Proposed 2008 Medicare Physician Fee Schedule Rule

On Monday, July 2, 2007 the Centers for Medicare and Medicaid Services (CMS) released their 2008 Medicare Physician Fee Schedule Proposed Rule. The Proposed Rule is open for public comment until 5 p.m. Friday August 31, 2007.

As was expected, the proposed Medicare Physician Fee Schedule (MPFS) rule includes an estimated negative update of 9.9% for physician payments due to the Sustainable Growth Rate (SGR) formula. This negative update and the resulting decrease in physician payments will apply to all services paid under the MPFS (drugs and labs are not included as they are paid under separate fee schedules) and will be effective January 01, 2008 unless Congress acts to stop it.

In a related July 2nd press release Leslie Norwalk, Acting Administrator, CMS stated:

“For the past 5 years, Congress has intervened to prevent the implementation of the negative updates resulting from this formula,” said Ms. Norwalk.  “CMS will continue working with Congress as well as physician groups to identify payment methods that help improve the quality and efficiency of care in a way that is cognizant of the costs to taxpayers and to Medicare and its beneficiaries.  The Medicare program needs to compensate physicians appropriately for the services they provide to people with Medicare.  But how the program pays also matters.  We think the early work on the PQRI program is one of those reforms that could help lead us to a point where we can promote better quality care and more efficient care.”

Sustainable Growth Rate Formula Graph

Sustainable Growth Rate Formula
The Medicare Physician Fee Schedule (MPFS) is updated annually. The sustainable growth rate formula (SGR) is specified by statute as the method through which the MPFS is updated. The SGR formula, which is used to calculate the conversion factor (CF), is tied to the national economy. When physician payments exceed the formula’s target a negative update occurs.

In fact, spending has been above the target rate since 2000 resulting in negative updates to the CF since 2002. However, from 2003-2007 legislation was enacted to temporarily stop the negative updates:

2003The Consolidated Omnibus Appropriations Act of 2003 replaced the scheduled 4.4% decrease with an increase of 1.6% for a CF of 36.7856.

2004 & 2005The Medicare Modernization Act (MMA) prevented the negative updates and mandated an increase of 1.5% in payment rates for both 2004 and 2005. The CF was 37.3374 in 2004 and 37.8975 in 2005.

2006 - The Deficit Reduction Act (DRA) of 2005 (S. 1932) prevented the scheduled negative update and set the 2006 CF at the 2005 level of 37.8975.

2007- H.R. 6111 The Tax Relief and Health Care Act (TRHCA) of 2006 prevented the scheduled negative update and set the 2007 CF at the 2006 level of 37.8975

The current SGR formula is widely accepted as being flawed. Problems with the SGR include:

  • The SGR does not take into account the cost of producing physician services this may result in increasing patient access problems
  • The formula results in a negative update when spending exceeds the target rate however there is no individual incentive to reduce volume or intensity of services
  • It is inequitable as all physicians are treated alike regardless of their individual volume influencing behavior

The Deficit Reduction Act (DRA) of 2005 (S. 1932) required MedPAC to prepare a report by March 2007 on alternatives to the current SGR. MedPAC’s March 2007 Final Report included the following possible pathways:

  • Repeal the SGR, not replace it with targets, but develop new approaches, such as linking payment to quality or
  • Maintain the use of expenditure targets but reconfigure the SGR through a phased approach adjusted by region, and offering providers an options for sharing in gains resulting from their improved efficiency

Conversion Factor
To date there has been no change in the SGR formula so once again unless Congress acts the -9.9% update will result in a decrease in physician payments. CMS did not publish the 2008 CF in the Proposed MPFS Rule but it is estimated to be 34.1457.

The Physician Assistance and Quality Initiative Fund (PAQI) established in the TRHCA makes available $1.35 billion dollars in 2008 to be used to either buy down the negative update to the fee schedule or to fund quality improvement initiatives.

