The Tie That Binds Too Tightly

Doctors Should Be Wary of Linking Private Reimbursement to Medicare

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Medical Economics Feature -- July 2002

By Walt Borges
Associate Editor

Here's a scary thought: If tying medical fees for treating injured workers to Medicare drives physicians from the workers' compensation system, what's going to happen when private health plans start basing their fee schedules on Medicare fee guidelines? (See "Cooking up Trouble.")

Don't look now, but at least two major Texas health insurers are doing just that, and some physicians are afraid it's the first step in an escalating race to bottom out fees.

"When Medicaid was getting started," said Tim McFarland, MD, a family practitioner in Port Lavaca, "the genesis of the program was that doctors were getting nothing for treating sick children who were poor. Under Medicaid, the physician would get paid half of what his services were worth, but the poor kids would get treatment and be taken care of. Next thing you know, the government is saying, 'Well, if you take this much for Medicaid, you can take the same for Medicare.'"

These days, even private entities want in on the discount, Dr. McFarland points out. "Now we're hearing from employers and their insurers: 'We need to keep our health care costs down, so let's just pay the doctors at Medicare rates.' That's what they tell us."

Blue Cross and Blue Shield of Texas (BCBS) sent letters to physicians early in 2002 indicating that reimbursement for physicians in its health maintenance organization (HMO) and preferred provider organization (PPO) networks would be based on Medicare's 2002 Resource-Based Relative Value Scale (RBRVS), which averages 5.4 percent less than the 2001 scale. The RBRVS is a list of national values for billing codes that is adjusted by a conversion factor and geographic adjusters to set appropriate regional fees.

United Healthcare also is circulating a contract that indicates its fees are based on Medicare fees, using the 2001 RBRVS.

"Private insurers have been doing this for a couple of years," said Tom Johnston, president of the Texas Medical Group Management Association. "Insurers want to tie the fees to the RBRVS used by Medicare."

Mr. Johnston says there is a problem with tying health plans' fees to Medicare guidelines. "We have little power to influence the federal government. Medicare is lowering our reimbursement because it thinks our expenses are going down, but physicians know expenses are going up."

The trend to use Medicare fee components to set reimbursement from private plans has upset physicians like Dr. McFarland, who received the BCBS letter.

"It's irritating that we are paid less and less by Medicare, Medicaid, and the Texas workers' comp system," Dr. McFarland said. "Now everyone else wants to get in on the same deal."

Once the Standard

Norman Chenven, MD, executive vice president of the Austin Regional Clinic (ARC), says there is some value in comparing private health insurer fees with Medicare fees.

"For us, Medicare fee guidelines serve as a benchmark in a fluid sea," Dr. Chenven said. "At ARC, we bill as many as 8,000 codes, and Medicare provides a convenient mechanism to better analyze fee proposals."

Dr. Chenven says ARC has a heavy component of evaluation and management (E&M) billings associated with office visits and includes a multispecialty group, which means ARC's experience is a composite of many different kinds of services.

"In our own group, we got used to using Medicare to provide a platform for fee negotiations," he said, "but we were used to the Medicare fee guidelines being flat or rising. We lulled ourselves into thinking it wouldn't go in the other direction."

Dr. McFarland agreed: "They have set up Medicare as a gold standard for doctors. What happens next if they cut Medicare by 20 percent as planned in the next few years?"

In January 2002, Medicare slashed its fee-for-service rates by 5.4 percent, with the fee cuts hurting "proceduralists," physicians whose practices are built around surgical procedures and other specialized treatments. Doctors who rely on fees related to office visits -- the so-called E&M codes -- as a substantial part of their income found they were better off as fees were adjusted.

But Medicare fees will fall another 17 percent by 2005, if the Centers for Medicare and Medicaid Services (CMS) fails to adjust the relative value units (RVUs) upward for each billing code.

"To sign up for something that is going down is daunting," said Spencer Berthelsen, MD, chair of the board of the Kelsey Seybold Medical Group in Houston.

"The best option is to take a discount off your own fee schedule," he said. "The next best option is to go with a multiple of Medicare fees. The only thing that option is better than is accepting [an insurer's] proprietary fee schedule."

Difficult Evaluations

For physicians, trying to calculate exactly what will happen if fees offered by health insurers are a percentage of Medicare fees is a complex chore.

Under Medicare, the RBRVS fee is multiplied by a conversion factor based on the gross domestic product. The American Medical Association has criticized the fee guidelines, saying they result in a rule that "uses an economically illogical formula to arbitrarily determine reimbursement payments to physicians." AMA is working to modify the guidelines to ensure better compensation for doctors.

