Shortcomings In Medicare Bonus Payments For Physicians In Underserved Areas

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1 Trends Trends Shortcomings In Medicare Bonus Payments For Physicians In Underserved Areas Medicare s bonus payment program has not met its goal of providing physicians with incentives to practice in rural, underserved areas. by Lisa R. Shugarman and Donna O. Farley ABSTRACT: This study examines trends in Medicare spending for basic payments and bonus payments for physician services provided to beneficiaries residing in nonmetropolitan counties. For our analysis, we used Medicare Part B physician/supplier claims data for 1992, 1994, 1996, and Payments under the congressionally mandated bonus payment program acccounted for less than 1 percent of expenditures for physician services in nonmetropolitan, underserved counties. Physician payments increased from 1992 to 1998, while bonus payments increased through 1996 but then declined by 13 percent by The share of bonus payments to primary care physicians declined throughout the decade, but the share for primary care services increased. Access to health care services for the rural elderly has been a constant source of concern for policymakers. Rural communities face difficulties recruiting and retaining physicians. 1 Income potential alone is not likely to be the deciding factor in determining practice location. A report by the Physician Payment Review Commission (PPRC, which preceded the Medicare Payment Advisory Commission, or MedPAC) cited proximity to hospital facilities, access to continuing medical education, and the presence of a physician community as influences on rural physicians decisions about where to practice medicine. 2 Recent analyses suggest that over the past ten years the total supply of rural physicians has not grown significantly and the supply of family practice physicians has actually decreased by 9 percent. 3 Congress established the Medicare Payment Incentive Program in 1987 to retain existing physicians and attract new ones by helping to offset the opportunity costs associated with relocation and starting a new practice. The Omnibus Budget Reconciliation Act (OBRA) of 1987 provided for a bonus payment of 5 percent of the amount paid by Medicare for physicians providing care in rural primary care Health Professional Shortage Areas (HPSAs). 4 In 1991 the bonus payment was increased to 10 percent, and eligibility was expanded to include reimbursement for services provided by physicians in urban HPSAs. 5 The analyses presented here describe trends during the 1990s in the distribution and characteristics of both basic physician payments and bonus payments made on behalf of Medicare beneficiaries residing in nonmetropolitan counties. These analyses came out of a larger study funded by the Centers for Medicare and Medicaid Services (CMS) to examine special Medicare payments to rural providers Lisa Shugarman is an associate health policy researcher at RAND in Santa Monica, California. Donna Farley is a senior health policy analyst at RAND in Pittsburgh, Pennsylvania. HEALTH AFFAIRS ~ Volume 22, Number Project HOPE The People-to-People Health Foundation, Downloaded Inc. from HealthAffairs.org on November 02, 2018.

2 Health Tracking and to consider the implications of those payment policies for access and costs of care for rural Medicare beneficiaries. 6 Primary care HPSAs. Primary care HPSAs, designated by the Health Resources and Services Administration (HRSA) through its regulatory process, are one category of geographic areas defined as having a shortage of health care professionals. A geographic area can be designated as a primary care HPSA if it meets three criteria: The area is a rational area for the delivery of primary care; the area has less than one primary care physician per 3,500 people; and the area has an insufficient capacity of providers (either the current supply is overused or distances are too great for some to reach the nearest physician). In 1997 roughly 64 percent of nonmetropolitan counties contained at least one area designated as a HPSA, and roughly 10 percent of these counties had no active primary care physician. 7 Eligibility for payments. The legislation that established the physician bonus payment program states that physician services are eligible for a bonus payment if they are provided in a HPSA and the patient served is covered by Medicare Part B (Supplementary Medical Insurance). Bonuses are not paid for services reimbursed through Part A (Hospital Insurance) or provided by managed care contracts. The physician s practice is not required to be located in a HPSA, nor must the Medicare beneficiary reside in a HPSA, but the service must be provided in a HPSA. Administration of the bonus program. Medicare Part B carriers administer the physician bonus payment program. Carriers are responsible for informing physicians about the program and how to obtain bonus payments, paying bonuses to eligible physicians quarterly, and reviewing paid claims. 8 To obtain the bonus payment, physicians must indicate that the services they provided are eligible by including a bonus payment modifier to the Healthcare Common Procedure Coding System (HCPCS) codes. For services that contain both a professional and a technical component, only the professional component is eligible for a bonus payment. 