In the Proposed Rule CMS declines to use the PAQI fund to buy down the negative update and instead proposes to use the $1.35 billion to fund bonus payments made in 2009 for physician reporting of PQRI measures in 2008.

Relative Value Units
Budget Neutrality Adjuster
The Omnibus Budget Reconciliation Act (OBRA) of 1989 requires that increases or decreases in RVUs resulting in a change of more than $20 million in Medicare expenditures must be adjusted to ensure budget neutrality. 

In 2007 the increase in the work RVUs for E/M codes would have increased Medicare expenditures by approximately $4 billion. To maintain budget neutrality the work relative value of all services paid under the Medicare Physician Fee Schedule (MPFS) were reduced by 10.1% by multiplying the work RVUs of the service code by a Budget Neutrality (BN) adjuster of 0.8994.

Based on recommendations by the American Medical Association (AMA) Relative Value Update (RUC) committee CMS proposes to increase the BN adjustor in 2008 to 0.8816, a negative adjustment of -11.8% to the work RVUs of all MPFS services.  

Work GPCI Floor
The 1.00 floor to the Work GPCIs that was originally established in the MMA and extended through December 31, 2007 by the TRHCA expires as of January 1, 2008. The expiration of the 1.00 floor will primarily impact providers in the rural payment areas.

Practice Expense Methodology
In 2008 the transition to the new method of calculating practice expense (PE) RVUs continues. In 2007 practice expense was determined using 75% of the old methodology & 25% of the new methodology; in 2008 the phase in increases to 50% of the new methodology. 


The attached table illustrates the proposed 2008 reimbursement rates based on the proposed Medicare Physician Fee Schedule conversion factor of 34.1457 and the proposed budget neutrality factor of 0.8816.

Drugs and Biologicals

Competitive Acquisition Program
The Proposed Rule would modify the requirements under the competitive acquisition program (CAP) for Part B drugs for verifying that a drug ordered by a physician has been administered.

CMS is also seeking comments on the following CAP issues:

  • The potential feasibility of allowing CAP drugs to be transported from one approved CAP physician’s practice to another office location that is listed on the physician’s CAP election agreement form.  Thus allowing a CAP provider to receive drugs at one office and administer them in a satellite office.
  • Alternative methods that can be used to track CAP drug administration on a dose by dose basis, relieving participants from the administrative burden of reporting the prescription number on the claim.
  • Whether an approved CAP vendor should be allowed to repackage and supply drugs in a patient-specific dose consistent with state laws and regulations upon request from a participating CAP physician.


CMS is proposing to continue to pay for preadmission-related services for intravenous infusion of immunoglobulin (IVIG) with HCPCS code, G0332 Preadministration-related services for intravenous infusion of immunoglobulin, per infusion encounter. This may be billed each time IVIG is administered and is to be billed in addition to the drug and the administration of the drug.

Targeting ASP

ASP Calculation - Bundled Price Concessions
In the 2007 Proposed Rule CMS solicited comments regarding the issue of allocating price concessions across drugs that are sold under bundling arrangements for purposes of calculating the ASP. In the final rule CMS did not implement a specific methodology for ASP reporting of bundled drugs.

In 2008 CMS is proposing that manufacturers allocate the total value of all price concessions proportionately according to the dollar value of the units of each drug sold under a bundled arrangement. For a bundled arrangement where multiple drugs are discounted, the aggregate value of all the discounts would be proportionately allocated across all of the drugs sold under the bundled arrangement.

CMS states that the proposal will result in an ASP that more accurately reflects the true cost of the drugs.

Reporting of Anemia Quality Indicators
The TRHCA requires the reporting of anemia quality indicators when anti-anemia drugs are given in connection with the treatment of cancer. Beginning January 01, 2008 claims for these drugs furnished on or after January 1, 2008 must include the patient’s hemoglobin or hematocrit levels.

CMS is seeking public comment on the potential of expanding this requirement to include all uses of erythropoietin stimulating agents (ESAs).

