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Fam Pract Manag. 2006;13(7):20-22

Medicare proposes substantial changes to physician fee schedule

The Centers for Medicare & Medicaid Services (CMS) has announced proposed changes to the Medicare Physician Fee Schedule, “the largest revisions ever proposed for services related to patient evaluation and management,” according to CMS Administrator Mark McClellan, MD, PhD.

The proposed changes involve increasing the work component of the relative value units (RVUs) assigned to certain services and changing the methodology for calculating the practice expense component. If adopted, the changes would result in increased payments for many evaluation and management (E/M) services. For example, the Medicare allowance for code 99213 would increase $6.83, while the allowance for code 99214 would increase $7.58. (See the accompanying table.) Payment for many hospital and consult codes would increase as well.

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CMS estimates that the changes would increase Medicare expenditures by approximately $4 billion; therefore, it is required by law to impose a budget neutrality adjustment. The CMS proposal for this involves using just 90 percent of the work RVUs in calculating the Medicare allowance. The allowances listed in the accompanying table already include that adjustment.

These changes were originally recommended by the Relative-Value Update Committee (RUC) of the American Medical Association, which recently completed its five-year review of the Medicare fee schedule. The AAFP holds a seat on the RUC and helped these recommendations move forward.

The proposed changes were published in the June 29 Federal Register. CMS is accepting public comment until Aug. 21, and a final rule is expected in November. Any changes in payment will begin Jan. 1, 2007.


Download the E/M Impact Tool, developed by the AAFP, to see how the proposed changes in the Medicare fee schedule would affect your bottom line. The tool allows you to input your estimated number of visits per week and calculate the additional income you could expect under the proposed changes. Click below to download the tool .

Physician income declines between 1995 and 2003

Physicians’ net income declined about 7 percent between 1995 and 2003 after adjusting for inflation, according to a study released in June by the Center for Studying Health System Change. For primary care physicians, the downward trend was even greater: a 10.2 percent decline.

“Flat or declining fees from both public and private payers appear to be a major factor underlying declining real incomes for physicians,” said Ha T. Tu, MPA, a co-author of the study.

According to the study, Medicare payments to physicians increased 13 percent from 1995 to 2003, while inflation increased 21 percent. In addition, in 1995 private insurers paid 1.43 times the Medicare rate, whereas in 2003 they paid just 1.23 times the Medicare rate.

During the same time period, wages for other types of professionals rose about 7 percent, according to the study.

Health plans reverse troubling payment policies

Family physicians frustrated by health plan payment hassles may be encouraged by some recent policy changes.

Aetna has agreed to correct its payment policy that automatically denied procedures billed on the same day as an evaluation and management (E/M) code appended with modifier –25. The improper denials occurred because the insurer wanted modifier –59 to be used instead. The insurer has agreed to reprocess these denied claims dating back to July 1, 2004 (or May 21, 2003, for physicians involved in mediation proceedings surrounding this issue). Physicians do not need to take any action. A list of the more than 200 minor procedures that Aetna will now reimburse in addition to an E/M with modifier –25 is available at

UnitedHealthcare has agreed to start paying physicians for significant, separate E/M services provided during preventive medicine visits. The new policy will take effect during the first quarter of 2007. However, there is a caveat: United is not offering full payment for both E/M and preventive services. Arguing that much of the work involved in the same-day services would be duplicative, United has decided to reimburse the E/M service at 50 percent of the fee schedule rate. The AAFP has said it will continue to lobby for full payment.

Anthem Blue Cross Blue Shield of Ohio has announced it will discontinue its controversial policy that reimbursed level-III and level-IV E/M codes at the same blended rate. Effective Sept. 1, the insurer will return to paying different rates for the codes. At press time, the new rates were yet to be released. The blended rate policy has been in effect for less than a year and was criticized by the AAFP, the Ohio Academy of Family Physicians and other physician organizations.

Court tosses out suit against health plans

A seven-year, class-action lawsuit against the nation’s top health plans was tossed out on June 19. The plaintiffs alleged that the insurers improperly denied, delayed or reduced claims submitted by the nation’s 700,000 doctors.

Most of the defendants in the case – Aetna, Cigna, Prudential, Health-Net, Humana and WellPoint – had previously settled with physicians for more than $400 million combined and promised to improve their payment practices. But UnitedHealthcare and Coventry Health had refused to settle.

“After reviewing thousands of documents, there is simply insufficient evidence of the wrongdoing claimed – i.e., agreeing with their competitors to defraud the doctors,” Judge Federico Moreno wrote in his summary judgment. “In so holding, the Court is not giving its imprimatur to the Defendants’ actions or to the tremendous amounts of compensation received by their executives, described by some as exorbitant. But any reform related to executive compensation or individual practices by the health maintenance organizations is beyond the power of this Court. Those desiring changes in the way health care is provided in America must look for remedies before Congress or allow the free market to dictate the results.”

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Copyright © 2006 by the American Academy of Family Physicians.

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