The resulting fee from the RBRVS and conversion factor also is modified by a geographic adjustment to set the actual fee that is reimbursed. Texas has eight geographic regions and modifiers, and, therefore, eight sets of Medicare fees.

Dr. Chenven and Mr. Johnston both note that insurers rarely adopt the Medicare fees and modifiers intact, opting instead to use modified value systems. That means physicians must struggle to figure out whether they have been reimbursed correctly.

Take BCBS Texas, for example. In the letter to physicians informing them of the shift from fees based on the 2001 Medicare relative value scale to the 2002 version, BCBS said its E&M codes would be 102 percent of the Medicare RBRVS. That would seem to yield a 5.4-percent cut in fees, but Texas Medical Association leaders who met with BCBS Texas officials were told that BCBS would use a modified conversion factor rather than Medicare's. At press time, TMA and BCBS staff members were trying to ascertain the exact impact of the BCBS conversion factor.

Dr. Chenven says it is easy for a small practice that bills insurers for 20 to 25 codes that account for around 95 percent of its billings to analyze and predict the impact of an insurer's fees. By tracking the number of billings under each code, the practice can determine where its income is generated and can, in theory at least, protect its revenues by negotiating sufficient fees with the private health plans.

For larger practices, "the insurer says, 'Give us 10 codes and we'll tell you what we'll pay,' and that doesn't necessarily give an accurate picture," Dr. Chenven said. A partial picture based on the most used codes may be misleading if fees for other billing codes are not included, he says.

In May, Texas Attorney General John Cornyn issued an opinion that the Texas Department of Insurance (TDI) has the authority to compel insurers to disclose fees and bundling and downcoding edits that are used to process claims and reduce reimbursement to physicians. TDI had resisted ordering such disclosures, arguing that regulators had no authority to force insurers to reveal what they regard as proprietary information, but Attorney General Cornyn adopted TMA's interpretation that House Bill 610 authorized such disclosures.

In the wake of the opinion, TDI began the process of drawing up a rule governing fee disclosures.

In a recent online article, the American Medical Group Association (AMGA) suggested that many physicians might want to cautiously evaluate attempts by private plans to tie fees to Medicare.

"The most common surgeries or procedures for three important specialties -- cataract surgery for ophthalmology, colonoscopy for gastroenterology, and open heart surgery for cardiovascular surgery -- suffered cuts of 40 to 60 percent in RVU procedure values over the last four years," the AMGA article said, adding that values of office visit codes had risen from 1998 to 2002.

AMGA noted one other potential advantage of tying into a Medicare payment system. "If commercial payers use Medicare codes and definitions for procedures, a group's billing department can code based on one set of procedural definitions," AMGA noted. Once the transactional rules of the Health Insurance Portability and Accountability Act take effect, using Medicare codes will be the standard, AMGA said.

Land Mines

Physicians who choose to sign contracts for reimbursement based on Medicare rates should be wary of a number of "land mines" planted in the payment landscape.

One is whether a health plan uses a Medicare conversion factor or its own modified conversion factor to calculate reimbursement. Most insurers use modified conversion factors, Mr. Johnston says, and that can alter the apparent impact of a contract that promises to reimburse at an "average" multiple of Medicare fees.

Dr. Chenven cautions that whatever "average" fee the physician and insurer agree to does not always give a quick and easy assessment of how a doctor or practice group will fare under the fee schedule. Apparent losses or gains in revenue calculated with an average can evaporate when an actual mix of treatments and procedures is incorporated.

Physicians should be cautious about promised percentage reimbursement because the proprietary claims-processing rules and edits used by private insurers may be less generous to doctors than the Medicare rules, which are well publicized and available to physicians and practice managers who want to determine if they were paid correctly.

Doctors and practice managers should also evaluate how geographic adjustments used by Medicare are incorporated to ensure that a physician is not being compensated at a rate based on a Medicare fee in a Texas region that has lower rates. Physicians should also make sure the contracts specify which year sets the base for Medicare RBRVS.

Both BCBS Texas and United Healthcare specify the base year in their contract proposals.

Dr. Berthelsen says it is standard practice for contracts to specify the current Medicare year, but that doesn't mean that another base year couldn't be offered.

Mr. Johnston agrees, noting that Medicare rates will apparently fall for the next few years.

"You need to say to insurance companies, 'Give us a specific percentage of this year's Medicare,'" he said. "Otherwise, you could be in trouble."

July 2002 Texas Medicine Contents
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