Medicare statute lists three drug compendia that may be used in determining medically accepted indications of drugs and biologicals for cancer treatment:

  1. The American Hospital Formulary Service,
  2. The AMA Drug Evaluations and
  3. The United States Pharmacopeia-Drug Information (USP-DI)

In the Proposed Rule CMS notes that there are currently only two compendia for use in the Medicare Part B program as the AMA Drug Evaluations is no longer published. CMS also states that Medicare law requires it to recognize successor publications to the listed publications. Therefore, CMS will recognize the successor to USP-DI “if it is in fact a successor publication rather than a substitute publication.”

CMS has received requests to recognize additional compendia and/or to eliminate others. CMS proposes and seeks comments on a process that would incorporate public notice and comment to receive and make determinations regarding requests for changes to the list of compendia.

Physician Quality Reporting Initiative
CMS is proposing to use the $1.35 billion in the PAQI fund to extend the Physician Quality Reporting Initiative (PQRI) program into 2008. Under this proposal the 2008 PQRI reporting period would cover services furnished from January 1, 2008 - December 31, 2008.

Under the Tax Relief and Health Care Act of 2006-Medicare Improvements and Extension Act of 2006 (MIEA–TRHCA) measures used for 2008 must have been endorsed or adopted by a consensus organization and been developed through the use of a consensus-based process.

In 2008 CMS proposes to limit the acceptable consensus organizations to the National Quality Forum (NQF) and the AQA Alliance. They are seeking comments on whether this list should be expanded. 

The 2008 PQRI would include 60 of the 74 2007 measures. The 2007 measures that were declined endorsement by the NQF are not included in the list of proposed measures for 2008.

The Proposed Rule includes a list of measures that are currently under development by the AMA–Physicians Consortium for Performance Improvement (PCPI) and that may be selected by CMS for inclusion in the 2008 PQRI. The list includes the following measures that may be of interest to hematology/oncology practices:

  • GFR Calculation in patients with Chronic Kidney Disease (CKD)
  • Blood Pressure Measurement in patients with CKD
  • Plan of Care for patients with CKD and Elevated Blood Pressure
  • ACE Inhibitor or Angiotensin Receptor Blocker (ARB) Therapy in patients with CKD
  • Calcium, Phosphorus and Intact Parathyroid Hormone Measurement in patients with CKD
  • Lipid Profile in patients with CKD
  • Hemoglobin Monitoring in patients with CKD
  • Erythropoietin Overuse in patients with CKD and normal Hemoglobin
  • Breast cancer patients who have a pT and pN category and histologic grade for their cancer
  • Colorectal cancer patients who have a pT and pN category and histologic grade for their cancer
  • Appropriate initial evaluation of patients with Prostate Cancer
  • Inappropriate use of Bone Scan for staging Low-Risk Prostate Cancer patients
  • Review of treatment options in patients with clinically localized Prostate Cancer
  • Adjuvant Hormonal therapy for High-risk Prostate Cancer patients
  • Three-dimensional radiotherapy for patients with Prostate Cancer

The inclusion of any measure is contingent upon endorsement of the NQF. Final PQRI quality measures must be determined and published by November 15, 2007. 

CMS proposes that the 2008 PQRI be structured and implemented in the same manner as the 2007 PQRI. CMS does not provide an exact percentage for the bonus payment saying, “we anticipate that the bonus payments will be approximately 1.5 percent of allowed charges for participating professionals (and we do not expect that the ultimate percentage amount will exceed 2 percent).”

Imaging Services
In accordance with the requirements of the DRA, the Proposed Rule caps payment rates for imaging services under the MPFS at the amount paid for the same services when performed in hospital outpatient departments.

The current policy of reducing the payment for the technical component of multiple imaging procedures on contiguous body parts by 25 percent is continued. CMS will apply the multiple imaging reductions first, followed by the OPPS imaging cap, when applicable.

