On July 1, 2011, CMS released the proposed rule (the "Proposed Rule") updating Medicare payments to physicians for calendar year ("CY") 2012. The Proposed Rule contains dozens of other provisions impacting Medicare Part B reimbursement – some initiated by the Patient Protection and Affordable Care Act ("PPACA"). The following summarizes key proposals contained in the Proposed Rule.

Medicare Physician Reimbursement

Conversion Factor for CY 2012. The statutory formula to determine the Medicare fee schedule payment for a particular service results in a projected 29.5 percent cut to the conversion factor. Combined with the other inputs that produce Medicare payment rates (e.g., work and practice expense relative value units), Medicare reimbursement under the physician fee schedule in CY 2012 will be substantially lower than current payment rates. The Proposed Rule implements this cut, which cannot be averted absent legislation. Since 2003, Congress has avoided implementing negative cuts under the Medicare fee schedule by agreeing to short-term fixes. While most policymakers on both sides of the aisle favor a permanent "fix" to the fee schedule, the cost of such a permanent fix reaches hundreds of billions of dollars over 10 years. A divided Congress, one currently focused on raising the debt ceiling and already with an eye toward the 2012 elections, must agree to some legislative package that includes offsets to pay for the cost of a fix. Another short-term fix (e.g., six months, one year) would require billions of dollars of offsets, likely in the form of changes to the Medicare program or PPACA.

RVU Review. CMS is required to review, not less than once every five years, the relative value units ("RVUs") under the Medicare physician fee schedule. PPACA requires CMS annually to review potentially misvalued codes, and to make appropriate adjustments to the relative values of those services. CMS must look at potentially misvalued codes in seven specific categories, including families of codes which have had the fastest growth, have experienced substantial changes in practice expenses, and have low values that are often billed multiple times for a single treatment. The Proposed Rule contains a list of codes (including all E/M codes and high expenditure non-E/M specialty codes) that will be submitted to the American Medical Association’s Relative Value Scale Update Committee for review. CMS also proposes (a) to consolidate the five-year work and practice expense RVU review with the annual review of potentially misvalued codes, and (b) a process to allow annual public submission of codes for potential review.

Expansion of MPPR Policy. CMS proposes to expand the multiple procedure payment reduction policy (the "MPPR Policy’) (i.e., the 50 percent payment reduction) to the professional component of advanced imaging services (i.e., CT, MRI, and ultrasound). Currently the reduction is applied only to the technical component of the second and subsequent advanced imaging services furnished in the same session. CMS notes that the agency is looking at expanding the MPPR Policy in future years to the technical and professional component of all imaging services and to the technical component of all diagnostic tests. CMS' rationale, not surprisingly, is the presumed efficiencies in furnishing multiple services in the same session, which arguably is not unique to the technical component of the limited tests to which the MPPR Policy currently applies.

Payment for Part B Drugs

CMS has the authority to disregard the average sales price ("ASP") of a drug or biological that exceeds the widely available market price ("WAMP") or average manufacturer price ("AMP") by an applicable threshold percentage. If the ASP for a drug or biological exceeds the WAMP or AMP by this threshold percentage, CMS will substitute the lesser of the WAMP or 103 percent of the AMP. In this Proposed Rule, CMS proposes to specify a separate adjustment to the applicable threshold percentage for WAMP and AMP comparisons. For WAMP, the threshold will be five percent in 2012. For AMP, the price substitution will be made only when the ASP exceeds the AMP by five percent in the two consecutive quarters immediately prior to the current pricing quarter or three of the previous four quarters. (Note: CMS will only apply this policy in situations where AMP and ASP comparisons are based on the same set of national drug codes for a billing code.) Any price substitution would last for one quarter, providing the HHS Office of Inspector General with additional time to compare drug prices.

Physician Quality Reporting System (PQRS)

For the 2012 PQRS, CMS proposes criteria for satisfactory reporting of individual quality measures for eligible professionals and group practices. CMS separates internal medicine, family practice, general practice, and cardiology from all other professionals, and also delineates between claims-based reporting, registry-based reporting, and reporting using EHR. CMS also proposes the measures that must be reported, based on the reporting mechanism. The Proposed Rule also adds 10 new measure groups for 2012: (1) COPH; (2) inflammatory bowel disease; (3) sleep apnea; (4) epilepsy; (5) dementia; (6) Parkinson’s; (7) elevated blood pressure; (8) radiology; (9) cardiovascular prevention; and (10) cataracts. In future rulemaking, CMS plans to implement the PPACA provision applying a 1.5% payment reduction in 2015 and a 2.0% payment reduction in 2016 and beyond for eligible professionals who do not satisfactorily submit quality data.

Electronic Prescribing (eRX) Incentive Program

Incentive payments under the eRX Incentive Program equal 1 percent of an eligible professional’s total estimated Medicare Part B allowed charges under the fee schedule in 2012 and 0.5 percent in 2013. If an eligible professional is not a "successful electronic prescriber," CMS will impose a penalty of 1.0 percent in 2012, 1.5 percent in 2013, and 2.0 percent in 2014. The Proposed Rule details the proposed criteria for what constitutes a "successful electronic prescriber." For example, an eligible professional would be a "successful electronic prescriber" for the 12-month reporting period of CY 2012 if the individual reports the electronic prescribing measure’s numerator code at least 25 times for encounters associated with at least one of the denominator codes. In the rule, CMS also proposes the available hardship exemptions for which an eligible professional or group practice may apply, such as practices in rural areas with limited high speed internet connections, areas with limited available pharmacies for e-prescribing and those with fewer than 100 prescriptions during a six-month payment adjustment reporting period.

Annual Wellness Visit/Health Risk Assessment, and Value-Based Payment Modifier

PPACA expanded Medicare coverage to include an annual wellness visit for Medicare beneficiaries. As part of this annual wellness visit, beneficiaries are entitled to a health risk assessment ("HRA"). In the Proposed Rule, CMS proposes the criteria for an HRA (using CDC guidance), which essentially is a beneficiary’s self-evaluation of their physical and mental health status and risk factors. PPACA also directs CMS to develop a "value-based payment modifier" that will result in higher payments to physicians that rank higher in quality as compared to cost. The value-based payment modifier will be applied to certain physicians beginning in 2015 and to all physicians by January 1, 2017. In the Proposed Rule, CMS proposes the quality and cost measures to test physician performance and solicits comments on how to measure physician performance and apply the value modifier.

The Proposed Rule will be published in the Federal Register on July 19, 2011. Comments to the Proposed Rule must be submitted to CMS by August 30, 2011.