By Christopher Guadagnino, Ph.D.

IBC President G. Fred DiBona, Jr.

Published July 2001

• Market power of Pa.'s Blue Cross plans (May 2000)

• Responding to systematic reimbursement downcoding (March 2000)

• Scrutinizing episodic payment (March 2000)

• Surgeons fight Blue Cross rate cuts (August 1998)

• React to this article in the Discussion Forum.

Philadelphia-area physicians, in the midst of a financially devastating malpractice insurance crisis, have been dealt good news from an unlikely source. Independence Blue Cross (IBC) announced that it is implementing fee schedule increases for most specialties in two stages—August 2001 and April 2002—and is eliminating its episode-of-care program for cardiologists and gastroenterologists, converting to fee-for-service reimbursement for those specialties on Dec. 31, 2001.

While viewing the changes as a good first step, some physicians remain critical. They say that IBC’s increases are inadequate, falling significantly short of Medicare rates, that they underpay practices relying on high-level patient visits, and that they have some strings attached.

It was only last summer that IBC Vice President for Patient Care Management Gary M. Owens, M.D., appeared before the Pa. House Insurance Committee to dispute warnings by physicians that an unfavorable practice environment fueled in part by low reimbursements was driving physicians to leave the state or retire early. Owens argued that a physician oversupply was driving up health care cost and leading to overutilization, noting that IBC’s Personal Choice PPO data revealed an eight percent increase in per-member-per-month payments to physicians from 1998 to 1999, as well as a 7.5 percent increase in patient visits during that same time period.

Among the physicians warning the committee about the negative impact of low insurer reimbursement on patient care quality, and on physician flight from the region, was then-president of the Delaware County Medical Society Mark F. Kelly, M.D., an ENT in Drexel Hill. Kelly, one year later, says he is closing his practice and leaving the area, adding that IBC’s fee changes resemble less than a cost of living increase, and that "the level of increase strengthened my decision to leave Pennsylvania."

IBC’s Changes

IBC sent a letter to physicians in May announcing its plans to implement fee schedule increases. "Despite rapidly rising health care costs," the letter’s opening paragraph reads, "We are taking this action because we are very aware, from the numerous discussions that we have had with members of the medical profession, of the impact of higher administrative and malpractice cost increases on your practice." The letter notes that the fee increases are intended to strike a balance between higher physician practice expenses and rapidly rising utilization of medical services in the region.

IBC’s announcement says that new fee schedules are being established for most specialties and practices for PPO and HMO services paid on a fee-for-service basis, with most of the changes to be phased in on anticipated target dates of August 2001 and April 2002, including:

• A 10 percent increase in fees currently below 2001 Medicare RBRVS.

• A four percent increase in fees currently above 2001 Medicare RBRVS.

• Additional increases for certain fees with RBRVS changes.

• An expanded list of office procedures qualifying for surgical tray fees.

• Conversion of the Quality Focused Cardiology and Gastroenterology Programs to fee-for-service, with an interim 10 percent increase in episode-of-care payments. (Those contact capitation programs have been in operation since 1994 and 1995, respectively.)

• An increase of five percent for primary care capitation.

• A fee-for-service payment for all vaccines.

• Revised QIPS program for primary care services.

• Changes in network participation and termination policies.

The announcement notes that, because each specialty has a different mix of procedures and each practice has a different mix of claims, the impact of the changes on a given practice may differ from the average for that specialty.

Positive Reaction

Any fee increase is welcome, particularly given IBC’s dominance approaching 50 percent of the Philadelphia area’s HMO market and 80 percent of the PPO market, and given the company’s stated recognition of the high administrative and malpractice cost increases burdening physician practices, says Dennis Olmstead, chief economist of the Pennsylvania Medical Society (PMS).

Whether IBC would consider future fee schedule increases, or whether Aetna or other insurers will announce their own, is uncertain. Both companies declined to be interviewed for this story. Olmstead notes that IBC’s market dominance—controlling about 62 percent of the overall health insurance market—makes it a driving force as to what happens next in the market. Aetna controls about 22 percent of the overall market, and would almost have to follow IBC’s rate changes to prevent physician defection from their networks, Olmstead believes.