Stark Issues

Physician Self Referral Provisions
CMS proposes changes to under-arrangement contracts that allow a physician-owned facility or a joint venture to provide services to a hospital. By expanding the definition of “entity” to include both the billing entity and the physician-owned entity involved in the designated health service (DHS) the proposal would eliminate nearly all services furnished under arrangements to hospitals by physicians or entities in which physicians are investors.

Per Click Arrangements
CMS proposes to prohibit per click lease arrangements involving physicians who lease space or equipment to an entity that performs the DHS and then refers patients to that DHS entity.

CMS is seeking comments as to whether it should prohibit per click payments where the physician is the lessee of the equipment.

In Office Ancillary Services
Although they have not proposed any changes in this rule, CMS is seeking comments on the in office ancillary services exception in particular they are soliciting comments on:

  • Whether certain services should not quality for the exception;
  • Whether and if so how CMS should make changes to their definitions of “same building” and/or “centralized building”; and
  • Whether nonspecialist physicians should be allowed to use the exception to refer patients for specialized services involving the use of equipment owned by the Nonspecialists;
  • Any other restrictions on the ownership or investment in services that would curtail program or patient abuse.

CMS has stated that the final rule will be published sometime this fall; the final rule will be effective for services furnished on or after January 1, 2008.

Comment on the 2008 MPFS Proposed Rule

By regular mail:
Mail one original and two copies of your written comments to:

Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS–1385–P,
P.O. Box 8018, Baltimore, MD 21244–8018

By express or overnight mail:
Mail one original and two copies of your written comments to:

Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS–1385–P, Mail Stop C4–26–05
7500 Security Boulevard, Baltimore, MD 21244–1850.

To comment electronically:
Go to: http://www.cms.hhs.gov/eRulemaking/


Click on: CMS-1385-P

Click on: Submit Comment


Calculating Medicare Allowable in 2008


Proposed 2008 Hospital Outpatient Prospective Payment System Rule

On July 16, 2007 CMS published the 2008 Hospital Outpatient Prospective Payment System Proposed Rule. Comments on this Proposed Rule must be received by 5 p.m. September 14, 2007.


CMS is again proposing to decrease reimbursement for drugs from ASP + 6 percent to ASP +5 percent, for a 1 percent decrease from 2007. Last year in the Hospital Outpatient Proposed Rule, CMS proposed that separately payable HOPD drugs be reimbursed at ASP + 5% however in the Final Rule reimbursement for these drugs was set at ASP+ 6%.

Currently, drugs costing $55.00 or less per day are packaged into the payment for the associated outpatient service and are not separately payable. CMS is proposing to increase the packaged threshold for drugs to $60.00. As in past years CMS is proposing to exempt most antiemetics from the packaging threshold. Table 43 of the Proposed Rule identifies the proposed antiemetic exemptions:

TABLE 43.—

HCPCS          Code Short descriptor

J1260 .......... Dolasetron mesylate

J1626 .......... Granisetron HCl injection

J2405 .......... Ondansetron HCl injection

J2469 .......... Palonosetron HCl

Q0166 ......... Granisetron HCl 1 mg oral

Q0179 ......... Ondansetron HCl 8 mg oral

Q0180 ......... Dolasetron mesylate oral

CMS declined to include a separate payment for pharmacy overhead services stating their belief that pharmacy overhead is included in the hospital charges and CMS payment rates for drugs, biologicals and radiopharmaceuticals.

Drug Administration Services
CMS states that they are not accepting the APC Panel’s recommendation to provide a separate APC payment for 90768 (therapeutic or diagnostic concurrent infusion) therefore, as in 2007, this service will not be separately payable in 2008.

Under the Proposed Rule payment rates for drug administration services in the hospital outpatient department would increase from 1.6% to 26.1%.

