Gradual decrease in average wholesale price will likely lead to declining profits.
Be prepared for a short-term gain that may be a long-term pain. The American Medical Association has claimed a major political victory with passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003, and I certainly hope the AMA is correct. Certainly the pay increase over the next 2 years is great. However, I have concerns about many of the other issues addressed in the bill.
At this point, we simply don’t know the overall impact of Medicare reform. You’ve all heard the old saying, “There are three parts to every law: the law as passed by Congress, the regulations as written by the bureaucracy, and the interpretation according to the lawyers.” The regulations and the interpretations are not available-yet.
1.5% increase in conversion factor –
The temporary gains are important. There will be a 1.5% increase in the conversion factor for the next 2 years instead of the projected 4.5% decrease this year, and potentially a similar decrease next year. The exact conversion factor had not been developed by the time this article was completed. The AMA ran projected impacts of the bill by state. From 2004 to 2005, the average physician will receive $8,000 in Colorado and $26,000 in Florida. The majority of the other states fall between those two figures.
However, the total value is much greater. Many of our private insurance contracts are based on a percent of Medicare. The increase will keep our private pay from decreasing as well.
The method of decreasing the profits we have enjoyed from injectable drugs delivered in the office has been set. The decrease will be gradual, no more than 15% per year. This year, the payment will be 85% of the average wholesale price (AWP) instead of 95%. This is both good news and bad news.
The bad news is that the profit will slowly disappear. The good news is the profit will disappear slowly compared with some of the other potential decisions that could have been made. This is where the regulations and the interpretations are going to be extremely important. How they determine average purchase price and the decisions that drug companies are going to make will determine the actual long-term impact.
The potential long-term pain could be significant. First, a lot of money is being diverted to the payment for drugs. This is great for patients on Medicare. However, the biggest winners, at least in the near future, will be the pharmaceutical companies. There is to be no negotiation on price by the government.
The total price tag of the bill over 10 years will be $400 billion. Unless things change, I am concerned that part of the future cost will be taken from physicians.
The second issue we need to watch closely is the provision to encourage the privatizing of Medicare. In some areas of the country, this would be good news and in others, devastating. The regulations and the implementation, depending on how power is given to the players, could rekindle the HMOs. In addition, HMOs will be able to negotiate drug prices and therefore will be able to offer much more for the premium than Medicare, as we know it will be able to offer.
Again, this is an area where the devil is in the detail. The shift to the private sector could be good or could be bad. We’ll have to see how much power the regulations give the insurance companies. If physicians prepare appropriately, this could be good for the health care system.
We should prepare for the worst and hope for the best.
I suggest that you continue to consolidate practices to gain market share. We should also work to separate our private contracts from the conversion factors for Medicare. Use of the Resource-Based Relative Value Scale and Medicare payment rules is OK. Avoid contracting for a “percent of the Medicare conversion factor” for that year. Automate your practices to improve billing efficiency and effectiveness. Make the move now to develop better practice and market data to enhance your contract negotiations. We should be prepared this time around.
The new Medicare legislation is far reaching and has many other aspects. President Bush told an audience at Washington’s Constitution Hall that “Medicine has changed, but Medicare has not-until today.”
- increased payments if new technology is used for inpatient hospital services
- coverage of Category A devices for clinical trials
- new appeal rights for providers, including the ability to stretch out repayments in hardship cases and receive notification for overusing a code
- a 3-year provision to allow Medicare to contract with private firms for “identifying underpayments and overpayments and recouping overpayments.”
Stay tuned for details of a new fraud and abuse approach and more details on the drug reimbursement plan.
Urologist Ray Painter, MD, is president of Physician Reimbursement Systems, Inc., in Denver and is also publisher of Urology Coding and Reimbursement Sourcebook
Disclaimer:
The information in this column is designed to be authoritative, and every effort has been made to ensure its accuracy at the time it was written. However, readers are encouraged to check with their individual carrier or private payers for updates and to confirm that this information conforms to their specific rules.
