Statement of Stephen M. Levine, Co-Owner and Administrator,
Spine and Sports Rehabilitation Center, Timonium, Maryland,
on behalf of the American Physical Therapy Association

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Physician Payments

February 28, 2002

Medicare Part B Fee Schedule Payment Update Formula

Madam Chairwoman and members of the Subcommittee on Health, the American Physical Therapy Association (APTA) is grateful for the opportunity to provide testimony today concerning the need to reform the update formula of the Resource-Based Relative Value Fee Schedule (RBRVS).  This issue is of great significance to health professionals who bill their services to the Medicare program under Part B, including physical therapists. 

It is an honor to testify today on behalf of the APTA’s 64,000 member physical therapists, physical therapist assistants, and students of physical therapy.  My name is Stephen Levine, PT, MSHA.  I am presently co-owner and administrator of the Spine and Sports Rehabilitation Center, with offices in Timonium and Fallston, Maryland.  My practice specializes in the evaluation and management of musculoskeletal dysfunction involving the spine. 

I have also served nationally within the APTA as a former member of the Board of Directors and Vice Speaker of APTA’s House of Delegates.  From 1992 to 1999, I was APTA’s appointee to the American Medical Association’s (AMA) Health Care Professional’s Advisory Committee of the Relative Value Update Committee, a multi-specialty committee which advises the AMA and the Centers for Medicare and Medicaid Services (CMS) on appropriate relative values of medical services provided by a broad range of licensed providers. 

First, I would like to thank you for holding this hearing today and for the commitment of Committee members to address the outstanding problems that exist in the update formula for the Part B fee schedule.  Many health professionals, including physical therapists, utilize the RBRVS fee schedule to bill for services.  By inviting APTA to testify today, you are helping to dispel the myth that this is solely a physician concern.

Physical therapists provide services to patients who have impairments, functional limitations, disabilities, or changes in health status resulting from injury, disease or other causes.  As clinicians, physical therapists are involved in the evaluation, diagnosis, prognosis, intervention, and prevention of musculoskeletal and neuromuscular disorders.   On a daily basis, physical therapists provide care for Medicare patients with acute, chronic, and rehabilitative conditions.  Physical therapy is a dynamic profession whose goal is to preserve, develop, and restore optimal physical function.

APTA was pleased with the strong support members of the House gave to legislation last year that would have forestalled a 5.4 percent cut in payments that took effect January 1st.  Some 316 members of the House cosponsored H.R. 3351, a bill to promote payment fairness under the RBRVS fee schedule.  Unfortunately, Congress failed to act last year.  APTA is hopeful the Congress can work to ensure the fee schedule is modified appropriately before the end of this year. 

Congressional Action Necessary

APTA urges the Committee to consider the following immediate actions to address the problem:

• Immediately stop implementation of the 5.4% cut to the Medicare fee schedule;
• Adopt MedPAC’s framework for updating the Part B provider fee schedule, which includes eliminating the sustainable growth rate (SGR) and replacing it with a factor which will more appropriately account for changes in the cost of providing services.  MedPAC’s framework was highlighted in its March 2001 report to Congress and will be part of its March 2002 report.

It is important that Congress act this year as CMS has projected that the formula will produce significant negative payment updates of 5.7% in 2003, 5.7% in 2004, and 2.8% in 2005. Should Congress fail to act, physical therapists and other health care professionals will experience draconian cuts in reimbursement over the next four years.

APTA takes issue with the Administration’s assertion that reform of the RBRVS update formula must happen in a budget neutral environment.  Clearly, additional resources are necessary to address this fundamental problem.  Moving the furniture around on the deck of the ship will not slow it from sinking.  APTA feels strongly that remedying this issue must not be a budget neutral exercise.  We recommend the Committee seek appropriate resources through the Budget Committee to meet this challenge and other necessary Medicare reforms.

Patient Access Problems Will Result from Flawed Update Formula

APTA is concerned that the negative payment updates to the RBRVS fee schedule will hinder the ability of physical therapists to care for Medicare beneficiaries needing rehabilitation services.  It is important that these individuals continue to receive the rehabilitation and other services that they need in order to achieve their maximum level of functional independence. Because rehabilitation enables beneficiaries to function more independently, rehabilitation will save the Medicare program dollars in the long run.

The impact of the Medicare cuts needs to be viewed in the context of significant legislative and regulatory changes affecting physical therapists that have occurred over the past few years.  Since 1992, physical therapists in private practice have been reimbursed under the RBRVS fee schedule. Prior to 1999, all other outpatient therapy settings were reimbursed under a cost-based system.  The 1997 Balanced Budget Act (BBA) required that outpatient therapy services in all settings be reimbursed under the RBRVS fee schedule, beginning in January 1999. Thus, in addition to impacting physical therapists who own and operate private physical therapy practices, the 5.4% cut in payment and the flawed update methodology also impacts the provision of outpatient therapy services in outpatient hospitals departments, skilled nursing facilities (Part B), home health agencies (Part B), rehabilitation agencies, and comprehensive outpatient rehabilitation facilities (CORF).