9 Data And Methods We examined trends in basic Medicare payments and bonus payments for physician services provided to beneficiaries in 1992, 1994, 1996, and All trends were analyzed based on beneficiaries location rather than physicians practice location or site of care. This is key to understanding and interpreting our results because bonus payments are paid based on location of care (in a HPSA) rather than location of residence. We chose this analytic approach because the policy focus of these analyses is on access to care for rural beneficiaries. Furthermore, it was not possible to define service location because the physician/supplier claims data only identify the state and county of beneficiaries residence and ZIP code of providers location (which may not be the service location). Sample and data. The analysis used physician/supplier claims data for the 5 percent sample of Medicare beneficiaries, merged with geographic data from the Area Resource File (ARF). We identified claims for physician services (defined below) provided to beneficiaries located in nonmetropolitan counties. We limited claims in the sample to those for which Medicare was the primary payer and that had not been denied. The state and county of the beneficiary s residence on the Part B claim was matched to the ARF to identify counties with a HPSA designation, and we classified each claim by location in a county with a full-, partial-, or no-hpsa designation for each year in our study. 10 Key analytic variables. Physicians eligible for bonus payments. The legislation authorizes bonus payments only for physician services those provided by medical doctors, doctors of osteopathy, dentists, podiatrists, licensed chiropractors, and optometrists. Only claims with specialty codes for these providers were included in our analyses. We focused particularly on bonus payment trends for primary care specialties (family practice, general practice, and internal medicine). Nonphysician practitioners (such as physician assistants and nurse practitioners) are not eligible to claim a bonus payment for care provided in a HPSA, 174 July/August 2003

3 Trends although the rules have been modified to allow them to bill Medicare directly for services provided independently. 11 Primary care and other physician services. To examine the distribution of bonus payments according to service type (as opposed to provider type), we coded each claim line item as a primary care service or other type of service. Physician services are professional services performed by physicians (regardless of specialty), including services provided in a home, office, or institution; surgery; and consultation. We identified primary care services using the definition of such services outlined in OBRA 1987: office medical services, emergency department services, home medical services, skilled nursing, intermediate care, and long-term care medical services, or nursing home, boarding home, domiciliary, or custodial care medical services (regardless of physician specialty). 12 These services are categorized as evaluation and management (E&M) services and are identified in the claims by their corresponding Current Procedure Terminology (CPT) codes, which are in the Level I HCPCS codes. 13 All physician claims with other HCPCS codes were categorized as other services. Basic physician payments. Basic payments for physician services were defined as the amount paid by Medicare for each claim line item. Bonus payments. To be eligible for the bonus payment, a physician must include an HCPCS code modifier on the claim form to indicate that the service was provided in a rural or urban HPSA. To calculate the bonus payment amounts, we first identified all physician claims with the appropriate modifier. 14 Then we multiplied the Medicare payment amount (see above) by 0.1 to obtain the bonus payment amount. Basic physician payments and bonus payments for the 5 percent sample of beneficiaries were multiplied by 20 to approximate the Medicare payments made for physician services provided to all rural beneficiaries. Study Results Distribution of physician spending and bonus payments. Medicare spent more than $5 billion on physician services for rural beneficiaries in 1992; spending rose to an estimated $7.4 billion by 1998 (Exhibit 1). 15 Bonus payments to physicians for services provided to these beneficiaries increased through 1996 EXHIBIT 1 Distribution Of Basic Medicare Payments To Physicians And Bonus Payments For Services To Nonmetropolitan Beneficiaries, By Health Professional Shortage Area (HPSA), Thousands Of Dollars, Selected Years Total basic payments Percent by HPSA designation Whole-county HPSA Partial-county HPSA Not HPSA Total bonus payments Percent by HPSA designation Whole-county HPSA Partial-county HPSA Not HPSA Bonus payments as percent of basic physician payments All nonmetropolitan counties By HPSA designation Whole-county HPSA Partial-county HPSA Not HPSA $5,025, % $5,926, % $6,739, % $7,389, % $25, % $38, % $42, % $36, % % % % % SOURCE: Physician/supplier claims for the 5 percent sample of Medicare beneficiaries. HEALTH AFFAIRS ~ Volume 22, Number 4 175

