Balancing Reimbursements and Practice Cost
Will Impending Fee Schedules Make a Dent?

By Tom Walsh
Massachusetts health plans will be offering new reimbursement fees in the coming months, but the question remains whether these will be sufficient to meet the increases in doctors' costs.

"To be fair, the health plans are not totally unresponsive," said Marvin Berkowitz, an independent consultant from Needham who works with providers on reimbursement issues. "Still, it seems to me that the doctors are mostly in for rough sailing for at least the year to come."

Manuel Lowenhaupt, M.D., of Deloitte Consulting, whose firm last year documented financial troubles of Massachusetts physician practices, concurred that physician reimbursement still has a way to go to keep pace with increases in costs.

The Deloitte study, which tracked physician incomes and the cost of running practices from 1997 to 2000, found that reimbursement cuts were universally troubling Massachusetts physicians, whose practice costs are among the nation's highest.

MMS President Francis X. Rockett, M.D., asked the fundamental question: "After years of reimbursement fees that don't meet costs, will fee increases even come close to compensating for the resources needed to care for our patients?"

The MMS has embarked on an outreach and advocacy campaign to increase awareness and emphasize the urgency of the situation. The MMS stressed that physicians are under increasing pressures and that viability of practices, and, therefore, of quality health care, are at risk.

The Health Plans' Plans
Blue Cross and Blue Shield of Massachusetts, the state's largest health plan, provided a glimpse of its thinking on May 31 with memos to physicians about the Sept. 1 fee updates. James E. Fanale, M.D., Blue Cross chief medical officer, wrote that the plan "is committed to ensuring that we pay you fairly using nationally recognized and locally administered reimbursement methodologies. We are sensitive to the rapid changes taking place in the health care marketplace. That's why throughout the next year, we plan to expand and enhance our current forums to involve health care leaders across the state in discussions on payment-related issues."

Tufts Health Plan fees won't be revised until Jan. 1. Philip R. Boulter, M.D., Tufts senior vice president and chief medical officer, said, "I expect there will be some increases in physician reimbursement for 2002. We understand we need to do more for doctors. We haven't done the new budget yet. But that is our goal."

Just a First Step
The Blue Cross memo to member physicians described "aggregate" increases of 5.90 percent for indemnity products, 3.75 percent for managed care products, and 6.20 percent for preferred provider arrangements. Radiologists and anesthesiologists were singled out for larger increases.

"We're trying to get a long-term plan for reimbursement," Dr. Fanale said. "We're not the highest or lowest. We're committed to bringing all payments to equal levels — HMO, indemnity and PPO. I can't say when, but over the next couple of years is the goal. The first step is this year."

Berkowitz, the Needham consultant, said of the Blue Cross updates, "Looked at all together, there are some significant changes. Some doctors are up, but others are down. Depending on your practice's mix of services, you could get a big increase or a decrease."

Resource-Based Relative Value Scale
Both Blue Cross and Tufts use the Resource-Based Relative Value Scale (RBRVS) methodology for computing fees. [See sidebar]

Springing from the Medicare program and a Harvard University research project, RBRVS is actually three scales, or relative value units (RVU), in one measuring physician work (54 percent of overall fee), practice expense (41 percent), and malpractice expense (5 percent). A "conversion factor" translates relative values into dollar amounts for each service.

After a period in which multiple conversion factors were used, the Balanced Budget Act of 1997 established a single conversion factor beginning Jan. 1, 1998. The values are updated annually, although health plans don't always use the most up-to-date RVUs.

Blue Cross implemented the January 2001 RVUs in September 2001 in arriving at its new fees, Dr. Fanale said. "We believe RBRVS is a standard method of payment based on scientific validity," he said. "We are committed to annual review and update."

Tufts' Dr. Boulter added, "We always attempt to be fair and equitable to both specialists and primary care physicians." He said increases next year "will depend on relative value scales and historically where specialties have been in the fee schedule."

Dr. Boulter said physician financial concerns have registered at Tufts. "We heard loud and clear from physicians that they have inflationary pressures in their offices, tend to be maxed out in volume, and are looking for increases to help meet their needs."

Harvard Pilgrim Health Care will not use RBRVS this year. However, Alan G. Raymond, HPHC vice president for marketing and communications, said, "We expect to in the near future." Raymond added, "Our goals this year are to standardize fee schedules and further simplify provider contracts. Wherever possible, we will link incentive payments to quality improvement goals as we have done in our new agreement with Partners HealthCare."

In the four-year Partners deal, made public in late June, the HMO agreed to do away with existing financial incentives that reward doctors only when they hold down costs.

Many observers believe that payers should use a consistent methodology if they've adopted RBRVS. That means annually reviewing the conversion factors, in addition to the RVUs.

Fees Don't Reflect Soaring Premiums
Many physicians do not understand how the RBRVS system works, and therefore, they have little or no ability to use the information in fee discussions with health plans. "Some have a sense of what's going on," Berkowitz said, "But the way changes are rippling through the payers, I'd be surprised if many understood."

What physicians do understand, however, is that health plans that were ailing financially themselves now seem to be in the black thanks to substantial premium increases being charged to employers. Doctors also know that what plans pay in physician fees is nowhere near what they collect in premiums.

"I would love to see the increases in premiums they charge go to the people who do the work," said Dr. Rockett. "Physicians can't increase their fees the way the health plans can."

Pharmaceutical Costs Bar Higher Fees
Dr. Boulter of Tufts said, "If you look at the entire medical budget, the biggest driver is pharmaceuticals. Increase premiums by 10 percent, 5 percent of that goes right to pharmaceuticals." The Tufts medical director said the pharmaceutical cost issue must be addressed. "It's a public policy issue. How do we afford pharmaceuticals without bankrupting the rest of the system?"

Told of Dr. Boulter's concern about rising drug costs, Dr. Rockett said he wondered how effectively health plans are using their considerable buying power with drug companies. He said that with three-tier drug pricing, plans are gradually shifting drug costs to members and their employers, and therefore beginning to see reductions in overall pharmacy costs for their medical budgets.

Deloitte's Dr. Lowenhaupt said that in response to financial pressures, physicians are working harder and longer "to achieve a reasonably flat level of compensation." He said health plans must start paying more attention to the situation with more generous fees and simpler claims processes.

"Eliminating some of the administrative barriers would make it easier and that would lower costs," he said.

Harvard Pilgrim's Raymond said his plan has already begun to make it easier for physicians to check eligibility, co-payments, and claim status with a new, online transaction service. "The service is saving physician practices time and improving services for their patients," Raymond said.

Whatever the solution, it can't come soon enough for Massachusetts physicians.