MEMORANDUM. RE: Medicare Physician Fee Schedule for CY 2006; Final Rule

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1 PHILIP C. OLSSON RICHARD L. FRANK DAVID F. WEEDA ( ) DENNIS R. JOHNSON ARTHUR Y. TSIEN JOHN W. BODE* STEPHEN D. TERMAN MARSHALL L. MATZ MICHAEL J. O'FLAHERTY DAVID L. DURKIN NEIL F. O'FLAHERTY PAMELA J. FURMAN BRETT T. SCHWEMER TISH E. PAHL ROBERT A. HAHN *PRACTICE WITHIN THE DISTRICT OF COLUMBIA IS LIMITED TO MATTERS AND PROCEDURES BEFORE FEDERAL COURTS AND AGENCIES ATTORNEYS AT LAW SUITE SIXTEENTH STREET, N.W. WASHINGTON, D.C (202) FACSIMILE (202) MEMORANDUM November 14, 2005 STEPHEN L. LACEY EVAN P. PHELPS VALERIE B. SOLOMON JOLYDA O. SWAIM KATHRYN E. BALMFORD COUNSEL NAOMI J.L. HALPERN OF COUNSEL JUR T. STROBOS JACQUELINE H. EAGLE KENNETH D. ACKERMAN MARK L. ITZKOFF DAVID A. BIEGING SR. GOVERNMENT AFFAIRS ADVISOR JOHN R. BLOCK CHARLES W. STENHOLM BRIAN E. JOHNSON SALLY S. DONNER BY ELECTRONIC MAIL TO: FROM: American Academy of Audiology Marshall L. Matz Robert A. Hahn Jodi Chappell Director of Health Care Policy American Academy of Audiology RE: Medicare Physician Fee Schedule for CY 2006; Final Rule The Centers for Medicare & Medicaid Services (CMS) has issued a final rule setting the Medicare Physician Fee Schedule (MPFS) for calendar year (CY) 2006 (to be published in the Federal Register on Nov. 21, 2005). The final rule also makes certain changes in Medicare Part B payment policy of importance to the profession of audiology. The final rule, including the CY 2006 MPFS payment rates, will become effective on January 1, HIGHLIGHTS OF THE FINAL RULE CMS has granted a request, made by the Academy and other organizations, for a one-year moratorium on proposed changes to practice expense relative value units (RVUs). Those proposed changes included elimination of the non-physician work pool (NPWP) and implementation of a new bottom-up methodology for determining practice expense RVUs. This means that the current CY 2005 practice expense RVUs for all procedures will remain in effect in CY 2006.

2 Page 2 CMS is deferring a decision regarding physician work RVUs for audiology, speech-language pathology, and medical nutrition therapy pending further discussions with those specialties. CMS will publish a proposed rule in 2006 regarding refinement of work RVUs. The annual update for CY 2006 is 4.4%, resulting in a Conversion Factor of $ This means an across-the-board cut of 4.4% in reimbursement rates under the fee schedule. Unless Congress acts, payment for all audiology procedures will be down somewhat in CMS estimates that total Medicare payments to audiologists in CY 2006 will be down 5% as compared to CY Congress is currently considering legislative proposals that would avoid this decrease in 2006, and CMS has indicated that it is prepared to act quickly to implement whatever Congress mandates. According to projections, 2006 will be the first of seven consecutive years of negative annual updates. These negative updates are due to a statutory formula, which CMS believes it does not have the authority to alter on its own. CMS says it is concerned about these projections, but it also believes that any legislative change in the formula must include pay-forperformance reforms. THE MEDICARE PHYSICIAN PAYMENT FORMULA The MPFS determines Medicare reimbursement rates for audiology services furnished under Medicare Part B. The general formula for calculating the MPFS payment amount for a given service can be expressed as follows: Payment = [(RVU work x GPCI work) + (RVU practice expense x GPCI practice expense) + (RVU malpractice x GPCI malpractice)] x CF RVU: relative value unit GPCI: geographic practice cost index CF: conversion factor For each service, the work RVUs reflect the physician work involved in performing the service; the practice expense RVUs reflect the practice expenses involved in performing the service; and the malpractice RVUs reflect the malpractice insurance premiums involved in performing the service. The geographic practice cost indices (GPCIs) reflect the relative costs of physician work, practice expenses, and malpractice insurance in a given area as compared to the national average. 1 The Conversion Factor is used to convert the payment into a dollar amount. 1 While the practice expense GPCIs and the malpractice GPCIs reflect the full relative cost differences, the Social Security Act requires that the physician work GPCIs reflect only one-quarter of the relative cost differences compared to the national average.