4 Health Tracking but declined by Physicians were paid an estimated $25 million through the bonus payment program in 1992 and $42 million by By 1998 bonus payments had declined 13 percent to $36 million. Bonus payments were 0.5 percent of Medicare payments in 1992, increased to 0.7 percent in 1996, and then declined back to 0.5 percent in Thus, physicians were not claiming bonus payments at the same rate in 1998 as they had in previous years. As expected, the largest share of bonus payments was for services provided to beneficiaries residing in whole-county HPSAs, which increased from 56.7 percent of total bonus payments in 1992 to 60.9 percent in The share of payments for those in partial-county HPSAs was 28.2 percent in 1992 and 30.3 percent in Bonus payments for beneficiaries in non-hpsa counties declined during this period. The addition of new partial-county HPSA designations in 1996 contributed to this trend. Overall, Medicare basic payments per capita for physician services increased from an estimated $574 per beneficiary in 1992 to $783 in 1998, a 36.4 percent increase (data not shown). The average per capita bonus payment was quite small relative to these basic per capita payments. Bonus payments were highest for services to beneficiaries in wholecounty HPSAs: $9 per capita in 1992 and $13 per capita in subsequent years, or less than $1 per beneficiary-month. Bonus payments attributable to primary care. Because access to primary care is a priority for underserved areas, we examined how the bonus payment program contributed to payments for these services, which might have affected access. We estimated the percentage of total bonus payments spent on (1) services by primary care physicians versus other physician specialties; and (2) primary care services (see definition above) versus other physician services. Slightly more than half of all Medicare bonus payments for services to rural beneficiaries were made to primary care physicians, and the proportion of payments made to these physicians declined gradually from 1992 to 1998 (Exhibit 2). Bonus payments to both general and family practice physicians declined, while payments to internal medicine physicians increased slightly. During the 1990s the majority of Medicare bonus payments for physician services to rural Medicare beneficiaries were spent on services EXHIBIT 2 Distribution Of Medicare Bonus Payments For Beneficiaries Residing In Nonmetropolitan Counties, By Physician Specialty And Type Of Service, Selected Years Total bonus payments (thousands of dollars) $25,401 $38,531 $42,019 $36,420 Percent by specialty Primary care General practice Family practice Internal medicine Other specialties General surgery Cardiology All other 55.9% % % % Percent by type of service Primary care Other SOURCE: Physician/supplier claims for the 5 percent sample of Medicare beneficiaries. 176 July/August 2003

5 Trends other than primary care services, but the share spent on primary care services rose steadily from almost 30 percent of total bonus payments in 1992 to 37 percent in 1998 (Exhibit 2). These percentages compare with data from the Centers for Medicare and Medicaid Services (CMS) showing that 35.5 percent of all Part B allowed charges in 2001 were for E&M services. 16 Discussion And Policy Implications The analytic results presented in this paper reveal a declining trend in the use of Medicare bonus payments by physicians serving rural beneficiaries. These analyses have important implications for future Medicare payment policy for rural providers. The bonus payment program was designed to encourage physician retention in underserved areas (HPSAs) and to act as an incentive for physicians to relocate to areas designated as being underserved. However, low levels of bonus payments in general, coupled with declines in those amounts since 1994, did not bode well for their future potential to support physicians practicing in rural areas and, thus, to protect access for rural Medicare beneficiaries. Our findings suggest that physicians were not claiming the extra payments that were available to them. Future research should examine trends beyond 1998 to determine if the decline we observed was temporary or a continuing trend. Contributing factors. Factors that could be contributing to such low use of bonus payments include the extent to which physicians know about the payments, their perceived value to physicians, effects of administrative procedures on the ease of receiving them, and concerns about the risk of audits. Because Medicare carriers administered the bonus payments, policies and procedures for informing physicians, administering payment requests, and auditing the appropriateness of payments could vary widely across regions. More information is needed on these factors to better understand the operational aspects of the bonus payment program as well as the views of physicians on incentive structures that might be relevant and useful to them. Strengths of the bonus program. On the other hand, we found some evidence that this program has supported primary care providers and services and, possibly, improved services for rural beneficiaries. More than half of bonus payments went to primary care physicians, and payments for primary care services increased 25 percent between 1992 and In addition, a relatively substantial 10 percent of the bonus payments were for services to nonmetropolitan beneficiaries residing outside HPSA boundaries, thus reaching a larger population than just those residing in the underserved areas. Add to this percentage any beneficiaries residing in the non-hpsa portion of counties with partial-county HPSAs who used services provided in the HPSA portion for which bonus payments were paid (which were included in our data for the percentage for partial-county HPSAs because we did not have data on the boundaries for the partial-county HPSAs). Upcoming revision. Another factor that will affect Medicare bonus payments in the future is the upcoming revision to the rules for designating HPSAs. In response to requirements in the Health Centers Consolidation Act of 1996, HRSA is revising the criteria and procedures for designating HPSAs, with plans to publish a revised proposed rule in the near future. In an early HRSA analysis of the impact of potential changes to HPSA designations, an estimated 50 percent of rural counties with a full-hpsa designation would lose that designation. 