Outcome of Medicare Fee Changes Uncertain

September 1, 2006

There will be some major changes in the Medicare fee schedule for 2007. While psychiatrists are apt to make out better than some other subspecialties, it is unclear whether total payments for psychiatrists will go up or down.

There will be some major changes in the Medicare fee schedule for 2007. While psychiatrists are apt to make out better than some other subspecialties, it is unclear whether total payments for psychiatrists will go up or down.

The good news is that the Centers for Medicare and Medicaid Services will increase work relative value units (RVUs) as much as 37% for evaluation and management (E&M) codes. For psychiatrists, those are typically current procedural terminology (CPT) codes, such as 90801 for an initial psychiatric evaluation and 99203-05 for outpatient office visits. The work RVU--2.8 in the case of 90801--is added to the RVUs for practice expense and malpractice expense, and that total is multiplied by the conversion factor, which is a dollar figure, to get the amount Medicare reimburses for that CPT code.

The problem is that by increasing work RVUs for all E&M codes, Medicare expects to, in theory, spend an additional $4 billion. But the program is under a congressional mandate to ensure that any changes to the fee schedule are revenue-neutral. Should they decide to increase spending by $4 billion, Medicare proposes to then trim $4 billion by reducing all work RVUs by 10% for as many as 7000 CPT codes for all physicians.

Because psychiatrists bill a higher proportion of E&M codes than many subspecialties do, Medicare estimates that their payments in 2007 would drop 2%. Other specialties' payment changes may range from gains of 8% to decreases of 7%.

Becky Yowell, deputy director of the APA's office of health care systems and financing, explained that increases in the work RVUs for the psychiatric office visit codes would have a much greater and clearly positive impact in the private sector, where commercial insurance companies base their payments to physicians serving business employees on Medicare RVUs. Those commercial plans, however, do not have to worry about their payments being revenue-neutral.

In addition to the changes in the work RVUs, Medicare will also change the way the practice-expense RVU is calculated. This, too, will affect psychiatrists' fees in 2007. Medicare estimates that total payments to psychiatrists will drop 1% by 2010, when both the work and practice-expense RVU changes are fully implemented. But Yowell stated that the practice-expense changes are still very much up in the air.

Muddying the picture further is the fact that Medicare plans to propose additional changes to the fee schedule, perhaps to the update, which determines the conversion factor. The update has been negative for the past few years and has been projected to be 24.6% for 2007.