The final physician fee schedule (PFS) and hospital outpatient department payment rules for FY 2014 clearly signal the continued intent by the Centers for Medicare and Medicaid Services (CMS) to transform the healthcare delivery system through the Medicare program's payment systems and policies. In an effort to improve quality of care and reduce the costs of that care through efficiency incentives, the rules' payment changes continue to reconfigure physician incentives, transfer cost and, to a lesser degree, utilization risk to providers.

The Dollar Trees – Annual Payment Rate Changes

CMS generally will increase hospital outpatient prospective payment system (OPPS) payment rates for calendar year (CY) 2014 by 1.7 percent, which is less than the proposed 1.8 percent increase. Ambulatory surgical center (ASC) rates will be increased 1.2 percent, which is higher than the 0.9 percent that had been proposed. The PFS rule proposes a 20.1 percent reduction in physician fees for 2014. Stay tuned -- even the least productive Congress in history likely will not allow a reduction of this magnitude to be implemented. Timing, however, remains an issue, although it appears that a short-term patch will be enacted before the end of the year.

Clinical Laboratory Fee Schedule (CLFS) – Update

CLFS payment rates traditionally have remained static and, once a test was added to the CLFS, the payment rate for that test was not revised. Because the CLFS has been in existence for nearly 30 years, officials at CMS believe that payment rates may be outdated and potentially excessive. The PFS rule indicates that CMS will regularly review and update payments under the CLFS based on "changes in technology." Consequently, the likelihood of future reductions in CLFS payment rates reflecting lab automation should be taken into account when negotiating laboratory fee schedules and arrangements.

Outpatient Prospective Payment System

OPPS pays for most hospital outpatient department services and partial hospitalization services furnished by hospital outpatient departments and community mental health centers. OPPS payments are based on the Ambulatory Payment Classification (APC) group to which a service is assigned. CMS's OPPS rule makes a number of changes that are designed to improve quality and/or efficiency, including:

Increased Bundling of Components. To avoid rewarding providers for the quantity of services delivered, rather than the quality of care furnished, the rule expands the categories of items and services bundled together for payment by adding five additional categories of supporting services included in the primary service payment. This continues the migration of the OPPS toward a prospective payment system and away from a per unit of service fee schedule. The five categories bundled are:

  • Drug, biological and radiopharmaceutical supplies used in a diagnostic test or procedure;
  • Drug and biological supplies used in a surgical procedure;
  • Certain clinical diagnostic laboratory tests;
  • Certain procedures described by add-on codes; and
  • Device removal procedures.

Beginning in CY 2015, CMS will implement 29 comprehensive APCs to replace 29 existing device-dependent APCs to prospectively pay for the most costly hospital outpatient device-dependent services. Comprehensive APCs include payment for both the primary service and all adjunct services provided to support the primary service.

Outpatient Clinic Visit Codes. CMS's bundling and quality incentivization policies also drove CMS to collapse the current five levels of clinic payments into a single code for an outpatient hospital visit. CMS believes this change will incentivize hospitals to provide care in the most efficient manner and discourage upcoding. Payment under the new APC code is based on the mean costs of prior clinic visit codes. This change will have an adverse impact on tertiary care facilities and may inadvertently over-reward low outpatient complexity providers.

The final rule, however, does not collapse the emergency department codes, as had been proposed earlier this year.

New Quality Measures: Hospital Outpatient Quality Reporting (OQR) Program and ASC Quality Reporting Program (ASCQR). The rule also adds four new measures for the OQR program and three new quality measures for the ASCQR, affecting payments beginning in CY 2016, with data collection beginning in CY 2014. The new OQR measures are:

  • Influenza vaccination coverage among healthcare personnel;
  • Endoscopy/polyp surveillance: appropriate follow-up interval for normal colonoscopy in average-risk patients. This measure also was adopted for the ASCQR;
  • Endoscopy/polyp surveillance: colonoscopy interval for patients with a history of adenomatous polyps -- avoidance of inappropriate use. This measure also was adopted for the ASCQR; and
  • Cataracts: improvement in patient's visual function within 90 days following cataract surgery. This measure also was adopted for the ASCQR.

The final rule also removes two OQR measures for payments beginning in CY 2015: (1) transition record with specified elements received by discharged emergency department patients (OP-19) and (2) cardiac rehabilitation measure: patient referral from an outpatient setting (OP- 24).