3 Page 3 Audiologists generally do not receive Medicare reimbursement for physician work. As a result, audiologists Medicare Part B reimbursement rates depend largely on the practice expense RVUs assigned to the procedures they perform. For most procedures, the MPFS lists two practice expense RVUs, depending on the site of service: one for the procedure when performed in a facility (e.g., a hospital, a skilled nursing facility) and one for the procedure when performed in a non-facility setting. Because practice expenses are generally included in the Medicare payments to facilities, facility practice expense RVUs are generally lower than non-facility practice expense RVUs. The non-facility practice expense RVUs reflect all of the direct and indirect practice expenses involved in providing a particular service. Most audiology procedures are paid the higher non-facility amount, even if performed in a facility. Most audiology procedures have been assigned by CMS to the non-physician work pool (NPWP). These are procedures with no physician work and include the technical component of procedures that have both a professional component and a technical component. The non-physician work pool is calculated by multiplying the all physicians practice expense per hour by the average clinical staff time from CMS CPEP data or refined data from the Practice Expense Advisory Committee (PEAC) review process. Then, this pool is allocated to individual services using the adjusted 1998 practice expense RVUs. THE CY 2006 MEDICARE PHYSICIAN FEE SCHEDULE CY 2006 PAYMENT RATES FOR AUDIOLOGY SERVICES The payment rates for all audiology codes will decrease somewhat in CY This decrease is a result of the 4.4% drop in the Conversion Factor. CMS estimates that the net effect on total Medicare payments to audiologists will be a decrease of 5%. The table at the end of this memorandum compares the CY 2005 and CY 2006 payment rates for most audiology procedures. CY 2006 PRACTICE EXPENSE RVUs FOR AUDIOLOGY PROCEDURES The 2006 practice expense RVUs for all procedures will remain the same as the current 2005 practice expense RVUs. 2 2 The practice expense RVUs for a few audiology codes will change very slightly from their 2005 levels. For example, the practice expense RVUs for CPT code (cochlear implant follow-up exam, <7) will increase from 3.50 to 3.51.

4 Page 4 In its August 8, 2005 proposed rule, CMS had proposed to eliminate the non-physician work pool and to calculate practice expense RVUs for all services, including those involving no physician work, using a single methodology. CMS proposed to determine relative direct costs for each service using a new bottom-up methodology. Direct costs would be determined by summing the costs of the resources (i.e., clinical staff, equipment, and supplies) typically required to provide the service. These resource costs would be derived from the Clinical Practice Expert Panels (CPEP) data as refined by the PEAC. 3 For indirect costs, CMS proposed to continue using the current CY 2005 indirect costs for all services. CMS proposed that the new practice expense RVUs would be phased in over a four-year transition period, with full implementation in CY CMS estimated that these changes to the practice expense RVUs would reduce Medicare payments to audiologists under the fee schedule by 5.8 percent in CY 2006 and by 21.3 percent in 2009 when fully implemented, the steepest for any profession. In its comments to CMS on the proposed rule, the Academy strongly opposed these changes and requested a one-year moratorium, during which the Academy would work with CMS to arrive at a more equitable methodology. The Academy also requested that audiology services be assigned work RVUs to reflect the cognitive work (e.g., interpretation, counseling) involved in performing those services. Lastly, the Academy s comments took issue with how CMS proposed to calculate direct costs and indirect costs for audiology procedures. The Academy s concerns were reinforced by letters to CMS Administrator Mark McClellan from Sen. Tom Harkin (D-IA), and Sen. Tim Johnson (D-SD), and from Rep. Jim Ryun (R-KS), Rep. Jim Walsh (R-NY), Rep. Carolyn McCarthy (D-NY), Rep. Lois Capps (D-CA), and Rep. Phil English (R-PA). In addition, the Alexander Graham Bell Association supported the Academy s comments in a letter to CMS. As a result of the Academy s efforts and of those in the audiology community, CMS has granted a one-year moratorium on implementation of the proposed changes to practice expense RVUs. Therefore, the CY 2005 practice expenses for all procedures will remain the same in CY In doing so, CMS stated: Two societies representing audiology and speech language pathology, supported by a comment from two senators, expressed concern about the large reductions in payment for audiology services and urged us to impose a 1 year moratorium on the proposed reductions for these services so that an equitable methodology for their services can be developed. because we will not be using the accepted new supplemental survey 3 The Practice Expense Advisory Committee (PEAC) was a multi-specialty committee established by the American Medical Association s (AMA) Specialty Society Relative Value Update Committee (RUC), which reviewed practice expense data and recommended refinements to that data. Most audiology codes have been refined through the PEAC review process. In 2004, the PEAC was replaced by the Practice Expense Review Committee (PERC), which also assists the RUC in reviewing practice expense data.

