Complex Calculations Leave M.D.s Simply Frustrated

Payment for Medicare physician services, averaged across all physician groups, will increase by 1.6 percent this year, a surprise for the nation’s doctors poised to absorb a decrease in fees.

The turnabout is the result of efforts by the AMA and medical specialty groups—including APA—to persuade Congress to correct a defect in the “conversion factor,” a component of the nearly Byzantine equation by which Medicare fees are calculated, according to APA’s Office of Healthcare Systems and Financing.

For psychiatrists, the news is mixed. They will reap a 2.8 percent increase in fees for initial-evaluation codes—90801 and 90802. But because of changes in psychiatrists’ allowable practice expenses—yet another component of the equation—they will actually experience an average decrease overall of 1 percent in Medicare fees.

Labyrinthine Effort

APA leaders involved in the process by which Medicare fees are established described a labyrinthine effort to fill in the variables of an equation known as the Resource-Based Relative Value Scale (RBRVS). Developed in the 1980s by Harvard economist William Hsaio, the RBRVS was intended to be a data-driven method for determining the value of a physician’s work involved in every type of medical encounter for which a reimbursement code exists.

The equation was originally intended to reward physicians who spend time with patients listening and talking to them—the so-called “cognitive” specialists—as opposed to those whose work primarily involves the performance of procedures.

Yet for nearly all physician groups, the RBRVS has appeared to evolve into an inscrutable devise by which Congress can control physician fees.

Chester Schmidt, M.D., chair of APA’s Committee on RBRVS, Codes, and Reimbursement, explained that the fee is arrived at by adding the “relative value units” of a physician’s work, the “practice expense” relative value unit—which is a measure of costs involved in a clinical encounter—and the malpractice insurance relative value unit. The sum of these components is a total relative value unit (or RVU) adjusted for geographic variation.

This RVU is then multiplied by a “conversion factor”—a variable derived by Congress through its Office of Management and Budget—to arrive at a fee for each reimbursement code.

As Schmidt explained, however, the process by which the conversion factor is developed is largely secret. And built into it is a mechanism by which Congress can adjust overall spending on the Medicare program whenever the volume of physician services increases.

“It allows the Congress to maintain budget neutrality,” he said. “If service volumes go up, part of the formula will account for that.”

It was a change in this conversion factor that had physicians originally anticipating a 4.4 percent decrease across the board in Medicare fees this year. Correction of the conversion factor—after lobbying by the AMA, APA, and other medical specialty organizations—resulted in an upward change in fees for services averaged across all physicians.

Not the End of the Story

But for many individual specialties, that was not to be the end of the story.

Since 1999 the federal Centers for Medicare and Medicaid Services (CMS) has also mandated for all specialties a review of the practice-expense component of the overall equation. This review has been undertaken by an alphabet soup of agencies and committees including the AMA Practice Expense Advisory Committee (PEAC), the AMA’s RVS Update Committee, and CMS.

The result of the review was a decrease in allowable expenses for psychiatry for which the upward change in the conversion factor did not compensate.

Schmidt emphasized that 11 other specialties also experienced a decrease in average fees as a result of the review of practice expenses.

“Psychiatry wasn’t picked on,” he said. “This was a federally mandated review of practice expenses for all specialties.”

Other specialties experiencing a negative change in the total relative value unit as a result of the practice-expense review included dermatology, gastroenterology, nephrology, neurosurgery, ophthalmology, orthopedic surgery, and thoracic surgery. The changes range from -1 percent (psychiatry) to -4 percent (dermatology and nephrology).

Schmidt added that the actual change in practice expenses was fractional—ranging from 0.2 to 0.7. “Still, it was sufficient to offset any gains made [from revising the] conversion factor,” he said. “That’s what led to fees for some of the codes being reduced.”

Ronald Shellow, M.D., APA’s representative to the PEAC, said that practice expenses—as defined by the CMS—include time spent by professional health care clinical staff (defined as staff who are paid by the psychiatrist’s practice and cannot bill separately), medical supplies, and medical equipment used to perform the service.

Shellow explained that the review of practice expenses—particularly ascertaining the percentage of psychiatrists who employed clinical staff—entailed substantial research and surveying of psychiatrists to arrive at a data-based estimate, replacing the previous practice-expense RVU, which had been more arbitrarily derived.

Both Shellow and Schmidt emphasized that under the current system, the practice-expense RVU is established with the “typical” practice in mind. This results in the practice-expense RVU being the same for all psychiatrists regardless of the number of clinical staff on the payroll.

“The calculation works to the advantage of the small or solo practice and to the disadvantage of the psychiatrists in group practice,” Schmidt told Psychiatric News.

In a July letter to the chair of the PEAC, Shellow and Sherry Barron Seabrook, M.D., of the American Academy of Child and Adolescent Psychiatry (AACAP), described a painstaking survey process.

“APA and AACAP engaged a professional survey firm to conduct a survey of a random sample of APA and AACAP members in private practice, using the survey instrument prescribed by the PEAC,” the letter states. “We then compared the characteristics of the survey respondents (for example, years in practice; type of practice, that is, solo or group; and geographic practice setting) to those of the psychiatrists who participate in APA’s Practice Research Network, which conducts the National Survey of Psychiatric Practice; the AMA’s Masterfile; and the Community Tracking Study physician survey to ensure that we had a representative sample.”

Shellow said the scarcity of “medical equipment” used by most psychiatrists was a factor in diminishing the practice-expense RVU. Not included in the practice-expense calculation are such things as time spent handling referrals, precertifications, scheduling, billing, and collections. Nor is any consideration made for office furniture and computers.

“There are virtually no equipment expenses for psychiatrists doing medical psychotherapy,” Shellow told Psychiatric News. He added that at a meeting of the PEAC in Chicago last month, he presented a request for different practice expenses for electroshock and amytal interviews. ▪