The Centers for Medicare and Medicaid Services has proposed changes to the Medicare Physician Fee Schedule to improve the accuracy of physician payments for evaluation and management services and surgical postoperative care.

The elements affected by the changes, scheduled for Jan 1, 2007, are the physician work relative value units and practice expenses.

The proposed changes to the physician work RVUs mainly affect services related to patient evaluation and management. CMS proposed the changes to better reflect the work and time a physician requires in providing such services.

The practice expenses element of the physician-payment equation accounts for physician and practitioner expenses related to providing services, for example, office rent and payroll, but not medical malpractice expenses. The proposed changes to the calculation of PE are designed to be easier for healthcare professionals to understand and to create year-to-year stability for physician payments. The changes include:

• Bottom-up method of calculating direct cost, rather than the current “top-down” approach
• Elimination of the Nonphysician Work Pool (NPWP)
• Development of a new method to calculate indirect PE.

These proposed PE-calculation changes will be implemented over four years—weighted by 25 percent in 2007, 50 percent in 2008, 75 percent in 2009, and 100 percent in 2010. The PE RVUs during the transition period will be calculated using a blend of current and proposed methods. PE RVUs for new codes will be calculated using the proposed methods and paid at the fully proposed level.

Bottom-up method
A bottom-up method for direct costs means adding the costs of resources, such as clinical staff, equipment, and supplies, that typically are required to provide specific services. The change to the bottom-up method would not result in a weighted average of the direct cost inputs to create the direct PE RVUs. As a result, the direct PE RVUs for the professional and technical components combined would equal the global component. This change would apply in a similar manner for facilities and ambulatory surgical centers; however, each would be applied separately to produce individual PE RVUs.

NPWP
CMS designed the nonphysician work pool as a way to calculate payment for services involving no physician work, such as the technical components of radiation oncology, radiology, and other diagnostic tests. The proposed rule states that PE RVUs for services currently calculated with the nonphysician work pool use the same method as all other services.

Indirect Expenses
CMS proposes calculating indirect expenses by applying a specialty-
specific indirect percentage factor to the direct expense to recognize the different proportions of indirect cost among the total costs per specialty. Also, CMS proposes calculating the indirect percentage factor and the indirect scaling factor so that the technical and professional components together equal the global component.

Additionally, the notice proposes the use of weighted averages for all specialties that perform the global, technical, and professional components when calculating the indirect PE scaling factor. Another provision states that when the clinical labor portion of the direct PE RVU is greater than the physician work RVU for a particular service, the allocation will occur on the direct cost and the clinical labor costs. To ease the administrative burden, CMS will continue to use the specialty-specific indirect scaling factor.

CMS also proposes to develop an index of the specialty-specific indirect scaling factor, which would link a specialty’s indirect scaling factor and the overall indirect scaling factor for the entire MPFS.

Proposed Work RVU/ Practice Expense Rule:
http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-5665.pdf

In-depth MGMA Analysis:
ftp://ftp/fod/governmentaffairs/PE_final_connexion.pdf

Impact Chart:
ftp://ftp/fod/governmentaffairs/Impact_chart.pdf