5 Page 5 data in the calculation of the PE RVUs for 2006, we believe it would be more equitable to defer the elimination of the pool [i.e., the NPWP] as well. Therefore, we will not be implementing this proposal for This will also give us the additional time to work with audiology and other specialties to ensure that our future proposal will be equitable to all. 4 Regarding the Academy s comments questioning some of the direct cost data used by CMS, in particular the hourly salary for audiologists and the cost of certain equipment, CMS recommended that the Academy provide CMS with updated salary information and utilize the RUC process to update equipment cost data. CY 2006 MALPRACTICE RVUs FOR AUDIOLOGY PROCEDURES The malpractice RVUs for audiology procedures also will not change in CY Addendum B to the final rule sets forth the malpractice RVUs for CY CONVERSION FACTOR TO DECREASE BY 4.4 PERCENT The Conversion Factor (CF) is used to convert the RVUs into payment amounts. The CF for CY 2006 is $ , down from $ in CY The CF is expected to decrease further in each of the next several years. CMS has stated that only a change in the statute can prevent this. Congress is currently considering several legislative proposals that would either mandate a positive 1% update or maintain 2005 reimbursement rates so that providers will not see a decrease in payments. The Academy continues to work with the health care community to advocate improving the statutory formula. There is currently a grassroots push by the physician community to urge Congress to act to stop this payment decrease from occurring. If such legislation is enacted, CMS has said it is prepared to make the appropriate adjustments to its payment system quickly. If the legislation is enacted after the 2006 MPFS goes into effect on January 1, 2006, an adjustment to these rates may occur retroactively with providers resubmitting claims filed after January 1 or some providers may choose to delay submitting claims until after the first of the year if it looks like Congress is going to take action. GEOGRAPHIC PRACTICE COST INDICES An audiologist s Medicare reimbursement for a particular code will vary depending upon the audiologist s geographic location. The geographic practice cost indices (GPCIs) are intended to reflect geographic differences in the cost of inputs. Addendum D to the final rule lists the GPCIs by Medicare carrier and payment locality. 4 CMS officials have publicly stated that CMS will announce meetings early in 2006 to discuss a new methodology for practice expense RVUs.

6 Page 6 The 2006 MPFS final rule reduces the GPCIs for Alaska. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established a floor of 1.67 for the work, practice expense, and malpractice GPCIs for the state of Alaska for the 2004 and 2005 calendar years. Since that provision of the law is no longer in effect, the CY 2006 GPCIs for Alaska are for physician work, for practice expense, and for malpractice. A proposal to remove Santa Cruz and Sonoma Counties in California from the Rest of California payment locality and to make each its own new payment locality has been withdrawn because of widespread opposition within California. The GPCIs divide the country into 94 payment localities. CMS has been considering possible reconfiguration of the payment localities but has decided to rely on State medical societies to propose any changes to the payment localities within their State. Because reconfiguration of the localities within a State cannot result in more Medicare money being paid to that State, any such reconfiguration within a State will have both winners and losers. In response to comments that CMS should undertake a comprehensive reevaluation of the payment localities, CMS states in the preamble to the final rule that we do not disagree with the view that a comprehensive evaluation of the current payment localities is due, and we look forward to working cooperatively with MedPAC in that regard. In any reevaluation, CMS goal will be to simplify payment areas and payment differences among adjacent geographic areas while maintaining accuracy in tracking input price differences among areas. CHANGES TO FUTURE FEE SCHEDULES FIVE-YEAR REVIEW OF WORK RVUs CMS intends to publish a proposed rule refining the work RVUs in Any changes to the work RVUs will become effective in As noted above, the Academy s comments on the proposed rule requested that CMS assign work RVUs to audiology codes. In the preamble to this final rule, CMS states that because we are maintaining the NPWP for 2006, we are deferring our decision regarding work RVUs for audiology, speech language pathology and medical nutrition pending further discussions with the specialties. OTHER MATTERS TELEHEALTH SERVICES The Medicare statute does not authorize Medicare coverage of telehealth services furnished by audiologists. In the past, the Academy has argued that many audiology services can be furnished remotely as telehealth services and urged that CMS recommend that Medicare cover telehealth services furnished by audiologists. CMS is preparing a report to Congress on possible expansion of Medicare coverage of telehealth services.

