Tiny Medicare Raise Gets Tinier, Again

November 29, 2017

Congress promised physicians that it would increase Medicare fee-for-service (FFS) rates by 0.5% in 2018. Such a raise, in and of itself, would have added 37 cents to the allowable charge for an average office visit.

However, physicians won't get that extra 37 cents for such patient encounters. They're going to have to settle for 23 cents.

The tiny raise made tinier is a study in disappointment. A minor disappointment perhaps, but one emblematic of a government program that many physicians love to hate.

The disappointment sprang from a law enacted in 2015.

Before 2015, physicians participating in Medicare worried about the possibility of massive pay cuts ― on the order of 20% to 30% ― triggered by the program's infamous sustainable growth rate (SGR) formula for reimbursement.

Congress allayed those worries when it passed in bipartisan fashion the Medicare Access and CHIP Reauthorization Act (MACRA) in April 2015. The law, enthusiastically supported by organized medicine, repealed the SGR formula and set a course for shifting reimbursement from FFS to value-based payment on a large scale starting in 2019.

Lawmakers promised to stabilize Medicare during the transition period by giving physicians an FFS rate hike of 0.5% for the second half of 2015, and for every year afterwards through 2019. An annual 0.5% raise didn't sound like much, but at least it was predictable, and besides, physicians had the opportunity to boost their Medicare revenue through various programs incentivizing high-quality, low-cost care.

However, that 0.5% raise will shrink to 0.31% next year. It will be the third full year in a row that the MACRA rate hike didn't materialize. In fact, physicians experienced a tiny pay cut in 2016.

Table 1. What Happened to the Half of a Percent Raise?

  Change in Medicare Conversion Factor for Physician Pay
2016 -0.29%
2017 +0.24%
2018 +0.31%
Source: Centers for Medicare & Medicaid Services


The promised raises didn't materialize because the Affordable Care Act (ACA) and other laws took a bite out of what MACRA mandated. If Congress has its way, the 0.5% raise set for 2019 could shrink in similar fashion.

"CMS Didn't Do Its Job"

Medicare rate hikes and rate decreases are a matter of adjusting the so-called conversion factor in the program's physician fee schedule (PFS). The conversion factor is a dollar amount that Medicare multiplies by the relative value units (RVUs) for a particular physician service to set the allowable charge. For example, the Centers for Medicare & Medicaid Services (CMS) assigns 2.06 RVUs to an office visit of mid-complexity with an established patient (CPT billing code 99213). Multiplying 2.06 by $35.8887, the conversion factor for 2017, yields a charge of $73.93.

If the conversion factor for 2018 had increased by 0.5%, to $36.0681, the fee for a 99213 office visit would have risen to $74.30, or 37 cents more than in 2017. Instead, the conversion factor increased by only .31%, to $35.9996, which will bring the 99213 office visit up to $74.16 ― a 23-cent raise.

One reason why CMS whittled down the 0.5% raise is the "RVU budget neutrality adjustment." Medicare regularly reviews the RVUs for covered services and revises them up and down to reflect changes in medical practice, physician expenses, coding, and the like. If RVU revisions boost estimated Medicare FFS spending on physician services by more than $20 million, CMS nudges the conversion factor downward to maintain the budget status quo. In 2018, this adjustment amounts to a 0.10% cut.

The 0.5% raise took a hit from another Medicare calculation that gets the goat of major medical societies, because it's considered avoidable. The ACA directed CMS to identify and correct so-called misvalued billing codes ― that is, services assigned too many or too few RVUs, therefore making them overpaid or underpaid. Medical procedures often become overvalued, for example, when technology reduces the time and expense to perform them, but payment rates remain frozen in time. The hunt for misvalued codes resembles Medicare's regular review of RVU values.

A 2014 law called the Protecting Access to Medicare Act (PAMA), as amended by another law, called the Achieve a Better Life Experience (ABLE) Act, turned the misvalued code initiative into a budget cutting tool. The two laws required CMS to mark down enough overpaid codes to hit a savings target, which was 1.0% of all Medicare FFS spending on physicians in 2016, 0.5% in 2017, and 0.5% in 2018. If CMS failed to hit the target, the difference would come out of ― it's easy to guess ― that year's PFS conversion factor.

CMS did, in fact, fall short of finding enough overpaid codes to reap the required savings in all 3 years. In 2018, for example, estimating savings equalled only 0.41% of total FFS spending on physician services. Accordingly, the conversion factor must decrease by 0.09% to reach the 0.5% savings target.

Table 2. How a Tiny Raise Gets Tinier

2017 conversion factor   $35.8887
MACRA raise +0.5% (1.0050)  
2018 RVU budget neutrality adjustment -0.10% (0.9990)  
2018 misvalued code target recapture amount -0.09% (0.9991)  
2018 conversion factor   $35.9996
Source: CMS


The damage done by the misvalued-code wildcard was even worse in 2016, when CMS aimed for savings of 1.0% and achieved only 0.23%. The conversion rate was whacked for the remaining 0.77%, the chief reason why Medicare rates fell by 0.29% that year.

CMS has gotten an earful from organized medicine about the repeated failure of CMS to hit the savings targets for misvalued codes.

"For the third year in a row, the AAFP [American Academy of Family Physicians] is very disappointed and cannot understand why CMS has failed to achieve the required, minimum net expenditure reduction through identifying misvalued codes," said Wanda Filer, MD, board chair of the AAFP, in a letter to CMS about a draft version of the fee schedule. "Family physicians already operate on slim financial margins, and the AAFP remains very disappointed that CMS was unwilling or unable to identify and reduce a sufficient number of overly inflated codes."

James Madara, MD, the CEO of the American Medical Association, faulted CMS in a letter for not heeding recommendations by its RVU Update Committee (RUC) that would have fixed more overvalued codes. Dr Madara said it was "inherently unfair" that all physicians would be financially nicked because CMS didn't listen to RUC.

Medical societies are clearly frustrated.

"It's because CMS didn't do its job," said Anders Gilberg, the senior vice president for government affairs at the Medical Group Management Association, in an interview with Medcape Medical News. "So money bleeds out of the system, and physicians don't get their half a percent raise under MACRA, which wasn't much to begin with."

Medscape Medical News asked CMS to explain why it did not hit the savings targets for misvalued codes 3 years in a row and why it did not respond to physician complaints about diminished rate hikes. A CMS spokesperson emailed this reply:

"CMS reviews the resource inputs for several hundred codes under the annual process referred to as the potentially misvalued code initiative. Recommendations from the American Medical Association–Relative Value Scale Update Committee (RUC) are critically important to this work. For CY 2018, CMS is finalizing the values for individual services that generally reflect the expert recommendations from the RUC without as many refinements as CMS made in recent years."

Under current law, 2018 is the last year for CMS to reprice overvalued codes for physician services to save a preordained amount. But that could change. Republicans on the House Ways and Means Committee have floated legislation that would preserve this policy, although they haven't said for how long. It's just one of several Republican proposals to raise money to offset the cost of extending other Medicare policies ― ones requiring periodic reauthorization ― that sweeten reimbursement for select providers, such as rural physicians and rural hospitals.

Congress will consider these so-called Medicare extenders and their financial offsets in an end-of-year legislative logjam that includes, among other things, a controversial GOP tax cut plan, a spending bill to keep the federal government running, and reauthorization of the Children's Health Insurance Program.

Follow Robert Lowes on Twitter @LowesRobert


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