17 Changes to the HPSA definition could greatly affect the amounts and geographic distribution of bonus payments. Pending legislation. Legislation pending in Congress may alter the bonus payment program. One bill proposes increasing the bonus payment from 10 percent to 20 percent. 18 However, it is not possible to predict whether physicians will view this increase as financially useful to them. We might survey physicians to estimate behavior change, but planned responses often differ from actions taken. We will only know the true effect of a 20 percent bonus payment if the change is implemented HEALTH AFFAIRS ~ Volume 22, Number 4 177

6 Health Tracking and the effect is observed over time. If a 20 percent bonus payment is not effective, it will not increase Medicare costs; if it is effective, it could improve care in underserved areas. Our findings suggest that careful policy consideration should be given to the future and design of the Medicare Payment Incentive Program, which does not appear to have met its goal of providing rural physicians with useful financial incentives. To the extent that the bonus payment program can provide meaningful incentives for physicians to practice in underserved areas, it could have an important effect on Medicare beneficiaries access to health care services. This work was supported by a contract from the Centers for Medicare and Medicaid Services (CMS). The authors thank project officer William Buczko for his close involvement with this research. They also acknowledge Scott Ashwood for programming and analysis assistance and Elizabeth Sloss and Barbara Wynn for helpful comments. An earlier version of this paper was presented at the 2001 Annual Research Meeting of AcademyHealth in Atlanta. The views expressed in this paper are those of the authors and not necessarily those of the CMS. NOTES 1. Physician Payment Review Commission, Increasing the Availability of Health Professionals in Shortage Areas, in Annual Report to Congress (Washington: PPRC, 1992), chap. 5, ; and H.K. Rabinowitz et al., Demographic, Educational, and Economic Factors Related to Recruitment and Retention of Physicians in Rural Pennsylvania, Journal of Rural Health (Spring 1999): PPRC, Improving Access to Health Services in Rural Areas, in Annual Report to Congress (Washington: PPRC, 1991), chap. 17, T.C. Ricketts et al., How Many Rural Doctors Do We Have? Journal of Rural Health (Summer 2000): P.L , sec. 4043, 101 Stat. 1330, [42 U.S. Code 1395(m)]. 5. Omnibus Budget Reconciliation Act of 1989, P.L , sec. 6102(c)(1), 103 Stat. 2106, D.O. Farley et al., Trends in Special Medicare Payments and Service Utilization for Rural Areas in the 1990s, RAND MR-1595-CMS (Santa Monica, Calif.: RAND, 2002). 7. North Carolina Rural Health Research and Policy Analysis Center, Mapping Rural Health, Health Resources and Services Administration Cooperative Agreement no. CSURC (1998). 8. Centers for Medicare and Medicaid Services, Carriers Manual, Part 3, Chapter III, cms.hhs.gov/ manuals/14_car/3b3000.asp (21 April 2003). 9. The professional component is the physician work component of a bill. For example, the physician s review of an x-ray is the professional component, while the technical component includes charges for taking the x-ray. 10. HPSA designations were available in the ARF for 1993, 1995, 1996, and The 1993 HPSA designations were used with the 1992 and 1994 claims, the 1996 designations were used with the 1996 claims, and the 1997 designations were used with the 1998 claims. Additional details are given in the full study report. See Farley et al., Trends in Special Medicare Payments and Service Utilization for Rural Areas in the 1990s, In 1991 two bills were introduced in the Senate to extend bonus payments to nonphysician providers services (102d Congress, S. 2103, S.2104). Neither bill passed. 12. Omnibus Budget Reconciliation Act of 1987 (P.L ). 13. American Medical Association, Physicians Current Procedure Terminology (Chicago: AMA, 1997). 14. Somewhat less than 1 percent of the claims with a bonus payment modifier were coded for services provided in urban HPSAs for urban beneficiaries. These payments are included in the total amounts examined in the analyses. 15. These dollar amounts have not been adjusted for inflation. 16. Informal communication with CMS staff, 12 March L.J. Goldsmith and T.C. Ricketts, Proposed Changes to Designations of Medically Underserved Populations and Health Professional Shortage Areas: Effects on Rural Areas, Journal of Rural Health (Winter 1999): S. 2914, 107th Congress. 178 July/August 2003