Geographic Adjusters in Medicare

Payment

Friday September 17, 2010

Douglas J. Reding, MD, MPH, FACP

Vice President & Chairperson

of Government Relations

Overview

The Medicare Payment Dilemma

Medicare Payment Inequities

Medicare Payment Adequacy

Geographic Adjustment of Practice ExpenseGeographic Adjustment of Practice Expense

The Physician Work GPCI

Forward Looking Payment System

Overview

CMS cost measurement reflects profound variation in supply-sensitive service utilization

CMS measurement tools - geographic adjustment

Obsolete

Limited in scopeLimited in scope

Imprecise

Not consistent with future health reform

CMS measurement tools must be recalibrated to future-proof Medicare reimbursement

Marshfield Clinic

at a Glance

Formed 1916

Physician led – 501(c)3

766 physicians in 86 specialties

6,450 employees

56 regional sites

374,468 unique patients/year

76K Medicare, 58K Medicaid

3,767,3003 patient encounters/yr3,767,3003 patient encounters/yr

Over $1 billion in annual revenue

Security Health Plan (170,000 Member HMO)

Division of Laboratory Medicine

Education Foundation

Research Foundation

Family Health Center (76K patients, 443K encounters annually)

Seven Dental Clinics in underserved areas

An Academic Campus of UW School of Medicine and Public Health

FY09 Payor Comparison

FY09 FY08 FY09 FY08

All Other 47% 51% 75% 75%

Non-Insured 2% 1% 0% 0%

Medicare 38% 37% 19% 19%

Medicaid 13% 11% 6% 6%

100% 100%

% of Revenue% of Charges

% of Charges

All Other

Non-Insured

Medicare

Medicaid

Total : $1,843,270,233% of Revenue

All Other

Non-Insured

Medicare

Medicaid

Total: $936,660,063

38%

19%

Concentration of Total Annual Medicare Expenditures

Among Beneficiaries, 2001

Percent

50

60

70

80

90

100

18.4

43.1

5

5

15

25

Beneficiar ies Expenditures

0

10

20

30

40

3.8

11.2

23.550

Source: CBO based on data from CMS.

Physician Payment

RBRVS FY 2006

●Physician Work (52.5% of fee)

●Practice Expense (43.7% of fee)

●Professional Liability Insurance (3.9% of fee)

Geographic Adjustment – 89 LocalitiesGeographic Adjustment – 89 Localities

●56 < 1.00 for work =1.0 Range 1.0– 1.079

●49 < 1.00 for PE Range 0.705 – 1.501

●62 < 1.00 for PLI Range 0.261 – 2.744

Sustainable Growth Rate (SGR)

Practice Expense Study

Composition of PE

Employee wages --Measured by proxy

Rents – Measured by Proxy

(HUD 2 BR residential Section A Housing)(HUD 2 BR residential Section A Housing)

Medical Equipment and Supplies – No geographic adjustment, purchased in national market

PE Employee Wage Proxies

Median hourly earnings of:

●Clerical Workers

●Registered Nurses

●Licensed practical nurses

●Health technologists and technicians●Health technologists and technicians

“four labor categories most commonly present in a physician’s (singular) private practice” – circa 1980

Marshfield Clinic Employee 2004 Wage Summary

Total Wages all 5138 Employees $177,347,115

●Average wage of all employees $34,516/yr

●Average wage of 3351 Proxy employees $27,262/yr$27,262/yr

●Average wage of all other 1787 employees $48,399/yr

●Wages not represented by proxies $86,490,374/$177,347,115 = 48.7%

Marshfield Clinic Employee 2009 Wage Summary

Total Wages all 4,850 Employees $235,917,877

●Average wage of all employees $48,644/yr

●Average wage of 2,563 Proxy employees $40,089/yr$40,089/yr

●Average wage of all other 2,287 employees $58,228/yr

●Wages not represented by proxies $133,191,608/$235,917,877 = 56.5%

Marshfield Clinic Employees: Distribution of Employees by Occupational

Classes, 2004 and 2009

44.3%

31.8%

34.8%

47.2%

20%

30%

40%

50%

8.5%8.7%

2.3% 1.9%

10.2% 10.4%

0%

10%

RNs LPNs Technologists Clerical Other (Non-Proxy)

2004 Employees 2009 Employees

Marshfield Clinic Employees: Distribution of Occupational Class Total

Wages, 2004 and 2009

32.3%

19.9%

48.8%

56.5%

20%

30%

40%

50%

60%

9.5% 10.9%

2.0%1.6%

11.3% 11.2%

0%

10%

20%

RNs LPNs Technologists Clerical Other (Non-Proxy)

2004 Wages 2009 Wages

Practice Expense Summary

Practice organization is dynamic

● Changing non-physician labor structure is leading indicator

● Administered payment methods should reflect major changes in

practice organization and related costs

● Practice expense adjustments should reflect valid and reliable

methods

● Labor share of practice expense should reflect practice realities● Labor share of practice expense should reflect practice realities

● Increasing importance of non-traditional occupational classes

● Increasing importance of IT-related costs and therefore increasing

need to reflect these real costs either through labor-related

adjustments or alternative methods

Physician Work

• CMS defines physician work as the amount of time,

skill, and intensity a physician puts into a patient visit.

• Current payment methods adjust physician work for

local “costs” as reflected by earnings of selected non-

physician professionals. The adjustment is 25% of

these “costs.”these “costs.”

• The work adjustments for Wisconsin do not align well with market realities as reflected in our practice and in a recent study, which indicated wage premiums were evident for important physician specialties in Wisconsin.

Physician Compensation per RVU

Specialty Mean Median WI-Median Ratio WI/US

Cardiology $53.85 $51.68 $66.41 128.1

Fam Prac $42.30 $41.31 $47.01 113.8

Gastro $50.90 $46.83 $64.10 136.9

Int Med $44.36 $42.12 $48.33 114.7

OB/GYN $41.93 $40.39 $49.23 121.9

Ortho Surg $53.76 $51.71 $70.67 136.7Ortho Surg $53.76 $51.71 $70.67 136.7

Radiology $50.22 $49.51 $84.09 169.8

Surgery $44.70 $43.05 $51.47 119.6

Source: The Physician Marketplace – A Comparison of Central USA Metropolitan Areas. Merton D. Finkler Ph.D., Greater Milwaukee Business Foundation On Health, Inc., September 21, 2006

Physician Work Summary

•There is no difference between the work of physicians in different locations regardless of where the work occurs.

•Physician work should not be geographically adjusted – William Hsaio, MD, and PPRC.

• If physician work is adjusted it should reflect as directly as possible the prevailing supply and demand for physician services. Third party data are available for such adjustments.