Medicare Reimbursement Will Drop 3.5% to 4.5% Even Though 25% Reduction Avoided

The Conversion Factor for 2011 has been adjusted downward by CMS in order to offset the increases adopted elsewhere (see below) by CMS in the physician fee schedule. This is unrelated to the SGR saga played out in 2010, but will affect what radiologists will be paid by Medicare in 2011. The conversion factor will drop approximately 8.0%, from $36.87 in 2010 to $33.98 in 2011. However, some professional work RVU re-valuing also occurred. The net impact of these changes will result in an average net decrease in Medicare reimbursement for professional radiology services of 3.5% to 4.5%.

On December 15, 2010, President Obama signed into law the Medicare and Medicaid Extenders Act of 2010. Among other things, this legislation avoided the 25% reduction in physician fee schedule payments that was slated to go into effect on January 1, 2011. In lieu of the 25% negative update that was scheduled to occur, Congress mandated that there be a 0% update for 2011. Although this was welcome news for the physician community, this is only a temporary fix. Another SGR-related cut will occur in January 2012 unless the next Congress intervenes to fix the SGR problem.

However, there has been considerable confusion about the meaning of the Congressional action and what will happen to physician fee schedule payments for services provided on or after January 1, 2011.

The Congressional action avoiding the SGR related reduction that was slated to occur on January 1, 2011 effectively froze the update factor for 2011 but not the Conversion Factor. Instead of a negative 25% update, the Congress directed that there be a 0% update.

The HBMA has reported that in the physician fee schedule final rule, CMS made a variety of administrative changes that will have an effect on physician fee schedule payments for 2011, including the 2011 Conversion Factor. By law, if CMS makes any administrative changes that result in Medicare outlays going up or down by more than $20 Million, the agency must make additional administrative changes that “offset” those adjustments so that the financial effect of all changes is “budget neutral”. The 2010 review process resulted in a number of changes in both the practice expense component of the RVU as well as adjustments to the way CMS calculates the Medicare Economic Index (MEI) also known as medical inflation. The net effect of these changes would have been an increase in Medicare outlays for 2011 well above the $20 Million threshold.

In order to adhere to the Budget Neutrality requirement, CMS had to make corresponding reductions to offset the additional costs associated with the RVU and MEI changes. In the physician fee schedule final rule, CMS opted to make an adjustment to the 2011 Conversion Factor (CF) to maintain budget neutrality.

ADVOCATE will continue to provide updates as they become available.

With best regards,
Kirk Reinitz, CPA