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Medicare fee schedule is déjà vu all over again


Using recent history as a guide, will Medicare cut physician payments by 24% in 2014?

Take home

Using recent history as a guide, will Medicare cut physician payments by 24% in 2014?

Dr. Ho

By Allen C. Ho, MD, Special to Ophthalmology Times

On July 8, 2013, CMS released the proposed Medicare Physician Fee Schedule (MPFS) for 2014. As currently proposed, the 2014 MPFS provides an overall decrease in physician payment rates of 24.4%.

At face value, these cuts seem drastic. However, this should not cause immediate alarm. This same scenario has played out over and over in recent years-and each year, Congress has taken action to prevent the drastic cuts.

Here is a historical review of this annual pseudo-rate cut and reprieve cycle, which offers a forecast for 2014.

The legacy of the Sustainable Growth Rate (SGR) formula. The SGR, enacted as part of the Balanced Budget Act in 1997, is a mechanism to annually update Medicare payment rates to ensure overall spending remains below a target “sustainable” level which is tied to gross domestic product (GDP). In essence, if growth in Medicare spending exceeds growth in GDP, an automatic cut in payment rates results.

The goal of the SGR concept was admirable. However, it has not worked out as planned. The calculated rate cuts are so unrealistic that year after year Congress has enacted special measures to block the SGR forced reductions.

To understand this annual dance, it is necessary to understand a little bit about how Medicare payment rates are calculated. Payment amounts for each CPT code are a calculation involving two key factors:

  • The relative value units (RVUs) of the work involved in each procedure.

  • A dollar-based conversion factor (CF).

Each procedure paid under the MPFS is assigned an RVU based on the resources associated with that service, whereas an annual CF1 is used to convert the RVU to a payment amount.

Historical changes to the conversion factor for physician payment. The proposed 2013 CF as defined by the SGR was $24.7124. This was a 27% reduction from the 2012 CF of $34.0376.

Late last year, Congress intervened and provided an alternate CF of $34.0230 for all of 2013, a decrease of only 0.04%. As noted above, Congress has taken similar action in each of the past 10 years.

Last year, the action was taken before year end and applied to all of 2013, so there was no further drama.

In other years, the dance has been less smooth requiring multiple Congressional corrections for a single year.

However, the clear pattern is, Congress, often under direct pressure from physician groups, has consistently acted to prevent the drastic SGR payment cuts.

Anticipated changes to the 2014 conversion factor. The SGR proposed CF for 2014 is $25.7109. Without congressional action, this will result in a decrease of 24.4% from the 2013 CF of $34.0230.

Table 1 illustrates the impact of these CF changes on a common ophthalmic procedure, fundus photography. Using recent history as a guide, reimbursement experts estimate Congress will correct the 2014 CF so that it is no less than 99.5% of the current CF. That estimate is used in the 2014 Medicare Projected Payment Model in Table 1.

If the proposed 2014 CF were implemented, the effect on the payment amount for CPT code 92250 would be a decrease of 30%.

However, the change in RVU for this code is a decrease of just 7.9%. As shown in Table 1, the net projected effect is small: 8% decrease in the payment amount.

Despite this positive outlook, there is still reason for concern over both the proposed 2014 CF and the broken SGR formula. There is a high likelihood that Congress will release an updated CF prior to January 2014, drawing sighs of relief from physicians across the country.

However, it does not appear Congress will be able to resolve the larger SGR issue at this time, so it is likely that we will be rehashing this discussion again 12 months from now.

Allen C. Ho, MD, is professor of ophthalmology, Thomas Jefferson University Retina Service, and serves as director of retina research and attending surgeon, Wills Eye Hospital, Philadelphia. Readers may contact him at acho@att.net. He did not indicate any proprietary interest in the subject matter.


1.     http://aspe.hhs.gov/health/reports/08/sgr/sgr.html

2.     2013 CF: $34.0230, 2014 CF: $25.7109 From “Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2014.” Table 5. CY 2014 Physician Fee Schedule Conversion Factor. Link: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SustainableGRatesConFact/Downloads/sgr2014p.pdf



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