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Where the work comp world is headed – part 5, physician reimbursement

Earlier this week we discussed the impact of pending changes in the world of big pharma will affect workers comp.
Changes to Medicare physician reimbursement, also just over the horizon, will have a dramatic impact on workers comp in ways both obvious and subtle.
First, a quick primer on how Medicare pays docs and ancillary providers.
Medicare adopted the resource-based relative value scale (RBRVS) along with a predecessor to the Sustainable Growth Rate mechanism called the Volume Performance Standard (VPS), eighteen years ago as a new way to pay physicians. The RBRVS incorporates three components of physician services – physician work, practice expense, and professional liability insurance.
A relative value unit (RVU) is assigned to each of these components; RBRVS system uses the definitions and procedure codes developed and owned by the American Medical Association in their Current Procedural Terminology (CPT). The reimbursement for a given CPT code is determined by taking the total RVU’s for the service and multiplying by the conversion factor, then multiplying by a geographic adjustment factor (GAF) is applied to account for regional cost differences.
As an example, in 2005, a generic 99213 (office visit) was worth 1.39 relative value units, or RVUs. Adjusted for North Jersey, it was worth 1.57 RVUs. Using the 2005 Conversion Factor of $37.90, Medicare paid 1.57 * $37.90 for each 99213 performed, or $59.50. (thanks to Wikipedia)
Got that?
So, what’s the problem? Well, as Gail Wilensky wrote, “The primary problem with the SGR is that while it can control total spending by physicians (assuming it is actually implemented), it does not affect nor is it driven by the volume and intensity of spending of individual physicians. In fact, there is some concern that expenditure targets may actually exacerbate the incentives for individual physicians to increase the volume and intensity of services they provide.” [emphasis added]
Late last year the Senate tried to address the issue, coming up several votes short on a bill that would have ended the SGR ‘program’. Senators from both parties evidently decided that approving a bill that would have a) immediately added about a quarter trillion to the deficit and b) thereby forced the CBO to factor higher physician reimbursement into its calculation of the cost of reform was not a (politically) good idea.
As a result, Congress has had to pass at least two (it’s easy to lose count) bills so far this year, both at the eleventh hour, temporarily blocking implementation of the 21% cuts. At some point Congress will have to ‘fix’ the SGR program, either by changing the calculation methodology, dumping it and replacing it with something else, or fundamentally changing RBRVS.
What’s likely to happen?
Expect that reimbursement for Evaluation and Management codes (office visits, etc) will go up – CMS has suggested by eight percent, while reimbursement for some subspecialties will decline, some more than others. This has been in the works for at least three years, and I’d expect a permanent change to occur later this year when Congress is forced to deal with the SGR mess once again.
First, the most obvious. 33 states base their WC fee schedule on RBRVS, the key word being ‘base’. A few directly tie their fee schedule to RBRVS, but most adjust the conversion factors, alter the RVUs, add a multiplier, or otherwise tweak RBRVS. And, some states do this thru the regulatory process, while others require legislative action to make significant changes to their fee schedules.
As a result, the state-level implementation of any changes CMS/Congress makes to RBRVS is unclear, state-specific, and politically influenced.
(for an excellent overview of this issue, see Barry Lipton, John Robertson, and Dan Corro’s NCCI Research Brief) (pdf)
More generally, basing WC reimbursement on Medicare is simple, but not appropriate. WC is a state-based disability compensation system where physician reimbursement is controlled by a political process completely unconcerned about its implications for comp insurers, employers, physicians, or injured workers.
A study completed in 2007 illustrated the problem – low reimbursement rates mean few physicians are willing to treat comp claimants. Among the five states that based their fee schedule on low percentages of Medicare (109% to 125% of Medicare), the percentage of neurologists and orthopaedists that participated in workers’ compensation tended to be a fraction of the available population (9% to 27% for neurologists, 23% to 46% for orthopaedists).
Among the states using Medicare’s RBRVS as the basis for physician reimbursement are Florida, Pennsylvania, West Virginia, Hawaii, Maryland, California, Michigan, Ohio, Tennessee, Minnesota, Oregon and Texas.
Yes, most pay above the Medicare rate, and many have built-in inflation adjustments. But physician compensation is still primarily controlled by the politics of Washington.
Third, even less obvious, but nonetheless critical. Many network contracts are based on Medicare’s RBRVS; if the Feds change, provider compensation will too. Think about the potential impact, and think deeply. The trickle-down will likely cause specialists to seek higher network reimbursement for two reasons – first the base from which their reimbursement (RBRVS) has declined, and second, they’ll want to make up their lost revenue from Medicare by increasing reimbursement from private payers.
On a related note, it’s utilization, stupid! The SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious, as utilization continues to grow at rapid rates. This was a problem four years ago, and its done nothing but get worse. Not only does the RBRVS/SGR approach contribute to cost growth, it also ‘values’ procedures – doing stuff to patients – more than listening to them (I realize this is an unfair comparison, but read on).
According to an excellent piece by Robert Berenson in HealthAffairs,
“FFS, discretionary “harmless” services, self-referral, and, sometimes, patient demand all combine to produce the explosive growth in quantity of physician services [in Medicare] — but only for some kinds of services, provided by some kinds of physicians. In policy shorthand, the resultant disproportionate reimbursements and incomes (as private plans emulate Medicare payment approaches) are often described as primary care losing out to proceduralists. The more accurate summary would describe the winners as niche specialists and the losers as generalists — across and within specialties. So, general surgeons are compensated less well than many surgical specialists, and general orthopedists and ophthalmologists less well than spine surgeons and retina specialists, respectively. General internists (and “cognitive” specialists like endocrinologists) are near the bottom of the income totem pole, while gastroenterologists and, particularly, invasive cardiologists are near the top, even if they once trained together in internal medicine residency training programs.
By applying to all services equally, an SGR-imposed fee limit further accentuates income and service disparities originally created by misvaluations within the RBRVS system and the differential opportunity physicians have to increase the volume of services they provide. A root problem is that the Medicare fee schedule based on “relative values” does not permit consideration of the value of services to beneficiaries or the Medicare program. Rather, it relies on attempts to determine the relative resource costs of producing the thousands of services for which Medicare reimburses physicians and a sophisticated, but inherently subjective and, as it has been allowed to develop, highly political process.
What does this mean for you?
Watch what Congress does about Medicare’s SGR, and monitor NCCI’s site for updates. Change is acomin’, and success favors the prepared.

One thought on “Where the work comp world is headed – part 5, physician reimbursement”

  1. Excellent blog. I wonder though if the reluctance of providers to practice medicine in Comp is fee based or is it a result of the complex legal reporting requirements, medical bill review down coding, slow payment, and second guessing by claims staff and UR nurses so prevalent in our community that puts some of the available specialists off. I maintain that the more complexities and gyrations we impose on others the less likely compliance.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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