The Anesthesia Conversion Factor and the Medicare Fee Schedule, 20 Years Later


January 17, 2012


Do you realize that we have just passed the 20th anniversary of the Medicare Fee Schedule?  A product of 1989 legislation, the Physician Fee Schedule went into effect on January 1, 1992.  (And William Hsiao, PhD, whose study of Resource-Based Relative Value Systems was the foundation for the change from charge-based payment methodology, is still teaching at the Harvard School of Public Health today.)

The national anesthesia conversion factor (CF), unadjusted for geographic practice cost differences, was $13.68 in 1992, and the general CF for other services was $31.00.  Twenty years later, the national anesthesia CF is $21.49, and the general CF is $34.04 – at least for the period ending on February 29, 2012.  In mid-December, Congress passed the “Middle Class Tax Relief and Job Creation Act,” setting a zero percent update and postponing the scheduled 27.4 percent CF reduction mandated by the Sustainable Growth Rate (SGR) for just two months.  If Congress cannot agree on a longer-term deal averting the SGR cuts, Medicare payments will drop as scheduled on March 1st.  Anesthesiologists, nurse anesthetists and anesthesiologist assistants should all be listening for calls from the national associations, ASA in particular, for grassroots lobbying to eliminate the SGR and to block the cuts.

Readers who look at the numbers closely will notice two apparent anomalies.  First, if there has been a zero percent update, why is the 2012 national CF $21.49, up nearly 1.7 percent from the 2011 CF of $21.05?  The answer is that there have been technical changes to the structure of the Fee Schedule.  Medicare payments for physician services have not been updated for inflation.  The final Fee Schedule regulation for 2012 increases payment, however, for anesthesia and a number of other services by changing values as recommended by the AMA/Specialty Society Relative Value Update Committee (RUC), in budget neutral fashion.  Anesthesia also benefits from the continuing transition to new data for the practice expense component of the CF.

Second, the percentage change in the anesthesia CF between 1992 and 2012 is quite a bit larger than the increase in the general CF.  This does not mean that anesthesia has fared better under the Fee Schedule than other types of services.  No other specialty’s Medicare payments plunged as sharply as anesthesiology’s upon implementation of the Fee Schedule – from $19.27 in 1991 to $13.68 in 1992, a drop of 29 percent.  After 1992, the relative values for different types of services were adjusted at different times using varying methodologies and data.  Despite the larger percentage increase over the past 20 years, it is still the case that Medicare payments for anesthesia lag those for other services relative to commercial payments.

A copy of the January-February 2012 actual anesthesia CFs for the 90 different localities may be downloaded here.

Enhanced Fraud & Abuse Scrutiny

The government gives, and the government takes away.  A sizeable share of Medicare and Medicaid payments to providers results from error, or is siphoned off by fraud.  Medicare fee-for-service alone paid more than $28.8 billion in improper claims during fiscal 2011, according to Jack Lew, the director of the White House Office of Management and Budget, whose new position as Chief of Staff was announced by President Obama on January 9th.  Two years ago, the President directed Health and Human Services (HHS) to cut the Medicare payment error in half.  HHS has made progress, but is nowhere near the 50 percent mark. 

The Justice Department reported that it had launched 1,235 health care fraud prosecutions in 2011, a record number.  It estimates that fraud, as distinct from error, costs Medicare and Medicaid about $90 billion per year.

Compliance experts are expecting audit and enforcement efforts not just to intensify, but also to rely more on prepayment scrutiny than on “pay and chase” efforts, using information technology to monitor billing records in real time.  A demonstration project that will allow Medicare Recovery Audit Contractors (RACs) to conduct prepayment reviews of certain claims in 11 states is set to begin this month.  The initial focus will be on claims for inpatient hospital services.  MGMA has predicted that the RACs “will focus more on Medicare Part B [physician] payments as auditors exhaust Medicare Part A [hospital] audit opportunities.”

The HHS Office of the Inspector General (OIG), which investigates and audits Medicare and Medicaid spending, exceeded its target of expected recoveries, which averaged $3.8 billion, in each of the years 2008, 2009 and 2010.  Its return on investment for that three-year period was $16.7:$1, meaning that for every dollar spent on oversight activities, OIG generates $16.70 in expected recoveries.   Anesthesiologists, CRNAs, AAs and practice managers should note, therefore, the kinds of reporting errors in which OIG has signaled particular interest in its Work Plan for Fiscal Year 2012:

  • Compliance With Assignment Rules
    ”We will review the extent to which providers comply with assignment rules and determine to what extent beneficiaries are inappropriately billed in excess of amounts allowed by Medicare.”
  • High Cumulative Part B Payments (New)
    ”We will review payment systems controls that identify high cumulative Medicare Part B payments to physicians and suppliers. We will determine whether payment system controls are in place to identify such payments and assess the effectiveness of those controls. … A high cumulative payment is an unusually high payment made to an individual physician or supplier, or on behalf of an individual beneficiary, over a specified period. Prior OIG work has shown that unusually high Medicare payments may indicate incorrect billing or fraud and abuse.”
  • Place-of-Service Errors
    ”We will review physicians’ coding on Medicare Part B claims for services performed in ambulatory surgical centers and hospital outpatient departments to determine whether they properly coded the places of service. … Medicare pays a physician a higher amount when a service is performed in a nonfacility setting, such as a physician’s office, than it does when the service is performed in a hospital outpatient department or, with certain exceptions, in an ambulatory surgical center.”

Also on the OIG’s radar are “incident-to services” and the impact of opting out of Medicare.  Most anesthesiologists and even pain physicians do not employ allied health professionals whose work they can bill as incident to a physician office visit.  Most anesthesiologists do not have the option to opt of Medicare because of their hospital contracts or privileges, either.  Readers who wish to know more about the OIG’s interest in these two areas may consult page I-18 of the Work Plan. 

And the government gives again:  Under the Health Care Fraud Prevention and Enforcement Action Team (HEAT) Provider Compliance Training initiative, OIG has just released the 6th in its series of 11 free videos and audio podcasts.  Averaging about four minutes each, the videos and podcasts cover major health care fraud and abuse laws, the basics of health care compliance programs, and what to do when a compliance issue arises.  These programs could be useful in your own compliance programs.

We work hard to maximize our clients’ revenues while minimizing their exposure for noncompliant reporting, and we hope that this and other Alerts are helping you to do the same.

With best wishes,

Tony Mira
President and CEO