CMS is proposing to establish payments for same-day care encounters, through expanded packaging of supportive ancillary services. In 2008, CMS is proposing to bundle payment for the following seven additional categories of supportive and ancillary services into the payment for the independent services with which they are furnished:

  1. Guidance services,
  2. Image processing services,
  3. Intraoperative services,
  4. Imaging supervision and interpretation services,
  5. Diagnostic radiopharmaceuticals,
  6. Contrast media, and
  7. Observation services

Quality Reporting Program
Under the 2008 hospital outpatient quality reporting program, Hospital Outpatient Quality Data Reporting Program (HOP QDRP) hospitals paid under the Inpatient Prospective Payment System (IPPS) that fail to report HOP QDRP data would incur a reduction in their annual OPPS payment update factor in CY 2009 by 2.0 percentage points. The initial ten HOP QDRP measures are:

  1. ED–AMI–1—Aspirin at Arrival
  2. ED–AMI–2—Median Time to Fibrinolysis
  3. ED–AMI–3—Fibrinolytic Therapy Received Within 30 Minutes of Arrival
  4. ED–AMI–4—Median Time to Electrocardiogram (ECG)
  5. ED–AMI–5—Median Time to Transfer for Primary PCI
  6. PQRI #5: Heart Failure: Angiotensin-Converting Enzyme (ACE) Inhibitor or Angiotensin Receptor Blocker (ARB) Therapy for Left Ventricular Systolic Dysfunction (LVSD)
  7. PQRI #20 Perioperative Care: Timing of Antibiotic Prophylaxis
  8. PQRI #21 Perioperative Care: Selection of Prophylactic Antibiotic
  9. PQRI #59: Empiric Antibiotic for Community-Acquired Pneumonia
  10. PQRI #1: Hemoglobin A1c Poor Control in Type 1 or 2 Diabetes Mellitus

The stated goal of the HOP QDRP is to, “encourage the provision of higher quality hospital outpatient services that lead to improved health outcomes for Medicare beneficiaries.”

The reporting requirement applies only to hospitals in the fifty states and the District of Columbia. Maryland hospitals are not paid under the IPPS and are therefore excluded from the reporting requirement.

CMS is also soliciting public comment on 30 additional measures, which are under consideration for inclusion in the HOP QDRP measure set, for CY 2010 or subsequent calendar years.

Comment on the 2008 HOPPS Proposed Rule

By regular mail:
Mail one original and two copies of your written comments to:

Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS–1392–P,
P.O. Box 8011, Baltimore, MD 21244–1850

By express or overnight mail:
Mail one original and two copies of your written comments to:

Centers for Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS–1392–P, Mail Stop C4–26–05,
7500 Security Boulevard, Baltimore, MD 21244–1850.

To comment electronically:
Go to: http://www.cms.hhs.gov/eRulemaking/


Click on: CMS-1392-P

Click on: Submit Comment


Legislative Initiatives

Legislative Initiatives
On August 1, 2007 the U.S. House of Representatives approved H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act of 2007. This legislation would prevent the nearly 10% cut in Medicare physician payments for 2008 and the scheduled 5 percent cut for 2009. Instead, under H.R. 3162 physician payments would increase 0.5% in both 2008 & 2009.

The bill includes a reduction in funding for Medicare Advantage companies and the elimination of the bonus fund for the Physician Quality Reporting Initiative (PQRI). Under H.R. 3162 the PQRI program would continue on a voluntary basis in 2008 but there would be no payment for successful participation.

The Stark Law prohibits physicians from making referrals for certain specified services to entities in which the physician or an immediate family member of the physician has a financial relationship, including a direct or indirect ownership or investment interest.

An exception to this law currently allows physicians to make referrals to hospitals that they own. Under the "Whole Hospital Exception”  physician ownership would not violate the Stark Law’s prohibition against physician self-referrals if
"(A) the referring physician is authorized to perform services at the hospital, and
(B) the ownership or investment interest is in the hospital itself (and not merely in a subdivision of the hospital)."

H.R. 3162 would prohibit physician ownership of hospitals. An exception would be granted to existing facilities however the hospitals would have to meet certain requirements and further expansion of those existing facilities would be prohibited.

