New Medicare pay rules: Time to revisit your contracts

A column examining the ins and outs of contract issues

By Steven M. Harrisis a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Feb. 7, 2005.

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The Centers for Medicare & Medicaid Services on Jan. 1 established three final Medicare payment rules under the physician fee schedule, the hospital outpatient prospective payment system and the new inpatient psychiatric facilities prospective payment system. Make sure you understand these payment changes and consider how they may impact your practice, contracts and reimbursement.

The fee schedule final rule increases payments to physicians by an average 1.5% for 2005, which replaces what would have been a 3.3% cut in physician payment rates. The rule makes two other major changes.

The final rule implements a "Welcome to Medicare" physical for all new beneficiaries.

This exam gives you the opportunity to make an overall assessment of a patient's health and provide counseling on nutrition and other steps for a healthy lifestyle. Medicare also provides new coverage for screening for cardiovascular disease and for diabetes. You can bill and be paid separately for the screening electrocardiogram, in addition to the payment for the physical.

The new rule also increases payments for vaccinations and other types of injections. For example, payments for administering the influenza vaccine will rise from $8 to $18.

You also can be paid for injections and vaccinations, even when they are performed on the same day as other Medicare-covered services.

The final rule also expands access to other health care professionals and clarifies that Medicare will pay for care plan oversight for beneficiaries who receive home health care provided by nonphysician professionals if state law authorizes them to provide such services.

Medicare also provides new coverage for a one-time evaluation and counseling from a physician employed by a hospice to determine appropriate end-of-life services for terminally ill beneficiaries. And it removes restrictions on payments for low osmolar contrast medium because it has become standard practice among radiologists. Medicare also is covering routine clinical costs in studies of certain potentially lifesaving investigational devices.

The final rule also adopts 18 new codes, developed by the AMA's Current Procedural Terminology Editorial Panel, to be used for billing for administering drugs. While the new permanent codes will not be included in the CPT until 2006, CMS has developed these temporary codes to let you be paid for these services beginning Jan. 1, 2005.

The rule also accepts the relative values, which are used to determine payment rates, for these codes that were recommended by the AMA's relative value update committee. One of the important changes Medicare is adopting, based on the AMA work group's recommendations, is that Medicare will allow physicians to receive additional payments when a second drug is infused.

As a result of implementing the AMA's recommendations, Medicare payment rates in 2005 for drug administration services will be more than 120% higher than in 2003, and physicians will have more opportunities to bill for the administration services they are providing to their Medicare patients.

CMS has established new payment rates for most Medicare Part B drugs that will be set at 106% of the average sales price, based on the most recently available data from manufacturers. Drug payment rates also will be updated on a quarterly basis.

The final rule also will offer a 5% quarterly incentive payment to physicians who are practicing in "physician scarcity areas" as defined by CMS.

The outpatient rules

Hospitals will realize a 3.3% inflation update in Medicare payment rates in 2005 under the final outpatient prospective payment system rule. This inflation update, combined with other policies contained in the final OPPS rule, will increase projected Medicare payments to hospitals for outpatient services to $24.6 billion compared with projected payments of $23.1 billion in 2004.

Under the new OPPS rule, Medicare will pay a hospital about $78 when a "Welcome to Medicare" physical is performed in the hospital's outpatient department. This fee is separate from the fee paid to physicians under the new physician fee schedule.

The final OPPS rule also includes payment increases to hospitals for certain screening services. The final payment increases include: pelvic and breast exams to detect cervical and breast cancer, 1.7% increase; barium enemas to detect colorectal cancer, 2.1% increase; bone density studies, 4.5% increase; flexible sigmoidoscopy to detect colorectal cancer, 6.8% increase; screening colonoscopy to detect for colorectal cancer, 8.3% increase; and glaucoma screening, 9.9% increase.

Inpatient psychiatric facilities

CMS implemented a new Medicare per diem prospective payment system for inpatient psychiatric facilities that is intended to foster higher quality and more efficient care for Medicare beneficiaries with mental illnesses.

This new payment system, required by Medicare, Medicaid and the SCHIP Balanced Budget Refinement Act of 1999, replaced the cost-based system as of Jan. 1 for approximately 1,800 inpatient psychiatric facilities.

Under the final rule, CMS will phase in the new prospective payment system for existing facilities over a three-year period.

This final rule also provides for an "outlier" policy that allows for additional payments to hospitals for treating high-cost patients, and an adjustment to a facility's base payments if it maintains a full-service emergency department.

Make sure you understand these rules, inventory your existing contracts and consider how payment changes will impact your practice and delivery of care to Medicare patients.

Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.

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