CMS Proposes 5.

4% Cut In Physician Pay in 2009 Physician Fee Schedule

The Centers for Medicare and Medicaid Services (CMS) has released its proposed rule Medicare
Program; Proposed Revisions to Payment Policies Under the Physician Fee Schedule, and Other Part
B Payment Policies for Calendar Year 2009. The proposed rule projects a 5.4% reduction in the
conversion factor (32.2285) for 2009. In addition, CMS will apply a budget neutrality adjustment to
every work relative value unit (RVU) to offset the work RVU increases produced by the most recent 5-
Year Review of RVUs. The work adjuster for 2009 will be 0.8806 or an 11.94% decrease to the work
values. If approved in the final rule due out later this Fall, physicians will see the reduced
reimbursement rates starting on January 1, 2009.

The table below lists the Final Rule’s change in payment rates and the physician fee schedule update
for the nursing facility codes. The figures do not include any geographic adjustments.

Medicare 2009 Physician Fee Schedule

2009 2009 2008 2008

Total Reimbursement Reimbursement Reimbursement
Relative Total (January Total (Effective
CPT Value 1 to June 30, July 1, 2008,
Code Units* 2008) unless Congress
intervenes))
99304 2.0 $ 65.10 $76.17 $68.14

99305 2.78 $ 90.88 $105.88 $94.71

99306 3.56 $ 116.02 $135.59 $121.28

99307 0.99 $ 32.23 $37.71 $33.73

99308 1.52 $ 49.31 $57.89 $51.78

99309 2.03 $ 65.42 $77.32 $69.16

99310 2.97 $ 96.69 $113.12 $101.18

99315 1.48 $ 47.38 $56.37 $50.42

99316 1.93 $ 61.56 $73.51 $65.75

99318 2.09 $ 68.00 $79.60 $71.20

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Based on the CMS 2009 Proposed Rule Medicare Physician Fee Schedule published in the Federal
Register, Addendum B: Relative Value Units (RVU) and Related Information. Reimbursement total
equals [Work RVU * Budget Neutrality Adjustor (0.8806) (round product to two decimal places) +
Facility PE RVU + MP RVU]* CF
*Includes budget neutrality adjustment to work RVUs as shown in the table below.

The table below lists the Relative Value Units for the nursing home codes.

Relative Value Units for Nursing Home Codes*

CPT Unadjusted Adjusted Practice Malpractice Total
Code Work Work Expense RVU RVUs (using
RVUs RVU RVU adjusted
work RVUs)
99304 1.61 1.42 0.55 0.05 2.02
99305 2.3 2.03 0.72 0.07 2.82
99306 3 2.64 0.87 0.09 3.56
99307 0.76 0.67 0.30 0.03 1.0
99308 1.16 1.02 0.47 0.04 1.53
99309 1.55 1.36 0.61 0.06 2.03
99310 2.35 2.07 0.85 0.08 3.0
99315 1.13 1.0 0.42 0.05 1.47
99316 1.50 1.32 0.53 0.06 1.91
99318 1.71 1.51 0.55 0.05 2.11

The proposed rule for the 2009 Medicare Physician Fee Schedule also includes information on
Medicare telehealth services, computer-generated facsimile transmissions for Part D eligible
individuals, the Physician Quality Reporting Initiative, and the physician self referral and anti-mark up
provisions, and mobile diagnostic testing services.

Medicare Telehealth Services

Section 1834(m)(4)(F) of the Social Security Act requires CMS to establish a process for adding
services to or deleting services from the list of telehealth services on an annual basis. Since
establishing the process in 2002, CMS has added the following services to the list of Medicare
telehealth services: psychiatric diagnostic interview examination; ESRD services with two to three
visits per month and four or more visits per month; individual medical nutrition therapy (MNT); and,
the neurobehavioral status exam. Requests to add services to the list of Medicare telehealth services
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must be submitted and received no later than December 31 of each calendar year to be considered for
the next rulemaking cycle. CMS received the following requests in CY 2007 for additional approved
services to become effective for CY 2009: (1) diabetes self management training (DSMT);
and (2) critical care services. CMS also reconsiders last year’s request to add subsequent hospital care
to the list of approved telehealth services. A brief summary of the requests and the CMS responses are
provided below:

Diabetes Self Management Training (DSMT): The American Telemedicine Association (ATA) and the
Marshfield Clinic submitted a request to add individual and group DSMT (HCPCS codes G0108 and
G0109) to the list of approved telehealth services, arguing that the services are comparable to MNT,
which is covered. Data was presented on the clinical outcomes of DMST. CMS acknowledges that
some of the studies documented clinical outcomes and evidence of the appropriateness of DSMT in
treating diabetes, but notes they did not provide any comparative analyses demonstrating that DSMT
provided via telehealth is equivalent to the face-to-face delivery of such services. Therefore, CMS does
not propose to add individual and group DSMT (as described by HCPCS codes G0108 and G0109) to
the list of approved telehealth services.

Critical Care: The University of Pittsburgh Medical Center (UPMC) submitted a request to add critical
care services (as defined by HCPCS codes 99291 and 99292), pointing out similarities to the E/M
consultation services currently approved for telehealth. CMS concludes there is no evidence suggesting
that the use of telehealth could be a reasonable surrogate for the face-to-face delivery of this type of
care. As such, they do not propose to add critical care services to the list of approved telehealth
services.

Subsequent hospital care: Prior to 2006, follow up inpatient consultations (as described by CPT codes
99261 through 99263) were approved for telehealth. CPT 2006 deleted the follow up inpatient
consultation codes and directed practitioners instead to bill for these services using the codes for
subsequent hospital care (as described by CPT codes 99231 through 99233). For CY 2006, CMS
removed the deleted codes for follow-up inpatient consultations from the list of approved telehealth
services.

In the CY 2008 PFS proposed and final rules, CMS discussed a request from the ATA to add
subsequent hospital care to the list of approved telehealth services. Because there is currently no
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method for practitioners to bill for follow up inpatient consultations delivered via telehealth, the ATA
requested that CMS approve use of the subsequent hospital care codes to bill follow up inpatient
consultations furnished via telehealth, as well as to bill for subsequent hospital care services furnished
via telehealth that are related to the ongoing E/M of the hospital inpatient. For CY 2008, CMS rejected
these requests. For CY 2009, CMS continues to reject the request to add the subsequent hospital care
codes to the list because they describe a broader range of services than follow up inpatient consultation
and they include some services that may not be appropriate as telehealth services. However, CMS now
proposes to establish the following HCPCS codes to describe follow-up inpatient telehealth
consultations:
• GXX14, Follow-up inpatient telehealth consultation, limited, typically 15 minutes
communicating with the patient via telehealth;
• GXX15, Follow-up inpatient telehealth consultation, intermediate, typically 25 minutes
communicating with the patient via telehealth; and
• GXX16, Follow-up inpatient telehealth consultation, complex, typically 35 minutes or more
communicating with the patient via telehealth.

CMS proposes to establish the RVUs for these services at the same level as the RVUs established for
subsequent hospital care (as described by CPT codes 99231 through 99233). Physicians/practitioners
must submit the appropriate HCPCS procedure code for follow up inpatient telehealth consultations
along with the “GT” modifier (“via interactive audio and video telecommunications system”). By
coding and billing the “GT” modifier with the inpatient follow-up inpatient telehealth consultation
codes, the distant site physician/practitioner certifies that the beneficiary was present at an eligible
originating site when the telehealth service was furnished.