The BBA also imposed a $1500 cap on outpatient therapy services in all settings except for hospitals.  In 1999 and again in 2000, due to concerns raised by beneficiaries, Congress placed a moratorium on enforcement of the $1500 cap. The present moratorium will expire at the end of this year unless Congress acts. If the cap goes back into effect, it will compound the Medicare payment cuts.

In addition to the cap, physical therapists continue to deal with increased documentation requirements, conflicting Medicare rules, non-uniform application of Medicare requirements among Medicare contractors, and impending privacy requirements under HIPAA.  When combined with the current and impending cuts you can begin to understand how difficult it is and will be for health professionals to continue providing services within the Medicare program. 

The majority of physical therapists in private practice are small businesses. As small business, their ability to operate is in jeopardy when they lose necessary revenue or cannot forecast revenue accurately from year to year.  As a result, maintaining access to providers like these, that play such an important role in health care delivery, cannot be sustained without immediate reform of the payment update formula.

During the past few months, APTA has heard numerous reports from its members regarding the impact of the 2002 cut.  Speaking from my own experience, the Medicare allowable amount per visit, as projected over the next two years, will cause Medicare reimbursement to fall below my actual cost to provide physical therapy services (in 2002 dollars), particularly as costs increase due to inflation. As a result, we may be forced to become non-participating providers in the Medicare program, which will result in a decreased ability for patients to access skilled physical therapy services from our office.

Flawed Medicare Payment Update Formula

Medicare payments are updated annually based on the SGR system. Because the SGR system is flawed, updates under the system do not reflect the cost of providing services. The flaw in the system is apparent in 2002 as the SGR resulted in a 5.4 percent reduction in payment rates, despite an estimated 2.6 percent increase in the costs of inputs used to provide services.

The SGR system sets spending targets for services reimbursed under the RBRVS fee schedule and adjust payment rates to ensure that spending remains in line with those targets. If spending equals the targeted amount, payment rates are updated in accordance with the percentage change in input prices, which is determined by the MEI. If the spending for that year exceeds the target, the increase in payment rates is smaller than the increase in input prices (MEI). If spending for that year is less than the target rate, payment rates are allowed to be increased by a greater amount than the rise in input prices.

The annual target is a function of projected changes in four factors: input costs, enrollment in traditional Medicare, real gross domestic product (GDP) per capita, and spending attributable to changes in law and regulations. Revisions to any of these four factors or to estimates of prior spending can change the spending estimate significantly.

One of the problems with this methodology is the use of changes in GDP as a factor. Linking annual changes in the targets to annual changes in GDP ties the target to the business cycle. During times of prosperity, GDP growth rates would be higher; yet, during periods of downturn, such as the past year, the GDP rates are lower. Health care needs of Medicare beneficiaries do not follow the same cycle. Beneficiaries do not need fewer services and the cost of providing care to these beneficiaries does not lessen when the economy is in a downturn.

Another problem with the methodology is that the SGR is highly volatile.  In March 1, 2001 rule, CMS estimated that that the 2002 update would be around negative 0.1 percent. However, in November 1, 2001, just 7 months later, the SGR was at negative 0.7 percent, which caused the fee schedule update to be reduced by 5.4 percent. This was due, in part, to a predicted slower economy, and changes in spending estimates. These excessive and unpredictable rate fluctuations make it very difficult for providers to continue to participate in the Medicare program.

Still another problem relates to errors in estimating beneficiary enrollment.  According to CMS, Medicare+Choice enrollment would rise 29 percent in 1999.  In actuality, the projection was off by 10 percent and nearly 1 million enrollees.  The corresponding projected drop in fee for service enrollment was erroneous and has negatively influenced the SGR ever since.

Changes Needed in the Medicare Economic Index (MEI)

In addition to eliminating the SGR, the MEI, which is calculated by CMS and used to measure practice cost inflation, also needs to be improved.  The MEI is a weighted average of price changes for inputs, which include physician time and effort (work, non-physician employees, and office expenses) used to provide care. The MEI, which was developed in 1972, also includes an adjustment for productivity growth, which affects the cost of providing services.  Currently, the MEI, which only accounts for growth in labor productivity, overstates productivity gains in services.

In its framework, MedPAC recommends that the MEI measure inflation in practice costs and that productivity be separate from the MEI. In addition, MedPAC recommends that the productivity adjustment be based on multi-factor productivity (which would include both labor and capital inputs), instead of labor productivity. Making this change would ensure that it would account for changes in productivity for all relevant inputs used to provide services. According to MedPAC, this would significantly reduce the productivity adjustment that CMS uses currently in updating the Medicare fee schedule. APTA urges Congress to adopt MedPAC’s recommendation regarding MEI.

Conclusion

As the older adult segment of our population continues to rapidly grow, it will be paramount that they have access to qualified health care professionals who are able to serve their health care needs.  Prompt and coordinated services provided by health professionals can help to avoid hospitalization, decrease the length of institutional stay, reduce the amount of care required after discharge, prevent complications, and improve the individual's level of function.  The health of older Americans will be at risk if access to and payment of health care providers does not keep pace with the growing number of Medicare beneficiaries.

Thank you for the opportunity to submit this testimony before the Subcommittee.