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AAOS Now

Published 12/1/2007

Everything is going up but your payments

By Robert C. Fine, JD, CAE; Robert Jasak, JD; and Matthew Twetten

Orthopaedists face 11+ percent Medicare payment cut

Orthopaedists are facing possible across-the-board Medicare payment cuts of more than 11 percent, starting in January 2008. Physicians in other specialties are facing similar payment cuts. If these cuts take place, they will be among the largest since the “resource-based” Medicare physician payment system started in 1992.

Three factors are driving down payments: (1) the Sustainable Growth Rate (SGR) formula, which increases or decreases overall Medicare fees; (2) reductions in the practice expense portion of Medicare fees; and (3) changes in the adjustment factor used by the Centers for Medicare & Medicaid Services (CMS) to help keep Medicare spending “budget neutral,” as required by law.

The flawed SGR formula
The SGR formula is the biggest culprit in lowering physician payments under Medicare. Without Congressional intervention, the formula will result in a 10.1 percent overall payment cut to all physicians, including orthopaedists, in 2008.

Every year, CMS uses this formula to set the Medicare dollar conversion factor in the Resource-based Relative Value Scale (RBRVS) payment system. The formula has methodologic flaws that have resulted in conversion factor decreases over the last few years, even though practice costs continue to rise. Only last-minute Congressional action has stopped the conversion factor reductions from taking effect. Congress has not, however, permanently fixed the problem.

The American Association of Orthopaedic Surgeons (AAOS) has consistently lobbied to have the formula either revoked or significantly altered. This year is no exception.

AAOS has been working with House and Senate members to eliminate the 2008 conversion factor cut and to develop a model for permanently correcting the SGR formula. The House has passed legislation that would avert 2 years of physician payment cuts, totaling 15 percent, under the SGR. Under this legislation, the cuts would be replaced with positive 0.5 percent conversion factor increases in 2008 and 2009. The Senate has not yet taken action on the pending cuts. Alternatively, Congress could freeze the 2008 conversion factor at current levels, as it has done the past 2 years.

AAOS encourages fellows to contact their legislators to demand that Congress stop the 10.1 percent payment cuts prior to January 1, 2008, and address the long-term problems with the SGR formula.

Practice expense payment changes
Orthopaedists will see an additional 1 percent decrease in Medicare payments because of a cut in that portion of their fees that covers practice expenses. This cut is not unexpected. It is part of Medicare’s 4-year transition to new “practice expense payments,” which is set to end in 2010. By that time, another 1 percent payment reduction for orthopaedic services may apply. Other surgical specialties are also experiencing similar payment decreases.

All of the practice expense payment changes that will take place by 2010 are not absolutely finalized. AAOS and most other medical associations, including the American Medical Association (AMA), are currently working with CMS to ensure the agency correctly calculate practice cost settings by the end of the 4-year transition period.

The “budget neutrality adjuster”
By law, CMS must review and fix the relative values of services that are shown to be misvalued in the RBRVS. The process takes place under the AMA/Specialty Society Relative Value Scale Update Committee (RUC), which is a quasi-governmental advisory body to CMS. AAOS and other major specialty societies have seats on the RUC.

In 2008, anesthesia and other services will get increases in their relative values. By law, CMS must not allow changes in relative values to cost Medicare more than $20 million per year. In other words, if the fees for some services go up because the relative values for those services increase, and these increases cost more than $20 million, fees for all other services must go down slightly to keep the system “budget neutral.”

Next year’s “budget neutrality adjuster” will cause a fraction of a percent decrease in payments for orthopaedic and all other services.

Other important Medicare policy changes
Orthopaedists and other physicians will also see other negative payment policies in 2008. These include a change in Medicare geographic payment adjusters that will cut Medicare fees for many rural physicians and the elimination of bonuses for physicians in rural and other underserved areas.

In addition, CMS is changing Medicare’s Physician Quality Reporting Initiative (PQRI), also known as “pay-for-performance.” CMS has also signaled its intent to issue new “Stark” anti–self-referral regulations sometime in the near future.

For orthopaedists, there will be 23 new Common Procedure Terminology (CPT) codes covered under Medicare. There will also be 68 revised CPT codes, each of which will have a newly revised Medicare fee.