Computer Generated Facsimile Transmission from the National Council for Prescription
Drug Programs (NCPDP) SCRIPT Standard for Transmitting Prescription and Certain
Prescription-Related Information for Part D Eligible Individuals
Section 101 of the Medicare Modernization Act established a voluntary prescription drug benefit
program (Part D). It also directed the Secretary to issue uniform standards for the electronic
transmission of such data. There is no requirement that prescribers or dispensers implement e-
prescribing. However, prescribers and dispensers who electronically transmit prescription and certain
other prescription-related information for covered drugs prescribed for Medicare Part D eligible
individuals, directly or through an intermediary, are required to comply with any applicable standards

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that are in effect. The current standard is the National Council for Prescription Drug Programs
(NCPDP) SCRIPT standard, Implementation Guide, (Version 5.0). CMS also allows the voluntary use
of a subsequent backward compatible version of the standard, NCPDP SCRIPT 8.1. Effective April 1,
2009, the NCPDP SCRIPT 5.0 will be retired and NCPDP SCRIPT 8.1 will be adopted as the standard.

An exemption to the requirement to utilize the NCPDP SCRIPT standard was established in 2005 for
entities that transmit prescriptions or prescription-related information for Part D covered drugs
prescribed for Part D eligible individuals by means of computer-generated facsimiles (faxes generated
by one computer and electronically transmitted to another computer or fax machine which prints out or
displays an image of the prescription or prescription-related information). In the CY 2008 PFS
proposed rule, CMS proposed to eliminate the computer-generated fax exemption to the NCPDP
SCRIPT standard, effective January 1, 2009. CMS believed that the elimination of the computer-
generated fax exemption would encourage prescribers and dispensers using this computer generated
fax technology to, where available, utilize true e-prescribing (electronic data interchange using the
NCPDP SCRIPT standard) capabilities.

Many commenters suggested that CMS continue to allow for the use of computer-generated faxes in
the case of transmission failure and network outages. Others commented that the elimination of the
exemption could be problematic in certain e-prescribing transactions, namely prescription refill
requests, but only one of those commenters offered substantiation to support this assertion.

In the CY 2008 PFS final rule, CMS amended the exemption to permit the use of computer-generated
facsimiles only in cases of temporary or transient network transmission failures. Following the
publication of the CY 2008 PFS final rule with comment period, CMS received additional information
regarding how the elimination of the exemption for computer-generated faxes would adversely
impact the electronic transmission of prescription refill requests. Commenters stated that the vast
majority of computer-generated facsimiles sent today are prescription refill requests sent from
pharmacies to prescribers who do not conduct true e-prescribing and, in many cases, do not engage in
any electronic transactions at all. One national drug store chain estimates that it produces
approximately 150,000 computer-generated facsimile prescription refill requests every day.

CMS concludes that the workflow and process for filling prescriptions would be significantly disrupted
if these computer-generated facsimile transmissions were prohibited. Therefore, CMS proposes to
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further amend the computer-generated facsimile exemption to also allow for an exemption from the
NCPDP SCRIPT standards for electronic prescription refill request transactions that are conducted by
computer-generated facsimiles when the prescriber is incapable of receiving electronic transmissions
using the NCPDP SCRIPT standard.

This change would be effective January 1, 2009. CMS proposes to retain the current exemption in
instances of temporary network transmission failures. CMS also seeks comments on any other e-
prescribing transaction that may be similarly adversely impacted by the elimination of computer-
generated facsimiles.

Physician Quality Reporting Initiative (PQRI)

CMS proposes a set of Physician Quality Reporting Initiative (PQRI) quality measures for 2009 but
notes that current law does not provide any financial incentive for reporting data on quality measures
in 2009 and beyond. CMS gives preference to measures endorsed by the National Quality Forum
(NQF), and if a measure has been specifically considered by NQF for possible endorsement, but NQF
has declined to endorse it as of August 31, 2008, CMS proposes not to include it in the final set of
2009 PQRI measures. CMS is targeting finalization and publication of the detailed specifications for
all 2009 PQRI measures on the CMS Web site by November 15, 2008 and will in no event publish
these later than December 31, 2008.