7 Page 7 In the preamble to this final rule, CMS notes that its report to Congress on additional sites and settings, practitioners, and geographic areas that may be appropriate for Medicare telehealth payment is under development and that, in formulating its recommendations to Congress, CMS will consider suggestions to add audiologists to the list of practitioners allowed to furnish telehealth services. NATIONAL COVERAGE DECISION TIMEFRAMES When a challenge is made to a Medicare National Coverage Determination (NCD), the Departmental Appeals Board conducts a review of the challenged provision of the NCD. The DAB may stay the NCD review proceeding to allow CMS to consider significant new evidence submitted by the aggrieved party. As required by the MMA, this final rule modifies certain timeframes in the NCD review process. If CMS informs the DAB that a revision or reconsideration of the NCD will be initiated, the DAB will stay the review proceeding and set appropriate timeframes by which the reconsideration must be completed by CMS. The timeframes include sufficient time for CMS to publish a proposed determination, allow a 30-day comment period, and prepare a final determination. For NCD requests that do not require an external technology assessment (TA) or Medicare Coverage Advisory Committee (MCAC) review, the determination must be made no later than 6 months after the date the request is received. For NCD requests that do require either a TA or MCAC review, where a clinical trial is not requested, the determination must be made no later than 9 months after the date the request is received. MEDICARE OPT-OUT Provided certain conditions are met, a physician or nonphysician practitioner is permitted to opt-out of Medicare for a two-year period. The physician or practitioner who has opted out of Medicare may provide services that would otherwise by covered by Medicare to a Medicare beneficiary under private contract and is not subject to the Medicare limiting charge provisions. When the physician or nonphysician practitioner fails to maintain the conditions necessary for optout (e.g., the physician or nonphysician practitioner submits a claim for Medicare payment) and does not make good faith efforts to correct that failure, and the Medicare carrier notifies the physician or nonphysician practitioner of the violation, the opt-out is nullified. 5 This final rule clarifies that failure to maintain opt-out will result in nullification of the opt-out, regardless of whether or when the carrier notifies the physician or nonphysician practitioner of such failure C.F.R (b).

8 Page 8 UPDATE TO LIST OF CODES THAT ARE DESIGNATED HEALTH SERVICES UNDER THE STARK LAW CMS uses the annual physician fee schedule final rule to update the list of codes that are considered designated health services for purposes of the Stark law (42 U.S.C. 1395nn). The updated list of codes is also available on the CMS website at This final rule adds CPT code (Speech/hearing evaluation) to the list. In the preamble, CMS states that it had previously deleted this code because CMS had believed it was an audiology code. However, Medicare does not provide reimbursement for CPT code as an audiology service. that code is only reimbursed as a speech-language pathology service and therefore must be added. The updated list now includes CPT codes 92506, (Speech/hearing therapy), and (Speech/hearing therapy). CMS is accepting comments on this aspect of the final rule. Comments must be submitted no later than January 2, Unless there is a concern about this change, we see no reason for the Academy to submit comments. CONCLUSION -- ACADEMY ACTION The Academy has avoided a potentially drastic reduction in Medicare Part B reimbursement for audiology services, but the respite is temporary. CMS current goal is to eliminate the NPWP in 2007 and to substitute in its place a new methodology for determining practice expense RVUs that will likely apply to all services without exception. The Academy s leadership and staff are currently planning a strategy to address this challenge during * * * * * If you have any questions, or if you would like a copy of the final rule or particular sections of the final rule referenced in this memorandum, please contact Jodi Chappell (jchappell@audiology.org) or Bob Hahn (rhahn@ofwlaw.com). A pre-published copy of the final rule (1,218 pages long) also may be found at FC.pdf. OFW:cr

9 Page 9 COMPARISON OF PAYMENT RATES FOR CY 2005 AND 2006 CPT* MODIFIER CY 2005** CY 2006** $ $ $ $ TC $ $ TC $ $ TC $ $ TC $ $ TC $ $ TC $ 5.31 $ $ $ TC $ $ *CPT codes and descriptions copyright 2005 American Medical Association. **Payment amounts do not reflect geographic adjustment.

10 Page 10 CPT* MODIFIER CY 2005** CY 2006** $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3.79 $ $ $ $ $ $ $ $ $ *CPT codes and descriptions copyright 2005 American Medical Association. **Payment amounts do not reflect geographic adjustment.

11 Page 11 CPT* MODIFIER CY 2005** CY 2006** $ $ $ $ $ $ $ $ $ $ $ TC $ $ $ $ $ TC $ $ TC $ $ $ $ $ $ $ $ *CPT codes and descriptions copyright 2005 American Medical Association. **Payment amounts do not reflect geographic adjustment

12 Page 12 CPT* MODIFIER CY 2005** CY 2006** $ $ $ $ $ $ *CPT codes and descriptions copyright 2005 American Medical Association. **Payment amounts do not reflect geographic adjustment. 6 Auditory function, 60 minutes 7 Auditory function, + 15 minutes 8 Tinnitus assessment