Good news among IBC’s announced changes, says Olmstead, includes an increase to over 350 of the number of office procedures that will now be eligible for surgical tray fee enhancement, an indication that IBC recognizes the increasing number of surgical procedures moving to the outpatient setting, for which physicians have incurred surgical overhead expenses. Vaccines will also be billable separately from a flat capitation payment, for the average wholesale price plus five dollars.

IBC also said it was revising its QIPS program, a bonus payment system for primary care physicians. Olmstead says he hopes the program is revised to physicians’ advantage.

Critical Reaction

Although the PMS is precluded from conducting an in-depth analysis of IBC’s fee schedules, Olmstead says his review of sample procedure and office visit codes suggests that the increases are not enough to diffuse the crisis of rising overhead and malpractice insurance costs confronting physicians, nor the problem of physician flight from the region. The problem, he says, is that base fees from which the increases are applied are so low that even the increases are inadequate to sustain a physician practice.

According to Interstudy rankings of HMO payments to physicians in the 25 largest metropolitan statistical areas in the country, physician payment in Philadelphia is the lowest in the nation, with other low paying areas paying 10 to 20 percent more than southeastern Pa., notes Olmstead.

In contrast, Philadelphia area hospitals receive the nation’s second-highest inpatient hospital payments from HMOs, after Pittsburgh. "Physicians are subsidizing inpatient hospitals care in southeastern Pennsylvania," says Olmstead. He expects future Interstudy data to continue ranking physician payments in southeastern Pa. as lowest in the nation.

Despite fee schedule increases, the majority of procedure and office visit codes are likely to continue to be reimbursed below Medicare rates, believes Olmstead. One ob/gyn code identified by IBC as being increased significantly over IBC’s Nov. 1998 standard fee schedule—Code 58340: Catheterization for Hysterography—will still be reimbursed 61 percent below Medicare in August 2001 and 35 percent below in April 2002. Another ob/gyn procedure—Code 54150: Circumcision—will still be reimbursed 55 percent below Medicare in August and 35 percent below in April. The 2002 Medicare percentages are based on the 2001 Medicare fee schedule.

Key codes for other specialties follow a similar pattern. For example, Code 99203: Level 3 New Patient Office Visit, commonly used by primary care and specialty physicians, will still be reimbursed 44 percent below Medicare in August and 35 percent below in April, says Olmstead.

It is important to compare IBC’s rates to Medicare rates, Olmstead maintains, because Medicare at least tries to use a scientific process to determine the resources needed to deliver a given medical service. Its Resource Based Relative Value System (RBRVS) includes relative value units for work, practice and malpractice expenses for every medical service billable under Medicare, and is therefore a good indicator of what it costs a physician to actually render that service, he adds. Physicians are taking a loss on IBC patients, even with the fee schedule increases, he concludes.

One could even argue that current Medicare rates are low for Philadelphia, Olmstead adds, since its malpractice relative value unit component, which uses a three-year average of malpractice cost data, is from 1996 to 1998 in the RBRVS formula.

IBC’s fee increases may not significantly alleviate the financial crisis of the region’s orthopedic surgeons, who have been hit particularly hard by malpractice premium increases. A three-physician practice in Norristown found, based on a review of 268 procedures that made up 80 percent of its income last year, that IBC’s current reimbursement amounts to 74.2 percent of Medicare, and that the August 2001 fee schedule will take it to 77.7 percent, according to Jay Jameson, practice manager of Norristown Orthopaedic Associates Inc, and president of Bones of PA, a society comprised of some 150 orthopedic practice managers statewide.

"This increase is so minuscule, it will have no effect," says Jameson, noting that it will not be enough to cover his practice’s cost increases and, if the cost of malpractice insurance goes up as he projects, that his group may not be around in two years.

