RD32 - Review of Medicaid Reimbursement of Physicians

Executive Summary:

HJR 42 and SJR 38 requested that the Joint Legislative Audit and Review Commission (JLARC) study Medicaid reimbursement of physicians. However, both resolutions were carried over in their respective Committees on Rules. The Joint Commission on Health Care (JCHC) subsequently added the study to its workplan.

In Virginia, the Medicaid system has both a fee-for-service payment system as well as a managed care program. This study focused on the fee-for-service component of Medicaid physician reimbursement.

Virginia's methodology for reimbursing physician services was developed based on Medicare's methodology which uses a resource-based relative value scale (RBRVS) system. An RBRVS system is based on the use of relative value units (RVUs). RVUs are essentially measures of resource utilization and are assigned to services billed under national coding systems.

Under the Medicare RBRVS system the amount paid for services is the product of:

• a nationally uniform relative value for each service,
• a geographic adjustment factor (GAF) for each area,
• and a nationally uniform conversion factor.

There are RVUs assigned for physician work, practice expense and malpractice expense.

Virginia's current system for physician reimbursement is essentially based on the Medicare methodology with the addition of a budget neutrality factor and the deletion of the use of geographic adjustment factors. The budget neutrality factor is approximately the percentage of Medicare that Virginia can afford to pay based on the funding that is available (currently this is 70.72% of Medicare). This methodology is used for all specialties except OB/GYN.

An Urban Institute study of 43 state Medicaid programs concluded that physician reimbursement actually declined between 1993 and 1998 as compared with the rate of inflation during that time period. Physician fees in Virginia declined for all services by 22.2 percent (without taking into account inflation). Decreases were also observed for obstetric care fees and other service fees while primary care fees increased. State Medicaid reimbursement of physician services was also lower when compared to changes in Medicare reimbursement.

JCHC staff conducted a survey of other states to determine the extent to which these states used an RBRVS system for Medicaid physician reimbursement and what their current Medicaid payments are as a percentage of Medicare. The states surveyed included Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and West Virginia. The majority of surveyed states use some form of an RBRVS methodology for calculating Medicaid physician reimbursement. When comparing 2002 Medicaid rates for physician reimbursement to those reported by the Urban Institute study in 1998, you find that: four states (including Virginia) experienced a decrease, four states experienced an increase, and four states did not have data available for one or both years.

JCHC staff discussed Medicaid physician reimbursement with provider groups and their representatives. These groups expressed concerns about reimbursement that included the following: rates are too low, low rates will eventually lead to access issues for specialists, providers who see a large percentage of Medicaid patients are at a disadvantage, and specialties in general do not fare well under an RBRVS system in comparison to preventive services.

Actions Taken by ICHC

JCHC staff developed seven policy options to address concerns about Medicaid reimbursement of physician services. The policy options that increase reimbursement rates would have substantial costs. The policy options are listed on pages 25-26. A summary of public comments received regarding the proposed options are included in Appendix B.

JCHC took the following action with regard to the policy Options:

• JCHC voted to accept Option V, to include further study and analysis of issues related to Medicaid physician reimbursement in the Joint Commission's 2003 workplan.