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What if All Physician Services Were Paid Under the Medicare Fee Schedule?

An Analysis Using Medical Group Management Association Data

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Document date: March 19, 2010
Released online: March 19, 2010

Abstract

This joint study by the Urban Institute and the Medical Group Management Association demonstrates that it is possible to simulate physician compensation as if all physician services were paid under the Medicare Fee Schedule and to compare the results with the actual compensation. This analysis confirms substantial differences in actual hourly and annual compensation across specialties, and that, under simulated Medicare compensation, the compensation ratios across specialties are narrowed very little. The non-surgical, procedural specialties, particularly cardiology, continue to do relatively better under the Medicare Fee Schedule than under current reimbursements that includes Medicare as well as other payers.


The text below is an excerpt from the complete document. Read the Full Report in PDF format.

Introduction

A primary goal of the 1992 Medicare physician payment reforms based on a resourcebased relative value scale (RBRVS) was to create an economically neutral fee schedule -- one that rewards all physician work equally. To develop such a fee schedule, the Centers for Medicare and Medicaid Services (CMS) refined and expanded the estimates developed by William Hsiao and colleagues of the work required to perform physician services. The resulting Medicare Fee Schedule increased payment for evaluation and management services (E&M) and decreased payment for procedures and tests relative to historical payment levels. The expected effect of this shift was to raise Medicare payments per service to primary care specialties and to lower payment per service for most other specialties.

At that time, “resource-based” applied to work but not practice expenses. Between 1998 and 2004 resource-based was extended to encompass practice expenses as well, such that the entire fee schedule is now resource-based and designed to be neutral across specialties. That is, payment is supposed to reflect the underlying resource costs associated with reimbursable services. Differences in compensation per hour are supposed to represent differences in practice expenses and the work associated with the mix of services different specialties provide, without specialty differentials otherwise.

Research has shown that there has not been redistribution beyond the initial implementation of resource-based work units from procedures and tests to E&M services. On the one hand, there have been modest increases in the RVUs assigned to many E&M services. Counterbalancing that effect has been an accelerated growth in volume of services, with tests (including imaging) and minor procedures growing much faster than E&M services and major procedures. Additionally, very few of the new services approved for payment under the fee schedule were in the E&M category, further contributing to differential volume growth of reimbursable services.

Since the new Medicare Fee Schedule based on RBRVS was implemented in 1992, there has been policy interest in assessing the impact of the fee schedule on physicians’ revenues and compensation. Simulating the impact of the Medicare Fee Schedule as if all physician services were paid under the fee schedule would permit policy makers another view about whether the redistributive goals of the RBRVS-based fee schedule are being achieved in the direction of payment neutrality, i.e., providing equal payments for equal work across specialties.

Unfortunately, the analyses performed as the new fee schedule was first implemented lacked the needed data on physician productivity across all reimbursed services to permit a satisfactory simulation of physician compensation that assumed that all physician services were paid at Medicare Fee Schedule rates.

Since those initial attempts, no one has simulated how the Medicare Fee Schedule would change compensation per hour worked, annual compensation by specialty, or how such simulated compensation compares with actual compensation as reported from various physician surveys. Although there is extensive survey data displaying physician compensation, all of the surveys understandably provide aggregate compensation, that is, compensation from all payers, thereby obscuring the specific impact of Medicare’s payments on physician compensation levels.

The Medical Group Management Association (MGMA), for a number of years, has routinely collected physician productivity based on RBRVS relative value units (RVUs) as part of their annual Physician Compensation and Production Survey. In addition, the MGMA database provides an opportunity to simulate physician compensation as if all physician services were paid under the Medicare fee schedule and to compare the findings, both to assess differences between fee levels and to assess differences across specialties to supplement other information regarding adequacy of Medicare reimbursement to physicians. In Appendix 1, we discuss the representativeness of MGMA data, explaining why the survey provides a satisfactory basis for generating these simulations.

(End of excerpt. The entire Report is available in PDF format.)



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