For 2009, CMS proposes to select from among 175 measures (for 2008, PQRI has 119 measures),
including:
• 111 current 2008 PQRI measures. Eight of the 2008 measures are not being brought forward
because the NQF has declined to endorse them or they are being retired and replaced by
another measure. Measure 4 Screening for Future Fall Risk is included as one of the measures
retired from PQRI and replaced with a new AQA- adopted or NQF-endorsed measure.
• 17 new NQF-endorsed measures;
• 21 new measures that have been adopted by the AQA Alliance (AQA); and
• 26 new measures contingent on NQF endorsement or AQA adoption by July 31, 2008.

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Tables 11 through 14 of the proposed rule list the measures in each of these categories. CMS
specifically invites comments about the advisability of expanding the number of PQRI measures for
2009 given that current law does not provide any incentive payments for reporting 2009 data.

CMS also proposes to maintain alternative reporting periods for reporting measures groups and for
registry-based reporting. Measures groups are a subset of PQRI measures that have a particular clinical
condition or focus in common. Each eligible professional electing to report a group of measures must
report all measures in the group that are applicable to each patient or encounter to which the measures
group applies, at least up to the required minimum number of patients. For 2009, CMS proposes to
maintain 3 of the 4 measures groups used for 2008 (diabetes mellitus, chronic kidney disease and
preventive care). The 4th measures group for end-stage renal disease is not being maintained because
one of the measures is no longer NQF-endorsed and there is no available replacement measure at this
time. CMS also proposes to add 6 new measures groups (coronary artery bypass graft surgery,
coronary artery disease, rheumatoid arthritis, human immunodeficiency virus (HIV)/acquired
immune deficiency syndrome (AIDS), perioperative care, and back pain (the measures in this last
measures group can only be reported as a group, not individually). For 2009, the measures groups each
include 4 to 11 measures.

Tables 15 through 23 of the proposed rule list the measures proposed for each measures group. The
form and manner of quality data submission for the 2009 measures groups will be posted on the PQRI
section of the CMS Web site at http://www/cms.hhs.gov/pqri no later than December 31, 2008, and
will detail specifications and specific instructions for reporting measures groups via claims and
registry-based reporting (which may differ from those used in 2008 for the same measures groups, and
which may differ from the specifications and instructions that apply to the reporting of individual
PQRI measures).

CMS welcomes comments about all the proposed measures and measures groups but warns that
suggestions of measures beyond those being proposed could not be incorporated into the measure set
for 2009 since there would not be an adequate opportunity for the public to comment on such
measures. CMS will again ask interested registries to self-nominate themselves for PQRI participation,
and plans to announce the names of such registries by August 31, 2008; 2009 registry technical
requirements will be substantially the same as for 2008. CMS will post the final 2009 registry technical
requirements, including the exact date by which registries must submit a self-nomination letter, at
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http://www.cms.hhs.gov/pqri by November 15, 2008. CMS expects that interested registries will need
to self-nominate themselves by the end of the first quarter of 2009, but not later than the end of the
second quarter of 2009.

If ongoing testing is successful, CMS also expects to accept PQRI data for up to 15 individual PQRI
measures (identified in tables 11 and 13 of the proposed rule) from electronic health records (EHRs),
beginning January 1, 2009 or as soon thereafter as is technically feasible. The electronic specifications
for the measures under consideration for EHR-based submission will be posted on the
CMS Web site.

For 2009, CMS proposes the following data reporting options:

• Claims-based reporting of at least 3 PQRI measures (or 1-2 if less than 3 apply to an eligible
professional) for 80 percent of applicable Medicare Part B fee-for-service (FFS) patients for
full-year reporting.
• Registry-based reporting of at least 3 PQRI measures for 80 percent of applicable Medicare
Part B FFS patients, either for all of 2009 or only for the second half of the year.
• Claims-based reporting of one measures group for 30 consecutive Medicare Part B FFS
patients for full year reporting, or for 80 percent of applicable Medicare Part B FFS patients
(with a minimum of 30 patients for full year reporting or a minimum of 15 patients if reporting
only for the second half of 2009).
• Registry-based reporting of one measures group for 30 consecutive patients for full year
reporting (may include, but not be exclusively non- Medicare patients); a 2008 option of
registry-based reporting for 15 consecutive patients for 6-month reporting has been dropped
because CMS has concluded it provides an inadequate sample size.
• Registry-based reporting of one measures group for 80 percent of applicable Medicare Part B
FFS patients (with a minimum of 30 patients for full year reporting and a minimum of 15
patients if reporting only for the second half of the year).
• EHR-based reporting of at least 3 PQRI measures (or 1-2 if less than 3 apply) for 80 percent of
applicable Medicare Part B FFS patients; no EHR-based reporting is proposed for measures
groups for 2009.

