Medicare Reimbursement for Physicians David A. Spahlinger MD Executive Medical Director, Faculty Group Practice June 3, 2003

Medicare Statistics for Faculty Group Practice Medicare is 24% of our Charge Mix ($96 Million) Medicare Days in Accounts Receivable is 41.9 (69 Overall) Total Collections for FY02: $35 million Margin on Medicare (-6%)

Medicare Historical Overview Enacted in 1965 Insurance Program for Elderly Interim Step to Universal Coverage Benefits Remain Largely Unchanged Since 1965

Medicare Beneficiaries 34 Million Persons Over 65 5 Million Permanently Disabled 284,000 with End Stage Renal Disease 75% Reported Annual Income of Less Than $25,000

Medicare Funding Mandatory Contributions General Tax Revenues Premiums Paid by Beneficiaries Deductible and Copays 89% of Revenues Come from Under-65 Age Group

Medicare Part A Medicare Trust Fund Based on Principle of Social Insurance Mandatory Payments from Employers and Employees Finances Inpatient Hospital Services, Rehabilitation, Skilled Nursing Facilities, and Hospice Care

Medicare Part B Modeled After Traditional Indemnity Insurance Enrollment in Part B Voluntary Funded Through Premiums, General Tax Revenues, Copays Finances Physician Services, Hospital Outpatient Services, ER, Ambulatory Surgery, Diagnostics, Durable Medical Equipment Pays 80% of Approved Amount in Excess of Annual Deductible

History of Medicare Payments to Physicians Usual or Customary Fee in Area of Practice 1989 OBRA: Congress mandates creation of fee schedule –Based on resources required to provide service –Physician payment increases tied to spending targets 1997 HCFA mandated to use a single conversion factor

Percent Changes in Volume and Intensity of Physicians’ Services per Medicare Beneficiary, % 8.3% 3.7% 7.6% 9.7% 3.8% 6.5% 9.0% 9.4% 0.4% 0.6% 4.1% 3.6% -0.2% 2.8% 2.5% 0.5% 3.0% Modified from Iglehart NEJM 346, 24, 2002

Physician Fee Schedule William Hsiao -- Harvard study estimating physician work; became the basis for Medicare fee schedule Resource Based Relative Value Scale (RVU) RVU three components: –Time, energy, skill of physicians (55%) –Practice expense (42%) –Medical liability expenses (3%)

Goals of Medicare OBRA 1989, BBA 1997 Correct for Inadequacy of Payments to Rural Physicians Limit Amount Physicians Could Bill Patients in Excess of Medicare Rationalize Payments for Surgical and Diagnostic Services Limit Growth of Physician Services

Medicare Payments for Physicians CodeDescriptionPayment ($)Change (%) Total Hip Replacement1,6971, Cataract Surgery EGD w/Biopsy Coronary-Artery Dilation Interpret Echo Interpret Mammogram

Medicare Payments for Physicians CodeDescriptionPayment ($)Change (%) Tissue Exam Pathologist Office Visit New Initial Hospital Care Office Consultation Initial Inpatient Consult ER Visit

Updates of Physician Fee Schedule 1989 Congress Enacted Spending Targets Current Methodology -- Sustainable Growth Factor –Growth of the Overall Economy –Changes in Operating Expenses of Clinical Practice –The Number of Beneficiaries –Changes in Laws and Regulations –Growth of Physician Services

Annual Change in Medicare Conversion Factor Under Current Legislation, (Percent Change)

Impact of Medicare Fee Schedule by Selected Specialty, 2002 Specialty SpecialtyAverageSpecialtyAveragePaymentChange Dermatology-1.3%Surg: Vasc/Thor-6.6% Nephrology-2.8%Rheumatology-7.2% Endo/Metab-3.7%Urology-7.2% Geriatrics-4.0%Emergency Med-7.7% Gen Med-4.1%Gastroenterology-7.8% Rad Onc-5.8%Surg: Neurosurg-8.4% Psychiatry-6.1%Cardiol: non-inv-9.7% Ophthalmology-6.2%Surg: Cardiovasc-9.9% Pulmonary -6.2%Cardiology: inv-12.7%

Role of AMA Publishes Current Procedural Terminology CMS Delegated Technical Aspects of Fee Schedules Specialty Societies Must Go Through AMA Process

Comparison of Medicare to Private Insurers Varies Based on Managed Care Penetration Comparison to Blue Shield (84%) MedPAC Report 2003 (67%) Medicare Rates Vary by Geographic Location

Non-Par Status and Balance Billing Maximum Allowable Charge 9.25% Above Participating Physician Non-Assignment of Benefits 98% of Physicians Participate

The Politics of Medicare Poor Benefit Structure –Lack of Drug Benefit –No Cap on Out-of-Pocket Expenses –High Deductible for Hospitalization IME Payments Physician Updates Rural Hospital Payments Growing Politically Active Population