On August 2, 2007 the Senate approved their version of the bill S. 1893 the Children's Health Insurance Program Reauthorization Act of 2007. The changes to the Medicare program listed above are not included in the Senate bill.

H.R. 2770
To amend title XVIII of the Social Security Act to ensure more appropriate payment amounts for drugs and biologicals under part B of the Medicare Program by excluding customary prompt pay discounts extended to wholesalers from the manufacturer's average sales price.  This bill was introduced June 19, 2007 by Representative Edolphus Towns (D-NY), and is co-sponsored by Representative Ed Whitfield (R-KY). The last major action was on June 19, 2007 when the bill was referred to the Committee on Energy and Commerce, and to the Committee on Ways and Means.

H.R. 2833
Preexisting Condition Exclusion Patient Protection Act of 2007 This bill is sponsored by Representative Joe Courtney (D-CT), it would protect patients from pre-existing condition limitations by limiting the time that insurers can exclude health care coverage for pre-existing conditions and extend HIPAA protections to individuals covered by private or individual plans.

H.R. 2842
Children's Health Protection Act of 2007
Introduced by Allyson Y. Schwartz (D-PA), this bill would prohibit preexisting condition exclusions for children in group health plans and health insurance coverage in the group and individual markets.


Hospital & Physician Organizations at Odds Over Physician Owned Hospitals

The American Hospital Association (AHA) has been pushing for a total ban on Medicare physicians' ability to refer patients to hospitals in which they have an ownership interest. Senate Finance Committee member Charles Grassley (R-IA) and a number of other lawmakers support such a prohibition.

The American Medical Association (AMA) and the Physician Hospitals of America (PHA), both support physician ownership of specialty hospitals, and oppose a self-referral ban.  AMA Immediate Past-President William G. Plested III, MD cites his belief that competition leads to high-quality healthcare saying, “When patients are offered multiple high-quality options in where to obtain health care, we believe the entire health system benefits through competition that spurs innovation.”

Section 651 of H.R. 3162 (see article Legislative Initiatives in this newsletter) would prohibit physician ownership in hospitals. In a press release dated July 26, 2007 PHA says it opposes this provision in the CHAMP legislation as it would effectively shut down every physician owned hospital in the country including rural and inner city hospitals that doctors have purchased to keep from closing. Its breadth encompasses general community hospitals and specialized centers of excellence. “The real losers are Medicare's beneficiaries who receive medical care at these facilities,” states Molly (Gutierrez) Sandvig, PHA Executive Director.



Risë Marie Cleland

300 West 8th Street, Unit 419
Vancouver, WA 98660-3440
580.695.0632 phone
360-993-5065 fax




Comments and suggestions for future issues are welcome, please forward correspondence to Risë Marie Cleland by email at: Rise@Oplinc.com




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Risë Marie Cleland is the founder and President of Oplinc, a national organization of oncology professionals. Through Oplinc Ms. Cleland publishes the weekly Oplinc Fax Tracts focusing on the timely dissemination of information pertaining to billing, reimbursement and practice management in the oncology office and Oplinc’s Best Practices Review, which provides a more in-depth look at the issues and challenges facing oncology practices. Ms. Cleland also works as a consultant and advisor for physician practices, pharmaceutical companies and distributors.




Please note that this newsletter is presented for informational purposes only. It is not intended to provide coding, billing or legal advice. Regulations and policies concerning Medicare reimbursement are a rapidly changing area of the law. While we have made every effort to be current as of the issue date, the information may not be as current or comprehensive when you review it. Please consult with your legal counsel for any specific reimbursement information. For Medicare regulations visit: www.cms.hhs.gov.


CPT® is a Trademark of the American Medical Association Current Procedural Terminology (CPT) is copyright 2006 American Medical Association. All Rights Reserved. No fee schedules, basic units, relative values, or related listings are included in CPT. The AMA assumes no liability for the data contained herein.

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