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CMS notes that it is contemplating a “Physician Compare” Web site, similar to those now in place that
allow the public to compare the performance of hospitals and other providers, but says it does not plan
to make 2008 PQRI data publicly available at the individual physician or group practice level.
However, CMS does anticipate making information on the quality of care for services provided by
professionals to Medicare beneficiaries publicly available in the future. In fact, in 2007, CMS
published a notice of a new system of records under the Privacy Act, establishing a new routine use
that would enable the agency to make individual physician-level performance measurement data
available to Medicare beneficiaries, by posting such data on a public Web site and by various other
methods of data dissemination. CMS also warns that it may decide to publicly report the names of
eligible professionals who report and/or satisfactorily report quality data under the 2008 PQRI. CMS
invites comments on a number of issues relating to the use and disclosure of PQRI data. These include:
• How to engage stakeholders in the development and evaluation of a valid and reliable public
reporting system;
• The venue and format for how PQRI information should be made publicly available;
• Types of data and types of measures that would be most useful to consumers and health
professionals; and
• The level at which PQRI information should be publicly reported (for example, at the
individual physician or group (TIN) level).

Physician Self Referral and Anti-Mark Up Issues

Last year’s final physician fee schedule rule had included provisions that would have applied anti-
markup requirements to diagnostic tests that were either purchased from an outside supplier or
performed at a site other than the office of the billing physician or other supplier. Under such rules, the
payment to the billing physician or other supplier for the technical component (TC) and/or professional
component (PC) of a test could not exceed the lowest of the following amounts:
• The performing supplier’s net charge to the billing physician or other supplier;
• The billing physician or other supplier’s actual charge; or
• The fee schedule amount for the test that would be allowed if the
• performing supplier billed directly.

Due to a an uproar following publication of the final rule, CMS decided to delay the implementation of
these policies (until January 1, 2009) for diagnostic tests other than certain anatomic pathology

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diagnostic testing services and the TC of any purchased diagnostic test. In this proposed rule, CMS
returns to the antimarkup provisions.

CMS proposes two alternative approaches for revising the anti-markup provision. Under the first, the
anti-markup policy would apply in all cases where the PC or TC of a test is either: (a) purchased from
an outside supplier or (b) performed or supervised by a physician who does not share a practice with
the billing physician or physician organization, and a physician who is an employee of, or independent
contractor with, more than one billing physician or physician organization would not be viewed as
sharing a practice. CMS does request comments regarding how it might permit a physician to provide
occasional services (such as on a locum tenens basis) without this secondary activity precluding the
physician from being viewed as sharing a practice with his or her principal physician organization.

Under a second alternative, CMS proposes to maintain much of the current regulatory language but to
clarify several points. First, CMS proposes to clarify that the “office of the billing physician or other
supplier” includes space in which diagnostic testing is performed that is located in the same building
(perhaps on another floor) in which the billing physician or other supplier regularly furnishes
patient care, but not including a mobile vehicle, van or trailer in the parking lot of such building. CMS
also proposes to clarify that, with respect to TCs, the antimarkup provision applies if the TC is either
conducted or supervised outside of the office of the billing physician or other supplier (even where
such supervision relates to a TC conducted in the office of the billing physician or other supplier).