Of the 268 codes Jameson analyzed, 141 surgical and practice codes for his particular practice will see decreased reimbursement under the Aug. 2001 fee schedule, particularly codes for X-rays, he says. Jameson warns physicians to study their current fee schedules and run a cost analysis of their practice’s procedures before accepting the new IBC fee schedule.

Olmstead is not aware of any codes decreasing under IBC’s new fee schedule, but says he wouldn’t be surprised if that were happening, given that Medicare has, over the past few years, been decreasing its RVUs for surgical procedures and other codes.

Even with the payment increases, IBC’s fee schedule will continue to favor high-volume, low-intensity practices, and continue to pay poorly—i.e., well below Medicare—for higher level patient consultations and outpatient subsequent visits, thereby having a particularly negative impact on specialties that are heavily weighted toward outpatient cognitive services for complex, unusual or particularly serious problems, such as rheumatology, endocrinology, outpatient neurology, outpatient pulmonary medicine and outpatient nephrology, argues John Hansen-Flaschen, M.D., chief of the Pulmonary, Allergy and Critical Care Division at the University of Pennsylvania.

For a critical care physician like Hansen-Flaschen, Level 5 Outpatient visits, and Levels 4 and 5 Subsequent visits are common. IBC’s 1998 fee schedule (currently used) reimburses $5 more for a Level 5 over a Level 4 visit, and $15 more for a Level 5 over a Level 3 visit, a schedule that he views as having no practical difference from automatic downcoding of claims by an insurer. "Whether downcoding is achieved by code substitution or by flattening of visit level reimbursement curves, the effect on medical practice is the same," he says: physicians are encouraged to provide low- to mid-level E&M services rather than upper-level services.

A growing scarcity of physicians in those cognitive specialties has not received as much publicity as it has for orthopods, ob/gyns and neurosurgeons, says Hansen-Flaschen. He notes that his practice has considerable difficulty connecting its patients with rheumatologists and high-level neurologists. Graduating five or six pulmonary physicians per year, Penn has put only two into practice in the region over the past ten years, he adds.

Further illustrating the region’s scarcity of those specialties, Hansen-Flaschen says his practice has recently been referring patients out of the Penn Health System to find a specialist able to see them.

The problem would be greatly alleviated, Hansen-Flaschen believes, if IBC would come around to a full-scale RBRVS-based reimbursement system and eliminate the disparities built into some of its E&M code reimbursements.

Episode of Care Eliminated

IBC’s decision to jettison its HMO capitation program for gastroenterology and cardiology and replace it with fee-for-service reimbursement is a victory for patients and physicians, says C. Richard Schott, M.D., a cardiologist at Riddle Hospital in Delaware County. "We will get behind us a contact capitation system that gives doctors incentive to withhold care," he says.

Schott is quick to criticize IBC’s fee-for-service fee schedule as far below what cardiologists would consider to be a benchmark level, with most procedures remaining far below Medicare even with the 10 percent increase. He is uncertain whether overall reimbursement to his practice will increase, decrease or remain the same because the episode-of-care program reimbursed at a flat rate for 90 days of care to a patient, leaving his practice no way of knowing how much it was getting paid per service.

Some cardiology practices may see relief under the fee-for-service system. Whereas the episode-of-care program made physicians financially responsible for the technical component of diagnostic testing, practices that own nuclear and echo testing centers will now be reimbursed separately for those tests, notes Mark F. Victor, M.D., managing partner of Cardiology Consultants of Philadelphia, a 63-physician group spanning four counties. Victor’s practice is still analyzing its volume and procedure patterns to determine whether Keystone’s fee-for-service reimbursement will be a financial plus, but the nuclear and echo testing centers it owns will now be revenue-makers rather than costly overhead.

Cardiologists and gastroenterologists will initially have a favorable response to the end of episode-of-care, predicts Harris R. Clearfield, M.D., section chief of gastroenterology at Hahnemann University and president of the Philadelphia County Medical Society. "One endoscopy could eat up the entire EOC payment. If patients required hospitalization or additional therapy, the burden was on physicians," he says, adding that the surgical tray fees also help relieve some of the burden.

