AAOS Bulletin - December 2006

Congress reduces Medicare payment cuts

Conversion factor won’t change, but payments will still decrease

By Robert C. Fine, JD, CAE

At the eleventh hour, Congress once again intervened to stop significant Medicare payment cuts that would have resulted from the reduction in the Medicare conversion factor. The “Tax Relief and Health Care Act of 2006” will keep the conversion factor—the dollar figure that translates relative values into fees under the Medicare resource-based relative value scale (RBRVS)—at $37.89. This last-minute Congressional decision prevents a 5 percent cut in 2007 Medicare payments across-the-board.

For the fifth year in a row, AAOS and other medical associations put pressure on Congress to prevent these cuts. Although Congress did respond, it has yet to address the root cause of the scheduled annual payment cuts—the flawed “Sustainable Growth Rate” payment formula. This formula is used by Medicare to set the conversion factor.

It doesn’t work
Efforts by physicians have been successful in educating many members of Congress that the formula does not work correctly. Congress, however, has failed to pass a permanent fix because of the impact on the overall budget. Without this permanent fix, annual Medicare payment cuts to physicians will continue to be a possibility. In addition, each year that Congress fails to pass a permanent fix to the formula, the potential payment cut increases.

Although the action by Congress on the conversion factor is good news for the short term, physicians will still see a 5 percent across-the-board payment cut for all medical services and procedures in 2007. This reduction is due to another factor, the “budget neutrality adjuster.”

Under the law, changes in Medicare relative value units must remain “budget neutral.” In 2006, the Centers for Medicare and Medicaid Services (CMS) completed its most recent five-year review of relative value units. This 18-month long process, which just recently ended, included a review of the accuracy of relative values for hundreds of medical services. Both CMS and medical associations participated in the process.

The five-year review resulted in more increases than decreases in relative value units. Because the Medicare payment system must remain “budget-neutral,” the fees for all services will be cut by 5 percent to pay for the increases in fees resulting from this review process.

“We regret CMS’ decision to apply that provision in the manner in which they did,” says AAOS President Richard F. Kyle, MD, “and we will continue to seek legislative and regulatory solutions to address these provisions that create inappropriate payment rates that impact patient access to care.”

Impact on orthopaedics
In addition, fees for most orthopaedic procedures will be cut, on average, by another 1 percent to 2 percent because of a change in the way CMS calculates relative values for practice expenses under the RBRVS.

These reductions, however, pale in comparison to the double-digit cuts that would have take place if proposed decreases in the work values for total hip arthroplasty, total knee arthroplasty, hip fracture repair and other orthopaedic procedures had been enacted. They would have resulted in combined annual Medicare payment cuts of $47 million to $56 million per year—in addition to potential reductions in payments from private payers that tie their reimbursements to the Medicare payment rates.

Actions by the AAOS and other musculoskeletal specialty societies helped avert these cuts. Details on this story, with specific payment information, will be found in the premiere issue of AAOS Now, which will debut at the 2007 AAOS Annual Meeting in February.

Robert C. Fine, JD, CAE, is AAOS director of health policy and governance initiatives.

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