedure. In its comment letter to the 2004 proposed rule, the RUC also recommended that CMS consider the use of the dominant specialty rather than a weighted average of all specialties that perform the service. We urge CMS in the strongest terms possible to review these proposals and include them as an option for public comment in the 2005 proposed fee schedule, along with other alternatives that are being considered for development of malpractice RVUs.

While an improved methodology is needed to redistribute PLI reimbursement to those specialties that are most impacted by the rising costs, unless Medicare payments are increased to offset the increased expenses of PLI, patients' access to care will continue to be endangered and the problem will only intensify over time. Congress needs to act definitively on tort reform and provide new money for addressing this crisis before more physicians are forced to leave their patients and move to states where liability is more affordable, limit their services, or abandon their practices altogether. We urge CMS to work with ACS and other physician organizations to petition Congress to act immediately.

Conclusion

In summary, we have a situation where drugs represent 12.3 percent of the SGR, spending is growing very rapidly, and it will continue to rise for the foreseeable future. The SGR operates in such a way that all physicians stand to loose for the actions of few. We believe that the best solution is to take drugs out of the SGR and would appreciate a discussion of this in the proposed notice for the 2005 Medicare Physician Fee Schedule to be published later this year. We also urge CMS to take a close look at the alternative PLI proposals we have referred to our comments as it initiates the Five-Year Review of the malpractice RVUs and to include a discussion of these in the proposed notice as well.

In addition, the College urges CMS to join us in seeking from Congress a legislative fix to adjust the SGR for the 1.5 percent update in 2004 and 2005 and a legislative solution to address the professional liability crisis.

Sincerely,

Thomas R. Russell, MD FACS
Executive Director

ACS Views on Legislative, Regulatory, and Other Issues

Advocacy and Health Policy