Further, the TC of a diagnostic test would not be considered to have been purchased from an outside
supplier if the TC is both conducted and supervised within the office of the billing physician or other
supplier, and the supervising physician is an employee or independent contractor of the billing
physician or other supplier. In addition to this proposed policy, CMS offers two alternatives. Under
one, if the TC is conducted by a technician who is not an employee of the billing supplier, the TC
would be considered purchased from an outside supplier, regardless of where the technician conducts
the TC and notwithstanding the employment status of the supervising physician. Under the second
alternative, where the TC is conducted by a non-employee of the billing physician or other supplier
and outside the office of the billing physician or other supplier, the TC would not be viewed as a
purchased test if the supervising physician is an employee or independent contractor of the billing
physician or other supplier and performs the supervision in the office of the billing physician or other
supplier.
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And for anti-markup purposes only, the performing supplier with respect to the TC would be the
physician who supervised the TC and, with respect to the PC, the performing supplier would be the
physician who performed the PC. A further exception is proposed with respect to diagnostic tests
(other than TCs purchased from an outside supplier) ordered by a physician in a physician organization
that does not have any owners who have the right to receive profit distributions; this exception is
intended to address the situation where the performing physician is providing services in a centralized
diagnostic testing facility owned by and serving a multi-site group practice.

CMS requests comments on a number of issues relating to the calculation of the “net charge” under the
anti-markup policy, including whether the agency should allow some overhead costs to be recovered
by billing suppliers for services to which the anti-markup provision applies (last year’s final rule
precluded this). Alternatively, CMS asks whether it should simply prohibit reassignment in certain
situations and require the physician supervising the TC or performing the PC to bill Medicare directly
(several States have reportedly taken this approach primarily with respect to pathologists, thereby
precluding the reassignment of the right to payment to the ordering supplier).

Finally, CMS asks whether it should further delay (beyond January 1, 2009) implementation of the
anti-markup rules, including revisions to those rules that might be adopted in light of the proposals
described above. CMS says it “cannot gauge with any certainty” the extent of Medicare savings that
the proposed anti-markup provisions would generate.

Exception for Incentive Payment and Shared Savings Programs

Using its authority to provide exceptions of the physician self-referral prohibitions, CMS proposes a
“narrow”, heavily conditioned exception relating to hospital incentive payment (pay-for-performance)
and shared savings (gain sharing) programs (though CMS invites comments relating to programs by
non-hospital providers). In doing so, CMS invites comments regarding essentially all aspects of this
exception, including potential alternative policies. Note that, while CMS acknowledges that other
federal laws, such as the anti-kickback statute and the Civil Monetary Penalty statute, might stand in
the way of incentive payment and shared savings programs, the exception being proposed applies only
to the physician self-referral law. Note, too, that while CMS had invited comments in the proposed
hospital inpatient prospective payment system regulation relating to the need for an exception to the
physician self-referral rule relating to gain sharing programs (without offering a specific proposal), the
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agency is now proposing a very specific exception that would apply to both incentive payment (pay-for
performance) and shared savings (gain sharing) programs.

The proposed exception for payments provided to a physician participant in an incentive payment or
shared savings program is accompanied by a number of safeguards and conditions, all of which are
intended to apply to both incentive payment and shared savings programs (although CMS asks whether
it should instead adopt two separate exceptions with different requirements). CMS expresses
considerable concern regarding the potential negative consequences of product standardization as a
means of generating savings.

The agency invites comments regarding whether shared savings programs that include product
standardization measures disadvantage small manufacturers of items, supplies, and devices, and on
how such standardization might be achieved without limiting patient access to products considered
beneficial to improved patient care.

The proposed exception would prohibit payment to physicians based in whole or in part on a reduction
in patient length of stay. It would protect only cash or cash equivalent payments (not nonmonetary
remuneration, such as additional staff members or new equipment). Protected payments would be
limited to those made to physicians who actually participate in the programs (with CMS going out of
its way to note that the participation of non-physician practitioners in incentive payment and shared
savings programs does not require the protection of an exception to the physician self-referral
prohibition unless the practitioner’s referrals are directed by, controlled by, or attributed to a physician
with whom or for whom the practitioner works). CMS does propose to permit payments to be made to
qualified physician organizations (such as a group practice composed entirely of participating
physicians, although CMS also is considering the possibility of allowing such groups to include
physicians who are eligible to participate but choose not to, or even individuals in a non-participating
specialty). CMS proposes that payments would be made only on a per-capita basis.
In addition to the preceding general considerations, CMS proposes a number of other requirements.
With respect to the design of an incentive payment or shared savings program, CMS proposes the
following:

