Management of Pathology Practices

April 2008

Management Home Page


Congress Delays Fee Schedule Cuts 6 Months - Or Not?

John R. Outlaw, CHC

Chief Compliance Officer, PSA, LLC – A MED3OOO Company


For the sixth year in a row, Congress has stepped in at the last minute to avert schedule reductions in the Medicare Physician Fee Schedule (MPFS), but unlike the previous five 5 times, the Medicare, Medicaid and SCHIP Extension Act of 2007 only provides for a six-month delay of what had been projected by Medicare as a 10.1% decrease in the 2008 MPFS Conversion Factor. The physician community has been pressing Congress for years to deal with the root problem - a sustainable growth rate (SGR) formula that sets annual and cumulative expenditure targets for Medicare physician services without regard to the real costs associated with delivering those services to a surging Medicare population. While some have expressed disappointment in the six-month delay, which also mandated a 0.5% increase in the conversion factor during that period, others view it as an indication that lawmakers believe they are close to a more permanent resolution and are encouraged that it will force Congress to take up the issue again in the next few months.



In addition to the 0.5% increase in the conversion factor - from $37.8975 to $38.0870 per Relative Value Unit (RVU) - the Act also provides for a six-month extension of the Geographic Practice Cost Index floor.


The Geographic Practice Cost Index (GPCI) adjusts each component of the RVU (Physician Work, Practice Expenses and Malpractice Premiums) for the regional/geographic differences in costs associated with each component. The Medicare Modernization Act of 2003 established a "floor" of 1.0 on the GPCI for the Physician Work component, effectively increasing MPFS reimbursement in many rural states and localities anywhere from 1% to 3%. This floor was supposed to have been eliminated for 2007, but Congress included it with the one-year freeze on the conversion factor last year, and has now extended it again through June 30, 2008, thus preventing what would otherwise have been another reduction of up to 3% (on top of the other MPFS changes) for physicians in many rural states.



There are other significant changes to the calculation of the MPFS that are not addressed by Congress' action which will still result in some significant changes to the MPFS payments made to laboratories and pathology practices during the first six months of 2008. These changes include another increase in the Budget Neutrality adjustment, the second phase of a four-year phase in of changes to the Practice Expense (PE) RVU, and additional changes to the Geographic Practice Cost Index for Practice Expense, Malpractice Premiums and Physician Work components (except for those geographic areas with a Work GPCI that was already less than 1.0).    


The Budget Neutrality adjustment was added last year in order to offset increases Work RVUs recommended in the most recent 5-year review for many E&M and other services which involved "face-to-face" encounters with patients.  Medicare law requires RVUs to be re-evaluated every 5 years, and it also requires that any changes to the RVUs as a result of the 5-year review must be budget-neutral. In the past, CMS had applied such budget neutrality adjustments to the Conversion Factor, effectively spreading the impact of the change evenly across the full spectrum of services; however, last year CMS reasoned that since the budget imbalance could be traced directly to the increases certain Work RVUs, the adjustment should be applied only to the Work RVU calculation. When additional changes were made to some Work RVUs for this year, it was necessary to increase the Budget Neutrality adjustment from -10.1% to -11.9%. Because this adjustment is only applied to the Work RVU, it only affects the professional component of a service, which translates into a reduction in the MPFS amount for professional component services by nearly 1.5% this year - even with 0.5% increase in the Conversion Factor. TC-only services, which by definition do not include physician work, are unaffected by this increase in the Budget Neutrality adjustment. 


The Practice Expense (PE) RVU represents the costs of both direct (equipment and supplies) and indirect (administrative and other overhead) expenses incurred by the physician in providing any given service. Along with the Work RVU changes implemented last year, CMS decided to change the way it allocates direct and indirect expenses in deriving the PE RVU by placing more weight on the direct costs. This change had the predictable effect of increasing the PE RVU for technical component services while decreasing the PE RVU for professional component services, and the impact of these changes (the PE RVU for 88305-TC increased 23.4% from 1.58 to 1.95, while the PE RVU for 88305-26 decreased 36.4% from 0.33 to 0.21) was so significant that by law, CMS could not implement them all at one time, so the changes are being phased in over a four year period. Even with the phased-in approach, all else remaining the same, this change will alone account for another 3% - 4% reduction in most PC-only pathology procedures in 2008, while TC-only services will see increases in the 2% to 3% range. 


CMS is required by law to update the Geographic Practice Cost Indices (GPCIs) every three years, and the 2008 MPFS includes the updates to GPCI reflecting the most recent 3-year review. As noted above, the action taken by Congress in December retained an RVU floor of 1.0 for the Work GPCI, but it does not affect changes to the GPCI for other components (Practice Expense and Malpractice Premiums), or even changes to the Work GPCI for those areas that already exceed the 1.0 floor. Depending on your locality, these GPCI changes could impact the final MPFS amount for any given procedure by +/- 1% on top of the other changes.



Obviously the impact of these changes on your particular practice will vary depending on your own work mix. Our point here has been to explain for you why the 0.5% increase in the Conversion Factor enacted by Congress for the first six months of 2008 may not translate into any real increase in Medicare payments for your practice - and may very likely still result in some significant decreases. The chart below compares the 2007 and 2008 National MPFS Amounts (without any GPCI locality adjustments) for some of the most frequently filed anatomic pathology procedures.


 CPT Code

2007 National  MPFS

2008 National  MPFS







































(Note: GPCI adjustments may change the actual MPFS amount for your locality by +/- 10% or more, but as noted above, for purposes of comparison between 2007 and 2008 MPFS allowables, the impact of the  GPCI changes for 2008 as compared with the 2007 GPCIs is negligible for most practices- in most cases, less than one-half of one percent)


For more information on the Medicare Fee Schedule and other regulatory issues, please contact

PSA at 800-832-5270 or  PSA provides billing, marketing, and business solutions to pathologists nationwide.