Changes in Medicare geographic payment adjuster and elimination of physician scarcity area bonus payment
In 2008, CMS plans to eliminate the floor for its Medicare geographic payment adjusters, known as Geographic Practice Cost Indices (GPCIs). This change will take place because Congress failed to renew the current floor, which is set to expire on December 31, 2007. The elimination of the floor will primarily affect rural physicians, many of whom will see payment cuts of several percentage points beyond those already slated because of the SGR formula, practice expense reimbursement, and budget-neutrality adjuster.

CMS also announced the end of the Congressionally mandated physician scarcity area bonus program, which tacks on an extra 5 percent in Medicare payments to physicians who provide services in rural and other underserved areas.

AAOS is urging CMS and Congress to keep the GPCI floor and the physician scarcity area bonus program because their elimination will only exacerbate the access problems that Medicare beneficiaries already experience in rural and other underserved areas.

Physician Quality Reporting Initiative
CMS has finalized several provisions of the PQRI program. Although AAOS believes that CMS should take time to analyze the 2007 program before it starts next year’s program, it will continue to work with CMS and Congress to ensure that the program truly promotes quality and is fair to participating physicians.

Stark anti–self-referral regulations
In its Proposed Rule on the 2008 Medicare Physician Fee Schedule issued last July, CMS unexpectedly discussed several proposals regarding its anti–self-referral regulations or “Stark Rules.” However, in its just-released Final Rule for the 2008 Medicare Physician Fee Schedule, CMS postponed implementing most of these proposals.

The Final Rule contains “anti-markup provisions” meant to address billing rules regarding diagnostic tests. CMS will address the remaining provisions at a later date. Notably, CMS did not propose additional changes to the Stark “in-office ancillary” exception (IOAE). In the Proposed Rule, CMS discussed concerns about use of the IOAE in the context of physical and occupational therapy services. In its comment to CMS on the Proposed Rule, AAOS expressed serious reservations about characterizations made by the agency regarding possible physician abuse of the exception and will continue to work with the agency to ensure the appropriate use of it.

These provisions are independent from the Stark II, Phase III final regulations issued by CMS on September 5, 2007. CMS signaled its intent to issue a separate rule addressing the outstanding Stark issues contemplated in the Proposed Rule on the 2008 Medicare Physician Fee Schedule.

New and revised Medicare fees for orthopaedic CPT codes
There will be 23 new musculoskeletal CPT codes in 2008. These include three codes for computer-assisted surgical navigation; three codes for spine osteotomy; three codes for lateral epicondylitis (tennis elbow), replacing five deleted tennis elbow codes; three codes for femoral head fracture care; two codes for lower extremity osteochondral autograft procedures; one code for fibula malunion care; three codes for treatment of posterior malleolar fractures; one code for arthroscopic treatment of biceps tenodesis; and four codes for subtalar arthroscopic procedures. The RUC and CMS accepted AAOS’ recommendations regarding Medicare values for these codes.

The RUC and CMS also accepted AAOS’ recommendations regarding revised values for two existing CPT external fixation application codes and one CPT code for application of a halo brace. These codes had changes in their code descriptors.

In 2008, 65 codes for open reduction and internal fixation have been revised to eliminate external fixation in the code descriptor because external fixation has always been billed separately under another code.

The RUC and CMS accepted AAOS’ recommended values for these revised codes, which should have resulted in across-the-board increases for most of them. But CMS unexpectedly lowered the values of each code to keep them budget neutral. AAOS and the RUC had argued that the recommended values for these codes should not be subject to this “budget neutrality adjuster.”

If the CMS recommendations go into effect, there will be about a $225,000 annual increase in Medicare fees for this group of 65 procedures rather than the expected $6 million annual increase. More importantly, CMS will have made an error that could set a dangerous precedent for the future.

AAOS and the AMA will vigorously advocate over the next few weeks for CMS to reverse its decision.

Stay on top of the issues
Look for updates on these and other important Medicare issues in AAOS Now, via AAOS Headline News Now, on the AAOS Web site (
www.aaos.org), and via Office of Government Relations’ Legislative Updates.

Robert C. Fine, JD, CAE, is AAOS director of health policy and governance initiatives; Robert Jasack, JD, is senior regulatory representative for the Board of Specialty Societies in the AAOS office of government relations; Matt Twetten is a senior policy analyst. Direct comments on this article to aaoscomm@aaos.org