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• The program must be a documented program that seeks to achieve the improvement of quality
of hospital patient care services through changes in physician clinical or administrative
practices or actual cost savings for the hospital resulting from the reduction of waste or changes
in physician clinical or administrative practices, without an adverse effect on or diminution in
the quality of hospital care.
• The program must include patient care quality or cost savings measures (or both) supported by
objective, independent medical evidence indicating that the measures would not adversely
affect patient care. In this regard, CMS is proposing that the quality measures be listed in CMS’
Specifications Manual for National Hospital Quality Measures, although the agency welcomes
comments about other appropriate performance measures or lists of such measures, and about
whether parties could simply adopt measures meeting certain criteria specified by the Secretary
in an advisory opinion.
• The program must ensure that the quality of patient care services is not impacted adversely as a
result of the program.
• The program must be reviewed prior to implementation and at least annually thereafter by an
independent person or organization with relevant clinical expertise. By independent, CMS
means an individual or organization that is: (1) not affiliated with the hospital operating the
program under review; (2) not affiliated with any participating physician or with any physician
organization with which a participating physician is affiliated; and (3) at the time of the review,
not participating in any incentive payment or shared savings program operated by the hospital.
The reviews must result in written findings and be made available to the Secretary upon
request, and the programs must provide for immediate and appropriate corrective action in the
event a review reveals an adverse impact on quality.
• Participation in the program would be limited to physicians who are members of the hospital’s
medical staff at the start of the program, though CMS invites comments on how to deal with
physicians who join the medical staff as part of the normal cycle of workforce demands.
• Participating physicians would generally have to be grouped in “pools” of five or more
physicians (with physicians in a pool sharing in payments on a per capita basis), the pools must
be formed at the start of the program, and the distribution of incentive payment and shared
savings program payments must be supported by written documentation. CMS invites
comments about how to deal with situations where there may be less than 5 physicians on a
hospital’s medical staff in a particular specialty or department.

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 • A hospital may not determine physician eligibility based on the volume or value of referrals or
other business generated between the parties (and CMS is also considering requiring a hospital
to offer the opportunity to participate to all physicians on the medical staff who belong to the
department or practice in the specialty relevant to the program, such as all cardiac surgeons or
all orthopedic surgeons).
• A program may not limit the discretion of physicians to make medically appropriate decisions
for their patients. A hospital must not limit the availability of any specific item, supply or
device, including new technology, that is linked through objective evidence to improved
outcomes and is clinically appropriate for a particular patient, and must permit individual
physicians access to the same selection of items, supplies, and devices that was available prior
to the physician’s participation in the program (though CMS would not require physician
access to products that were not available prior to the start of the program). Further, items,
supplies and devices in a product standardization program should not be selected on the basis
of a participating physician’s ownership or investment interest in, or compensation arrangement
with, the manufacturer or distributor of the product, or his or her interest in a group purchasing
organization that arranges for the purchase of the product (and such a physician could not
receive any program payment relating to the use such products). In fact, CMS strong
recommends (and may require) that such physicians be barred from participating in the design
or implementation of a program that involves products in which the physician has a financial
interest.

CMS also proposes the following requirements relating to payments made under an incentive payment
or shared savings program:
• Payments to physicians must be made on a per capita basis (though CMS welcomes
suggestions for alternative approaches, such as paying some physicians more than others based
on their individual contributions to the achievement of the performance measures).
• Payments may not include any amount that takes into account procedure/service volume greater
than the one provided by the participating physician or qualified physician organization during
the period of the same length immediately preceding the start of the program (but CMS invites
comments about how to deal with volume changes due to market forces and physician practice
growth).
• Protected program duration may be no shorter than 1 year and no longer than 3 years.

