Physicians Escape Medicare SGR Cut, But Payments Frozen for 2013

On New Year’s Day, in the last hours of its second and final session, the 112th Congress blocked a 26.5 percent cut in Medicare Part B physician payments scheduled to take effect Jan. 1 and approved a 0 percent update, freezing fees through Dec. 31, 2013.

The cut was scheduled under the sustainable growth rate (SGR) formula used to calculate the annual payment update. It has triggered negative updates over the past decade but Congress has overridden them.

This year’s physician fee fix was included in the “fiscal cliff” legislation, the American Taxpayer Relief Act of 2012 (H.R. 8), which the president signed into law Jan. 2. The bill also extends through Dec. 31 the 1.0 floor on the physician work geographic adjustment practice cost index.

On Jan. 3 the Centers for Medicare and Medicaid Services (CMS) announced that it was revising the 2013 physician fee schedule to reflect these changes and that the 2013 conversion factor is $34.0230. The factor is used to translate the relative value units of a physician’s service (work, practice expense, and malpractice expense) into a dollar amount.

Medicare contractors are expected to release for processing claims with January 2013 service dates no later than Jan. 16. This should have minimal impact on a provider’s cash flow, CMS said, because, under current law, clean electronic claims are not paid sooner than 14 calendar days after the date of receipt (29 days for paper claims). Medicare contractors will be posting the revamped physician payment rates on their Web sites no later than Jan. 23, the agency said.

Cost of the Fix and Who Pays for It
The one-year physician fee fix will cost an estimated $10.6 billion in 2013 and $25.2 billion over 10 years, according to preliminary projections from the Congressional Budget Office. It will be offset by cuts in other Medicare and Medicaid spending.

Hospitals will absorb the lion’s share. Inpatient prospective payment is reduced through 2018 under case mix documentation and coding adjustments in the transition to Medicare Severity Diagnosis Related Groups (MS-DRGs), saving an estimated $10.5 billion over 10 years. Payment to disproportionate share hospitals that treat large numbers of Medicaid recipients is cut by $4.2 billion over that same period.

Other major offsets and estimated savings over 10 years are as follow:

  • Bundled payment for end-stage renal disease services is to be rebased in 2014, while packaging oral drugs in the payment bundle is delayed for two years. Savings: $4.9 billion.
  • Under the Medicare Advantage program the coding intensity adjustment minimum rate is raised by 0.2 percentage points. Savings: $2 billion.
  • Effective April 1, 2013, the 25 percent multiple procedure payment reduction for multiple therapy services is increased to 50 percent. Savings: $1.8 billion.
  • The equipment utilization factor used to set payment for advanced imaging services is increased from 75 percent to 90 percent. Savings: $800 million.
  • Competitive bidding is applied to diabetic test strips purchased at retail pharmacies. Savings: $600 million.
  • The period to recover Medicare overpayments is extended from three to five years, saving $500 million (related story, p. 8).
  • Payments for stereotactic radiosurgery services are equalized under outpatient prospective payment for a savings of $400 million over five years. This does not apply to hospitals in a rural area, hospitals classified as rural referral centers, and a sole community hospital.

The bill also wiped out funding for the Medicare Fee-For-Service Improvement Fund, saving $1.7 billion over 10 years, and cut remaining funding for the Consumer Operated and Oriented Plan program established under the health care reform law, saving $200 million over that same period.

SGR Repeal Still Urged
While relieved to avert the 26.5 percent fee cut this year, medical groups continue to urge Congress to repeal the SGR formula, which is on track to slash physician fees again in 2014. They want lawmakers to establish federal policy to shift to a new reimbursement system that provides stable annual updates and includes payment models that reward quality and outcomes rather than service volume. The cost of SGR repeal has been a legislative obstacle for years, upward of $300 billion over 10 years, and increasing as the deferred cuts accumulate.

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