Comments on Proposed Rule for Payment Policies under Physician Fee Schedule 2007, Sept 2006

Published Thursday, September 28, 2006 7:00 am

Centers for Medicare and Medicaid Services
Department of Health and Human Services
Attention: CMS-1321-P
P.O. Box 8015
Baltimore, MD 21244-8015

Dear Sir/Madam:

We are pleased to submit these comments on the proposed rule for Revisions to Payment Policies under the Physician Fee Schedule for Calendar Year 2007 on behalf of the American Association for Geriatric Psychiatry (AAGP). The AAGP is a professional membership organization dedicated to promoting the mental health and well-being of older people and improving the care of those with late-life mental disorders. Our membership consists of more than 2,000 geriatric psychiatrists as well as other health care professionals who focus on the mental health problems faced by senior citizens.


We continue to be deeply concerned about the impact of the sustainable growth rate (SGR) formula on payments for physician services under the fee schedule. We again urge you to use your discretion to revise the calculation of physician expenditures and to support efforts in Congress to replace the SGR policy. The preamble to this proposed rule estimates the update for calendar year 2007 to the conversion factor will be a minus 5.1 percent. We believe if a reduction of this magnitude is put into place, the quality of care and beneficiary access to physicians’ services will be adversely affected. We strongly recommend that you consider changes in the way you estimate spending increases for purposes of applying the SGR policy under the Medicare fee schedule.

Specifically, we do not think physician expenditures should include the cost of prescription drugs furnished incident to a physician’s service. As you know, drugs administered in a physician’s office are not paid for under the physician fee schedule; including them in the estimates of spending under the fee schedule holds physicians accountable for an expense that is largely outside their control, and one that is rising very rapidly. In addition, we believe that the estimate of physician expenditures should be adjusted to account for increased outlays related to new national coverage decisions. Coverage decisions that expand beneficiary access to advancements in medical diagnosis and treatment should be treated in a manner similar to changes in law and regulation that are expected to affect outlays for physicians’ services. In our view, there is no difference between a change in law that extends Medicare coverage and a change in national coverage policy initiated by CMS.

For psychiatry, a negative update to the fee schedule and other changes in work and practice expense relative value units (RVUs) results in a 7 percent reduction in total Medicare payments for the specialty in 2007. This cut comes in the face of forecasted increases in practice costs including malpractice premiums of 3.8 percent and increases in the cost of clinical labor of 3.7 percent, as reflected in the estimated Medicare Economic Index (MEI) for 2007. It’s important to underscore that this proposed negative update to the fee schedule is not merely a slowing in the rate of increase in fees – it’s a reduction in the payment amount and, taking into account the estimated MEI for 2007, the total impact is a 10.7 percent decline in the value of Medicare physician payments. In other words, if Medicare payments were adjusted to be consistent with the forecasted MEI, then payments should be 3.7 percent higher in 2007 than in 2006. Instead, payments for psychiatrists will be 7 percent lower in 2007, which amounts to a net loss of 10.7 percent (- 3.7 percent + -7 percent).

The Congressional Budget Office has recently estimated that under current law, payment rates for physician services could decline by a total of 25 to 35 percent. CBO further estimates that total Medicare spending for physicians’ services will increase on average about 2 percent annually through 2012. Clearly, this cannot continue without significant adverse effects on beneficiary access to care. For our members who care for a significant number of patients over age 65, these payment policies are likely to threaten the financial viability of many of their practices. Current payment rates already fail to recognize adequately the added costs of caring for a frail population with multiple chronic conditions and the additional time that must be given to family members and care givers.

While we do not have evidence of a significant increase in the number of psychiatric practices that have placed limits on new Medicare patients, our members are especially vulnerable to these limitations. We do know that a number of geriatric psychiatry practices are near bankruptcy or have been forced to close. Many other geriatric psychiatrists are actively re-evaluating the financial feasibility of maintaining their geriatric practice. At a time when there is growing evidence of undiagnosed and untreated mental illness in the senior population, these policies are likely to erode access to mental health care for growing numbers of elderly and disabled beneficiaries.

Changes in the Medicare Economic Index (MEI)

We also want to express our strong opposition to the recently announced 0.5 percent reduction in the estimated Medicare Economic Index (MEI). The reduction was not discussed in the proposed rule. Based on the impact table in the proposed rule that shows $75 billion of allowed charges under the physician fee schedule, a -0.5 percent reduction in the update will result in a $375 million cut in total physician payments in 2007. We believe that CMS is in violation of the spirit if not the letter of the Administrative Procedures Act (APA) which requires publication in the Federal Register of proposed changes in current policy (including revised estimates of the MEI) and provides for a period for public comment.

Unlike previous proposed rules for the physician fee schedule, there was no discussion in the 2007 proposed rule of the Medicare update for the coming year. Instead, the section of the proposed rule on the Regulatory Impact Analysis includes only the following single sentence: “Table 7 below shows the specialty level impact of section 5102 of the DRA and our most recent estimate (-5.1 percent) of the CY 2007 Medicare PFS update.” This number was unexpected because it is larger than the estimate contained in the President’s Budget for FY2007.

To determine why the update to the conversion factor would be -5.1 percent instead of the -4.6 percent contained in the President’s Budget, it is necessary to read a separate Medicare News article that was released by the CMS on August 8, 2006. Unfortunately, as with the proposed rule itself, there was no explanation for the lower update other than the statement “The negative update is projected for 2007 because spending on physicians’ services and other Part B services has been growing at a much faster rate than target spending.” However, information about the reduced MEI was contained in a Fact Sheet on the Medicare Economic Index that was released on the same date as the proposed rule. The lower MEI described in the Fact Sheet was based on the use of a new measure of productivity by the Bureau of Labor Statistics (BLS) and lower projections of inflation. Few details were provided and comments on the changes were not requested.

The failure of the proposed rule to include a discussion of this change in the MEI prevents all affected parties from appropriate notice of the change and the opportunity to comment. Had we been given the opportunity to comment, we would have questioned the use of data that shows increased productivity in a year when the productivity of most physician practices has been reduced significantly by the need to counsel Medicare beneficiaries about the new prescription drug benefit and the availability of preventive services and to comply with the agency’s requests related to the Physician Voluntary Reporting Program (PVRP). In addition, we would have pointed out that our patients are typically frailer, have multiple chronic conditions and cognitive impairments that increase the time and effort required for counseling and patient education.

We urge CMS to delay any changes in the MEI pending publication in the Federal Register of the proposed methodology for the MEI productive adjustment and the opportunity for interested parties to submit public comments.


In sum, the payment policies for the Medicare Physician Fee Schedule combined with the limited and discriminatory Medicare benefit for mental illness care can further burden Medicare beneficiaries and jeopardize their access to effective treatment. We are deeply troubled by the prospect of reduced payment for the services of geriatric psychiatrists at a time when there is evidence that these practices are struggling to remain financially viable. We believe that CMS should take every opportunity to exercise its discretion to expand access to psychiatric services for Medicare beneficiaries. We hope you will reconsider your options for updating the fee schedule and will join with us in asking Congress to replace the current SGR policy.

Thank you for this opportunity to comment on the proposed rule.


Christine M. deVries
Executive Director

1. Medicare Payment Advisory Commission (MedPAC). “Report to the Congress: Medicare Payment Policy.” p. 97. March 2006.

2. Congressional Budget Office (CBO). “The Sustainable Growth Rate Formula for Setting Medicare’s Physician Payment Rates.” Economic and Budget Brief, September 6, 2006, p. 2.