What’s the problem with Medicare payment?

'Practice expense' is the main culprit behind plummeting payment rates.

By Communications Staff

Any practitioner involved with third-party reimbursement is painfully aware of the downward spiral in payment rates in recent years. Medicare payments to clinical psychologists have declined a cumulative 24 percent since 2007. 

Medicare pays for all services based on a formula that values services relative to each other. The formula includes three main variables: work, practice expense and malpractice expense. The first variable — work — is intended to capture the time and skill involved in providing a service. Overall, the work values related to Medicare payment for psychological services have been stable in recent years. The third variable — malpractice – has a negligible impact on payment for psychological services.

That leaves the portion of the payment formula that captures overhead costs — including rent, utilities, equipment, supplies and staff — known as “practice expense.” It’s the main culprit behind plummeting payment rates for psychologists.  

Under the payment formula, the Medicare program increasingly pays more for technology-driven services. These services involve high overhead costs, and therefore high practice expense (PE), under the formula. By contrast, clinical psychologists’ services are highly cognitive and work-intensive with low overhead.

Over the years, Medicare has adjusted the weighting of the work and PE values in a way that increases the PE value’s impact on the total payment amount. The upshot: Psychologists are penalized by a statutory payment formula that increasingly favors services involving higher costs for equipment and supplies.

According to Avalere Health, LLC, a leading health care advisory firm, the recent precipitous decline in Medicare reimbursement for psychologists is largely attributed to changes in methodologies used by the Centers for Medicare and Medicaid Services (CMS) to develop the “practice expense” component of reimbursement.   

Though other Medicare providers are in a similar situation under the payment formula, various changes in PE valuation over the last several years have disproportionately affected psychologists. The PE portion of payment for psychological services has been reduced every year since 2007.  

Practice Expense and the New Psychotherapy Codes 

Unfortunately, the downward trend attributable to practice expense appears likely to continue when CMS releases the 2014 Medicare payment schedule in November. As most practitioners are aware, new billing codes for psychotherapy took effect in January 2013 and completely replaced the preceding psychotherapy codes. The PE component of the new psychotherapy codes is generally expected to drop — perhaps substantially for certain codes — in 2014, although a handful of psychotherapy codes may actually experience a slight uptick in PE value.    

When CMS released the 2013 Medicare payment schedule, the agency, which had not completed its review of all of the new psychotherapy codes at that time, assigned interim values to the codes and based the PE values on those in the old psychotherapy codes  in order to keep most payment levels similar to 2012. 

We expect the CMS final rule for 2014 will include new values for the psychotherapy codes. Assuming the agency makes changes to the PE component of the psychotherapy codes, we anticipate that payment losses will apply to some of the psychotherapy codes.

Our Advocacy Agenda

As evidenced by payment trends in recent years, the Medicare payment formula increasingly results in unfair and inappropriate reimbursement for clinical psychologists. The APA Practice Organization (APAPO) and APA are advocating on both the regulatory and legislative fronts to gain necessary changes to the formula. 

In addition to talking and meeting with CMS, we continue to work with key members and committees of Congress in anticipation of needing a legislative remedy. 

Major elements of our ongoing advocacy include:

  • Government Relations lobbyists talking to members of Congress and their staff extensively about the payment formula problem.
  • Gaining meetings with top CMS officials, most recently another meeting with Jonathan Blum, deputy administrator and director of CMS.
  • Submitting formal comments to CMS in early September in response to the proposed Medicare fee schedule rule for 2014.
  • Providing extensive input to congressional committee deliberations in response to invitations by key House and Senate committees now considering Medicare payment reforms. 
  • Convening meetings of grassroots psychologists from throughout the U.S. with their elected officials on Capitol Hill about the need for Medicare payment reform during the annual State Leadership Conference — including a record 330 Hill visits during the March 2013 conference. 
  • Collaborating with Medicare payment experts to explore ways the formula could be modified slightly to ensure more appropriate reimbursement for psychologists.

Look for regular updates about Medicare payment for 2014 in future issues of this PracticeUpdate e-newsletter, and in the Medicare Reimbursement and Access section of our Practice Central website.

Note: Other factors beyond the payment formula affect Medicare reimbursement for psychological services — for example, application of the Sustainable Growth Rate (SGR) formula and the ongoing sequestration involving across-the-board cuts to the federal budget. APAPO continues pursuing additional advocacy work related to the SGR as a legislative priority for 2013.