"As I was going up the stair
I met a man who wasn't there.
He wasn't there again today.
I wish, I wish he'd stay away."

A s I read reports in early August of the Administration's most recent proposal relating to development of a single conversion factor, I was reminded of this childhood verse authored by Hughes Mearns, written long before "oxymoron" had found its way into our vernacular.

Why am I reminded so? Well, here in the fall of 1996 stands the specialty -- buoyed by the fact that the AMA/Specialty Society Relative Value Update Committee (RUC) has recommended to the Health Care Financing Administration (HCFA) an adjustment in anesthesiology work values under the Medicare Fee Schedule (MFS) amounting to a 16-percent increase in the anesthesiology conversion factor -- now forced to contemplate a move to a single Medicare conversion factor, which, if the Administration has its way, will essentially cancel out that recommended increase with a 14.3-percent decrease. And of course, none of us knows, Lord save the specialty, whether HCFA will accept the RUC's recommendation.

Let me see if I can lay out this ugly little scenario in terms that can be understood even by those who do not make a hobby out of following the Byzantine budget-driven twists and turns of Medicare physician reimbursement rules. At the outset, one must understand that when the MFS was placed into effect in 1992, all physicians (with the exception of anesthesiologists) were given a conversion factor of $31. Somewhat oversimplified, $31 was the amount per MFS relative value unit that, if multiplied by all the relative value units expected to be produced by physicians treating Medi-care patients in 1992, would produce budget neutrality in comparison to 1991.

As originally contemplated, annual updates in the conversion factor were determined by giving recognition to inflation in the cost of delivering care and (unless Congress in a particular year mandated otherwise) by the extent to which all physicians exceeded or fell below budget-driven target rates for growth in the volume and intensity of services to Medicare patients. This is the so-called volume performance default formula: if physicians restrained services to a level below the target level, they would be rewarded with a formula-driven increase in the conversion factor; if the volume and intensity of their services exceeded the target, they would receive a negative update in the conversion factor.

Sounds pretty simple, but as we already know, nothing relating to Medicare reimbursement is ever that simple. So first, and most important, one must be aware that in order to benefit primary care, Congress early on created two categories of volume performance updates -- one for surgery and the other for nonsurgical care -- beginning in 1993. It then added another category beginning in 1994. Thus, for 1994 and all subsequent years up to the present, separate updates have been calculated for surgical care, primary care and "other nonsurgical care." Second, and without going into the details, the way in which the volume performance targets are calculated and applied, especially when there are three categories of update, has created update anomalies and disadvantages for primary care that were never intended by Congress.

Table 1, below, contains information taken from the 1996 annual report of the Physician Payment Review Commission (PPRC), showing what has happened to the conversion factor(s) since the inception of the MFS. The bottom line is that application of the so-called "default formula" for volume performance updates has resulted in a conversion factor for surgery that is 15-percent higher than the primary care factor and almost 18-percent higher than the "all other" factor. This is not what Congress had in mind when it mandated development of a resource-based fee schedule and later established different update categories. The principal intent was to close the gap between surgical reimbursement levels and those for primary care, and application of the update formula has only exacerbated that gap.

Table 1 Conversion Factors by Category of Service, 1992-96 Category of Service 1992 1993 1994 1995 1996 All Services $31.00 - - - - Surgical Services - $31.96 - - - Nonsurgical Services - $31.25 - - - Surgical Services - - $35.16 $39.45 $40.80* Primary Care Services - - $33.72 $36.38 $35.42* Other Nonsurgical Services - - $32.90 $34.62 $34.63* * These conversion factors include an additional 0.36-percent reduction due to a budget-neutrality adjustment. This adjustment offsets increases in spending from changes to the relative value units and other payment policy changes for 1996. From the Physician Payment Review Commission compilation of conversion factors as reported in the Federal Register.

So beginning about two years ago, there began to arise calls for return to a single conversion factor for all physicians and, for that matter, a change in the way in which updates are to be calculated. The Medicare reform legislation adopted by the Republican Congress last fall contained a provision setting a single 1996 conversion factor at $35.42 -- slightly above the then-current primary care and "all other" factors but substantially below the surgery conversion factor. Despite the fact that the President vetoed the budget reconciliation bill of which that proposal was a part, it was clear that the Administration differed from the GOP single conversion factor provision in detail but not in principle.

When the GOP legislation crashed and burned in the face of the President's claim that it was designed to destroy the Medicare program, one of the side effects for physicians was that existing law on the fee schedule updates remained in effect, resulting on January 1, 1996, in a 3.8-percent increase for surgery, a 0.4-percent increase for the "all other" category and a 2.3-percent decrease for primary care. Since it is unlikely that Congress will deal further with Medicare before 1998, application of existing law on January 1, 1997, would result in a 2.1-percent raise for surgery, a 2.7-percent increase for primary care and a 0.6-percent decrease for all other physicians.