Hospital Value-Based Purchasing (VBP) Program. Under this program, value-based incentive payments are made to hospitals meeting certain performance standards. The final rule adds performance and baseline periods for the catheter-associated urinary tract infection, central line-associated bloodstream infection and surgical site infection measures for the FY 2016 Hospital VBP Program. The final performance period is CY 2014, and the final baseline period is CY 2012. The rule also creates a second level review process for hospitals that are dissatisfied with the result of a VBP program administrative appeal.

Physician Fee Schedule

Primary Care and Chronic Care Coordination Payments. To further support its goal of delivering coordinated care, CMS will begin paying separately for non-face-to-face chronic care management services in 2015 for Medicare beneficiaries who have multiple significant chronic conditions. These payments will be in addition to the current payment for transitional care management services for a beneficiary transitioning from a facility to a community setting.

Physician Value-Based Payment Modifier. The PFS rule continues the implementation of the Physician Value-Based Payment Modifier. The value-based payment modifier is designed to provide a differential payment to physicians based on the quality of care furnished compared to the cost of that care. Beginning in 2016, groups with 100 or more physicians will have both upward and downward value-based adjustments, while groups of 10 to 99 physicians will have only upward value-based payment adjustments. For CY 2016, the adjustment generally will be limited to a maximum of two percent, upward or downward.

PQRS Changes. CMS continues its pattern of changing the Physician Quality Reporting System (PQRS) measures. For 2014, CMS added 57 new individual measures and 2 measures groups and retired a few claims-based measures. Therefore, the PQRS program will contain a total of 287 measures and 25 measures groups in 2014. Many of the changes were designed to align the reporting of quality measures under multiple programs to permit a physician to report the data only once for all reporting programs. In addition, CMS provides an option to report quality data through qualified clinical data registries. Beginning in 2015, a downward payment adjustment will apply to professionals who do not satisfactorily report data on quality measures for covered professional services.

Physician Compare. For 2014, CMS finalizes its proposal to publicly report all measures collected through the PQRS group practice reporting option (GPRO) web interface (that met certain validity and reliability standards) for all groups participating in the 2014 PQRS GPRO and for ACOs.

CMS anticipates posting, as early as 2014, data from the Clinician and Group Consumer Assessment of Healthcare Providers and Systems (CG-CAHPS) on Physician Compare for large group practices and ACOs.

CMS will continue adding to and utilizing the Physician Compare website to publicly report physician data. Consequently, physicians must monitor their performance metrics and data (such as primary and secondary specialties, practice locations, group affiliations, hospital affiliations, Medicare assignment status, education, languages spoken, American Board of Medical Specialties board certification information, quality programs under which information was satisfactorily reported and whether the individual was a successful electronic prescriber) to assure it is properly displayed in response to patient searches.

Licensure/State Law Compliance Required for Incident To Services. As a condition of payment for "incident to" services, the rule requires that such services be furnished in compliance with applicable state law. CMS wants to enhance the quality of care delivered by assuring that providers comply with state standards regarding (1) the qualifications of the individuals who furnish various types of incident to services and (2) the requirements under which services may be furnished in the applicable setting.

Misvalued Codes. CMS continues identifying misvalued codes and made adjustments to bring payments in line with the relative value of the procedures to prevent over-utilization. In the PFS rule, the agency finalizes coding changes on approximately 200 procedures, and approximately 200 additional codes had their work relative value units changed on an interim basis for 2014.

SGR Fix Status

Bipartisan support exists for various draft proposals that repeal the SGR physician payment formula and replace it with a mix of payment freezes and quality and value-based payments to encourage value and quality over volume.

The existing congressional proposals would generally freeze current physician payment levels for ten years and reform incentive programs to allow physicians and other healthcare professionals to earn performance-based incentive payments through a compulsory budget-neutral value-based purchasing program. These proposals would combine all of the current quality incentive programs into one comprehensive program. Consequently, the details of CMS's regulatory quality and efficiency programs are likely to change, but the overall regulatory trend will continue to use payment mechanisms to encourage behaviors that reduce the cost of care and improve its quality.

Based on the downward bend to the healthcare cost curve, the Congressional Budget Office recently lowered its 10-year estimate of the cost for repealing the SGR physician payment formula to $116.5 billion. While this may make congressional action easier, with 2013 winding down and the "pay-fors" yet to be resolved, it is likely that physicians will see the can kicked down the road with a short-term fix before major changes are implemented.