December 1998 Bulletin

Coalition of 11 medical societies sues HCFA

A coalition of 11 national medical societies, including the Academy, filed suit in federal district court in Chicago, challenging the government's rules for phasing-in the new practice expense component of the Medicare physician fee schedule.

The lawsuit against the Secretary of Health and Human Services and the Health Care Financing Administration (HCFA) asks the court to declare HCFA's practice expense transition formula unlawful and invalid.

According to the plaintiff medical societies, HCFA's formula for phasing-in resource-based practice expense relative value units (PE-RVUs) is in direct conflict with the transition formula required by the language of the Balanced Budget Act of 1997. The plaintiffs also contend that the unlawful transition formula will lead to $495 million in unauthorized fee reductions for certain physician services over the 1999-2001 transition period. Because the new fee schedule is scheduled to take effect Jan. 1, 1999, the plaintiffs have filed a motion for expedited relief.

At issue is the so-called $390 million "down payment"-the increase in practice expense RVUs for office visits which was offset by reductions in surgical procedures. The medical societies contend, the law limits the "down payment" to one year, but that HCFA is applying a "down payment" to three additional years-1999-2001-boosting the total reduction to $825 million.

"HCFA has essentially ignored the transition formula that Congress directed the agency to adopt in favor of a formula designed to meet its own policy goals," said Rob Portman, an attorney with the law firm Jenner & Block, which represents the coalition. "The law is very clear in this area: An administrative agency is not free to disregard the plain language of a federal statute. HCFA's transition formula does just that. It is blatantly unlawful."

William W. Tipton Jr., MD, Academy executive vice president, said, "The Academy joined in the lawsuit because HCFA's rules would result in an additional loss of $30 million to $40 million in orthopaedic reimbursements."

In addition to the Academy, the plaintiff's are the American Society of Cataract and Refractive Surgery; American Academy of Ophthalmology; American College of Cardiology; American Gastroenterological Association; American Association of Neurological Surgeons; Congress of Neurological Surgeons; Society for Excellence in Eyecare, Inc.; Outpatient Ophthalmic Surgery Society; American Society for Gastrointestinal Endoscopy; and American College of Gastroenterology.

In 1994, Congress directed HCFA to establish and implement a system for calculating resource-based PE-RVUs by 1998. HCFA issued a proposed rule in June 1997 in response to the directive. Based in large part on complaints by physician groups, Congress, through the 1997 budget act, delayed the implementation of the PE-RVU system by one year, and created the formula for phasing-in the new resource-based PE-RVU from 1999-2001.

The medical societies say the budget act language clearly directs that PE-RVUs in 1999-2001 are to be determined based on a blend of the original statutory formula for calculating charged-based PE-RVUs and the relevant practice expense resources involved in furnishing the services. According to the medical societies, the transition formula adopted by HCFA ignores the plain language of the 1997 budget act and uses 1998 PE-RVUs instead of the original PE-RVU formula.

The medical societies say the 1997 budget act authorized a one-time downward adjustment of not more than $390 million for certain nonoffice-based physician services. They assert that HCFA, by using the adjusted 1998 PE-RVUs in the transition formula, will perpetuate the reduction for three additional years, resulting in total reductions of $825 million from 1998-2001. In addition, most private sector insurance companies utilize the Medicare Fee Schedule to pay physicians, thus, compounding the impact on patient care services.

The plaintiffs state in court papers that "the Secretary's decision to use the 1998 adjusted PE-RVUs instead of the original formula is in violation of the Administrative Procedure Act, as well as the Medicare Act's requirement that the Secretary's regulations be consistent with the statute."


HCFA's rules for phasing-in new practice expense component of Medicare physician fee schedule

Surgical specialties

The 1997 Balanced Budget Act says the $390 million 'down payment' is for one year, but HCFA wants to extend it over four years


This provision does not restrict the use of the 1998 practice expense RVUs in future years. "…the direction of payment changes for medical visits and reduction for surgical procedures has been mandated by Congress, implemented by HCFA and known to the public for some time."

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