Then, in early August, the Administration appeared in its best Darth Vader budget suit, calling for a move to a single 1997 conversion factor of $35.70 for all physicians, or 0.8-percent higher than the current primary care factor. For all physicians, this would be $0.85 less than the conversion factor if the existing default formula were applied across the board; for surgeons, it would be $5.96, or about 14.3 percent less than the conversion factor resulting from application of the existing default formula. Not only is the Administration proposal substantially less generous than the PPRC proposal of an average $36.55 conversion factor for 1997, it would make the shift to a single conversion factor immediately effective, whereas the PPRC would phase the move to a single factor over three years.

As noted before, there is next to no chance that Congress will act on Medicare in this session, so in a sense, the Administration's proposal is academic. More realistically, however, it provides a blueprint for what the Administration, if President Clinton is re-elected, will be seeking next year when the federal government must deal with Medicare reforms.

Up to this point, I have ignored the impact of all this on the anesthesiology conversion factor. Since anesthesia services are reimbursed on a different basis under Medicare (base units plus time units) than all other physicians, the anesthesiology factor (currently $15.28) has historically been computed separately.

For volume performance update purposes, anesthesiology was included in the nonsurgical category in 1993 and in the "all other" category in 1994 and 1995. As a result of congressional action in 1993, however, anesthesiology was moved into the surgical update category as of January 1, 1996. The overall result has been that anesthesiology has received updates since 1992 aggregating about 15 percent, whereas the comparable figure for surgery is about twice that percentage.

When the Administration last year submitted its single conversion factor budget proposal to Congress, it claimed about $1.2 billion in anesthesia-related savings over seven years, resulting from a proposed percentage cut in the anesthesiology conversion factor parallel to that for surgery.

ASA protested this proposal to everyone who would listen, arguing that even though anesthesiology was scheduled to move into the surgical update category effective January 1, 1996, it had never enjoyed the handsome updates received by surgery since the inception of the MFS. Fairness would indicate, ASA argued, that anesthesiology's conversion factor be adjusted modestly upward proportionate to the "all other" category of which it had been a part in 1994 and 1995. "Foo," said the Administration, "you wanted to be in surgery, and now you're stuck with it. Besides, we like the sound of $1.2 billion in savings."

There is nothing in the Administration's current proposal to suggest that the Administration has changed its mind as to the treatment of anesthesiology in the event of a move to a single conversion factor, whether on January 1, 1997, or January 1, 1998. With anesthesiology now having benefited from a surgical update last January 1, and with the probability that it will receive a surgical update next January 1, the current Administration -- if the President is re-elected -- can be expected to be even more steadfast in its insistence that the anesthesiology conversion factor be cut parallel to surgery, that is, by 14.3 percent.

We can assume that even if HCFA accepts the RUC recommendation on anesthesia work values (or even something higher as advocated by ASA), the actual increase in the conversion factor will be something less, because the net effect of other RUC-recommended work value changes will require substantial cuts in all conversion factors in order to maintain budget neutrality. We can also assume that effective January 1, 1998 (unless Congress delays the implementation date), the current HCFA practice expense revaluations will impact negatively on the conversion factors of all nonprimary care specialties. Add in a 14.3-percent cut in the anesthesiology conversion factor, and we could be looking at a unit value in the $13 or $14 range.

In short, we have our legislative work cut out for us in 1997. We must point out to members of the 105th Congress, Democrats and Republicans alike, the essential unfairness of the Administration's position and that anesthesiology's overall experience under the MFS must be taken into account in setting the anesthesiology conversion factor in the event of a move to a single factor for all other specialties. ASA made considerable progress in this regard with members and staff of the House Ways and Means and Senate Finance committees last fall, and it will almost certainly need to redouble its efforts next year -- or the man on the stair who wasn't there, will be.

return to top Home >Newsletters >October 1996Home >Test

FEATURES

Value-Based Anesthesia Care

• Value-Based Anesthesia Care: Maturing Beyond Cost-Containment
  
  
• Increasing the Value of Anesthesiologists: Opportunities for Perioperative Managers
  
  
• The Importance of Outcomes in Value-Based Anesthesia
  
  
• The Ethics of Managed Care
  
  

ARTICLES

• Board of Directors Annual Meeting Summary
  
  
• Retirement Plan Laws Change With 1996 Tax Act
  
  
• Medicine in the 19th Century: The Search for Answers
  
  
• Nursing Through the Mid-19th Century
  
  
• Anesthesiology Journal Welcomes New Editor-in-Chief…and Pays Tribute to Its Outgoing Editor of 14 Years
  
  
• 1997 SEE Program Available in January

DEPARTMENTS

• To the Membership
  
• President's Page
  
• Washington Report
• Professional Diversity
• Practice Management
• Residents' Review
• ASA News
• Letters to the Editor
• FAER Report
  

The views expressed herein are those of the authors and do not necessarily represent or reflect the views, policies or actions of the American Society of Anesthesiologists.

NL Archives

Information for Authors