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 • In terms of limits on program payments to physicians, CMS is considering various options,
including a flat 50 percent limit on the sharing of cost savings, a scaled limits approach under
which payments to physician decrease over the course of the performance measure, and re-
basing, under which a program must take into account the progress made to date on a particular
measure (that is, progress made on a measure during the first year of a program would be
ignored in calculating physician payments in the second year; only further progress on that
measure could be rewarded).
• Payments based on cost savings must be calculated on the hospital’s actual acquisition costs
and be calculated on the basis of all patients, not just Medicare patients.
• Payments would not be protected if they were made for actions that resulted in performance
below a predetermined target (for example, for reducing the use of a supply below some target
minimum level of utilization). CMS is considering comparable safeguards for measures that
may not be readily amenable to percentage “floors” and “ceilings”, and asks for input on this.
• If CMS decides to allow program payments to flow from a hospital to a physician group
composed of participating and non-participating physicians (for example, one composed of
cardiac surgeons and cardiologists, in the case of a cardiac surgery shared savings program), it
is considering several approaches. Under one, the physician organization would simply operate
as a pass-through entity, and would be prohibited from retaining any portion of the program
payment intended to flow to a participating physician (except, perhaps for required tax and
other withholdings). Under another, CMS would simply permit payments to be made to the
group as long as it could satisfy itself that only participating physicians would receive program
payments.

Finally, CMS proposes the following requirements relating to the arrangement between a hospital and
the participating physician or qualified physician organization:
• As with many other self-referral exceptions, the arrangement must be set out in writing, signed
by the parties, and specify compensation that is set in advance, does not vary during the term of
the arrangement, and is not determined in a manner that takes into account the volume or value
of referrals or other business generated between the parties.
• The program must document the performance measures against which participating physicians
will be measured, and each performance measure and the payments resulting from the
achievement of established targets must be delineated separately (though CMS welcomes input

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 on whether and how to permit the use of total or global savings for a particular department or
service line).
• The arrangement must not violate the anti-kickback statute or any federal or state law or
regulation governing billing or claims submission.
• Written disclosure must be made to patients affected by the program prior to their admission to
the hospital, or, if pre-admission disclosure is not feasible, prior to the procedure or other
treatment to which the program is applicable. CMS also is considering whether patients should
be permitted to opt out of a measure that might otherwise apply to their care and seeks
comments regarding whether and how this would work in practice.
• The case severity, and the ages and payers of the patient population treated by each
participating physician must be monitored using generally accepted standards, and a physician
terminated from the program if there are significant changes from the hospital’s historical
measures (if there are significant changes in the aggregate across participating physicians, the
program must be terminated).
• A physician is eligible to receive only a per capita share of the portion of payment attributable
to the efforts of his or her pool (see above).
• Performance measures must be applied uniformly to all patients, and procedures or treatments
subject to the incentive payment or shared savings program should not be performed
disproportionally on federal health care program beneficiaries.
• A program must not involve the counseling or promotion of a business arrangement or other
activity that violates any federal or state law. The full range of documentation developed and
maintained in connection with compliance with the new exception must be retained and made
available to the Secretary upon request. CMS also is considering requiring the hospital offering
a program to audit the calculation of cost-savings and payments made under the program.

Mobile Diagnostic Testing Services

CMS also issued mobile diagnostic testing services entity billing requirements. To ensure that entities
furnishing mobile services are providing quality services and are billing for the diagnostic testing
services they furnish to Medicare beneficiaries, CMS proposes a new performance standard for mobile
entities that would require that entities furnishing mobile diagnostic services enroll in Medicare and

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bill directly for the mobile diagnostic services that they furnish, regardless of where the services are
performed.

A copy of the proposed rule Medicare Program; Revisions to Payment Policies Under the Physician
Fee Schedule for Calendar Year 2009 is available at
http://www.cms.hhs.gov/physicianfeesched/downloads/CMS-1403-P.pdf. Comments are due to CMS
on August 29, 2008.

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