The Fix Is In: Medicare May Soon Become the Most Stable, Predictable Payer

Modern Healthcare is reporting that a bipartisan deal has been struck that will fix the Medicare SGR problem. The proposed solution will replace the SGR with a 0.5% annual increase in reimbursement from 2014 through 2018, and then move toward an incentive payment model that will incorporate  the current PQRS system, value-based payment and “meaningful use” of electronic health records. Given that comparable performance measures are not available to psychologists, among other health professionals, full involvement in the incentive payment program will not be possible for psychologists until 2020 at the earliest.

The text of HR 4015, “‘SGR Repeal and Medicare Provider Payment Modernization Act of 2014”, is HERE.

The new reimbursement model reportedly is estimated to cost about $126B over 10 years, and how this would be covered has not been worked out yet, so the final structure is not certain. However if the final version is anything close to the currently reported deal, a few reasonable inferences are possible.

(1) With a 10 year horizon on reimbursement, Medicare may soon become the most stable and predictable of all payer sources.

(2) To the extent other payers tend to follow Medicare, reasonable projections are possible through 2023 for the reimbursed value of major mental health procedures, for doctoral providers as well as for master’s level.

(3) From those projections, reasonable income estimates for practices dependent on third-party, health insurance reimbursement also would be possible.

For example, the current national values of Medicare reimbursement for several procedures are as follows:

  • Initial Diagnostic Interview:  $133.98
  • Psychotherapy, 45 minutes:  $85.97
  • Psychotherapy, 60 minutes:  $128.60
  • Psychological testing:  $80.96
  • Neuropsychological testing:  $99.23

(Source:  Physician fee schedule search)

Assuming the 0.5% increase goes into effect this year, reimbursement will increase by that amount through 2018, and then flattens out, like this:

If other payers follow Medicare’s lead, it is not unreasonable to estimate that the national average for third party reimbursement for a diagnostic interview will stabilize at somewhere around $137 for doctoral providers from 2019-2023, that 45 minutes of psychotherapy will be reimbursed at around $88 during that same time frame, and 60 minutes of psychotherapy will be valued at about $131. Comparable values would be $103, $66 and $98 for Master’s level providers, at the 75% rate of the physician fee schedule social workers are currently reimbursed under Medicare.

Many will complain that (a) these rates are “too low” and (b) do not take into account inflation. For those who argue (a), I would ask, based on what? Also, please provide a generally accepted method of deriving a generally accepted rate of reimbursement. (b) is very likely to be true, given the usual rate of inflation. This fix of the SGR problem will mean that Medicare reimbursement will almost certainly not keep up with inflation for the next 10 years. Recall, though, there is nothing new in that.

Given that the AMA is on record strongly supporting the proposed fix, this solution — or something very close to it — is likely to occur.

The tradeoff in the projected 0.5% “increases” in reimbursement for the next 5 years, and the rates beyond that, will be the predictability obtained within the system, prevention of a greater than 20% SGR reduction due to go into effect April 1, and avoiding the annual SGR dance in the future. If business complains that uncertainty in the system undermines planning and growth, the predictability provided by seeing a 10 year horizon should be a very welcome development.

Given these estimates, it is possible to develop a model to estimate income in a mental health practice that provides services only in the context of third party health insurance reimbursement.

For example, a psychologist providing 4 diagnostic interviews and 26, 45-minute therapy sessions per week, in 46-week year, could estimate receipts in the neighborhood of $130K during the 2019-2023 horizon, without incentive payments (or penalties), not taking into account geographic variability. Similar modeling is quite possible with a known procedure mix. [Email me directly if you are interested in similar estimates for your practice].

On balance, despite the minimal 0.5% annual increases through  2018, HR 4015 is good for doctors. And that is good for patients.

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