Medicare Economic Index

CMS proposes to convene a technical panel later this year to review all aspects of the MEI, including the inputs, input weights, price measurement proxies, and productivity adjustment. The panel’s analysis and recommendations will be considered in future rulemaking. The AMA has long requested that CMS address the problem that the “market basket” of inputs whose prices are measured in the MEI is outdated and, despite periodic rebasing, has not been comprehensively revised since it was originally developed in 1973.

Accordingly, the AMA welcomes the proposal for a technical panel to review all aspects of the MEI. At the same time, we are puzzled by the CMS proposal to reconfigure the office expense element of the MEI before the panel has even begun its work. Instead, we urge CMS to withdraw its proposal to rebase and revise the MEI in 2011 and develop a new MEI proposal after the panel conducts a comprehensive review.

CMS proposes to separate out and price nine new MEI components, including chemicals, paper, rubber and plastics. Although it references data on these components derived from the Bureau of Economic Analysis (BEA), no rationale has been provided for separately pricing these components. The AMA has long argued that the factors (or inputs) involved in 21st century medical practice are vastly different than when the MEI was first developed, and additional inputs are needed to ensure that the current MEI adequately measures the costs of practicing medicine. Today’s physicians must comply with an array of government-imposed regulatory requirements that did not exist in 1973, including those relating to: Medicare prescription drug plans and formulary compliance; compliance with rules governing referrals and interactions with other providers; detailed coverage policies including requirements for particular tests to be completed at specific intervals; advanced beneficiary notices; certificates of medical necessity; rules governing Medicare and Medicaid dual eligible patients; limited English proficiency rules; Medicare audits; the Health Insurance Portability and Accountability Act, Clinical Laboratory Improvement Act, Americans with Disabilities Act, and Emergency Medical Treatment and Labor Act; billing errors; quality monitoring and improvement; and patient safety. CMS is also promoting the use of electronic medical records and other new health information technology systems that facilitate physician participation in quality improvement initiatives.

To ensure compliance with these requirements, physicians often must take actions that increase their practice costs, including hiring additional office staff, attorneys for legal and regulatory compliance, as well as accountants and billing companies to ensure proper billing of claims to handle these additional responsibilities. These types of inputs are not currently taken into account for purposes of measuring the MEI, and therefore the MEI undervalues actual medical cost increases. Data from the Bureau of Labor Statistics show an increase of more than 18% in the number of people employed in physician offices since 2001. The MEI does not account for this increase.

Data published by the Medical Group Management Association (MGMA) in 2003 indicated that, between 1992 and 2002, the number of staff per full time equivalent physician increased by 18.8%.
CMS recently incorporated findings from the new Physician Practice Information (PPI) survey into the Practice Expense (PE) relative values; before that it relied on data from the AMA Socioeconomic Monitoring System (SMS). With the time gap between the two surveys, the PPI and SMS surveys may not be directly comparable, but a comparison of the two indicates that medical practice costs increased 79% from 2000-2006. Looking at the SMS alone, the SMS indicated a 35% increase from 1994-2000. The MEI, however, only increased 18% from 2000-2006. As shown below, MGMA data also show higher growth than the MEI.

Clearly, every other available measure of physician expense growth shows faster growth than the MEI. In addition to providing no rationale for the revisions it proposes in the MEI inputs, such as rubber and plastics, these revisions do not do anything to improve the adequacy of the MEI. In the proposed rule, CMS estimates the 2011 MEI at just 0.3%, and the addition of the new components that CMS has proposed based on BEA data do nothing to increase it. With the MEI shrinking to nothing while their costs continue to rise, today’s physicians can detect no resemblance between the MEI and the costs they face every day in practice.

In addition to the new office expense inputs, CMS proposes to re-weight the work, PE and liability expense components of the MEI to match the data from the PPI survey. It further proposes to increase the PE and liability expense RVUs and decrease the conversion factor so that the relative value scale will match the new MEI weights. Finally, as discussed below, CMS proposes a number of changes to the GPCIs in order to make the GPCIs match the new weights in the MEI and to make the inputs in the PE GPCI match the revised office expense inputs in the MEI.
We urge CMS to delay all of these proposed changes until CMS has had an opportunity to convene the technical panel and thoroughly review the needed changes in the MEI.

Implementation of changes to the MEI, the RVUs, the conversion factor and the GPCIs in 2011 would play havoc with 2011 payments for many physician specialties and localities based on proposed MEI changes that may change again, perhaps substantially, after the technical review panel is convened. At a time when physicians are already facing enormous pay cuts due to the Sustainable Growth Rate (SGR) formula, it does not make sense to move forward with proposed changes until CMS has a complete MEI proposal.