"However, the reimbursement rate, even with the increases over previous levels, is going to be less than is needed because managed care reimbursement in this state is dreadful. This is not the answer to our problems, but it’s a step forward," Clearfield says, noting that the medical liability crisis continues and that physicians cannot raise their rates to pass on cost increases to consumers.

Other physicians are skeptical about whether IBC will even follow through with the announced changes. "They have dealt with us unfairly at every turn. Why should I trust them now? What they say and what they do are different things," says Norman Cohen, M.D., board member of the Pennsylvania Society of Gastroenterology and part of a three-physician gastroenterology group in Delaware and Philadelphia counties. Cohen refers to the $450 payment to GIs at the episode-of-care program’s inception in 1995, which has since been ratcheted down to $230.

Cohen’s distrust is particularly poignant, given that he was on IBC’s advisory panel for the GI episode-of-care program. He notes that the panel met twice a year and members were forbidden to bring up issues of reimbursement. "We were window-dressing," he says.

Two other items in IBC’s announcement may give physicians pause for skepticism: a Medicare fee increase contingency and an all products policy revision.

The second stage of the fee schedule increase (April 2002) for IBC’s Medicare HMO and PPO is contingent upon IBC receiving a one year premium increase from Medicare of at least six percent. Olmstead believes that IBC is unlikely to obtain that level of increase, given that Philadelphia is already among the top counties in the nation for reimbursement by Medicare.

"The contingency provision is a PR maneuver by IBC to be able to show HCFA that they’ve had to put more money into their physician network," Schott argues.

To the degree that President Bush achieves his recently stated goal of doubling the nation’s enrollment of Medicare beneficiaries into HMOs in four years, adds Schott, physicians will be less able to shift their costs to patients with other forms of insurance. A sizable increase in the number of Medicare HMO patients, he maintains, would offset any gain through IBC rate increases, particularly if second-phase increases are denied. Specialties such as cardiology, he adds, rely heavily upon elderly patients. Schott says he is now considering directly petitioning his patients to leave Keystone and return to traditional Medicare coverage.

As an amendment to its all products policy, IBC is no longer prohibiting physicians from selectively dropping out of a line of products, e.g., HMO or PPO plans. There is a catch, however: if any physician in a practice decides not to participate in all of IBC’s product lines, the whole practice will revert back to the Nov. 1998 fee schedule.

Alternative Models

Not all physicians share a distrust of IBC, and one physician group has forged a novel relationship with the insurer as an alternative means to seek relief from rising administrative and malpractice premium costs.

"The double-digit rate of increase of utilization of health care services in the Philadelphia marketplace is frightening and I don’t think IBC has the financial wherewithal to solve the malpractice problem just by rate increases. Ultimately, something needs to be done about the overbedding, overutilization of services and the inefficiencies that are built into the physician marketplace," says Anthony V. Coletta, M.D., a Main Line physician and CEO of the Renaissance Health Alliance, a joint venture risk arrangement between IBC and a group of 120 primary care and 200 specialty physicians.

Started over a year ago, the joint venture’s concept was to rein in overutilization of medical resources by having IBC delegate the medical management of a population of its HMO patients to the physician group, whose primary care physicians would receive Keystone’s capitation rate plus ten percent, and whose specialists would benefit from referral patterns of influential primary care groups. IBC’s five percent capitation payment increase for its HMO would also apply to the Renaissance venture.

Having budgeted start-up losses for the first year, the venture came in $100,000 under budget and expects its patient roll to grow to 30,000 by this month, up from less than 10,000 at its inception.

Delegation of medical management to the physicians turned out to be unworkable, however, as the group found regulatory requirements for utilization review, case management and infrastructure too burdensome, says Coletta.

The group returned formal delegation of medical management back to IBC this April and is piloting alternative medical management methods, such as contracting case management nurses and implementing disease management and best practices programs, preconditioning surplus payments to physicians in return for these efforts to trim overutilization and inefficiencies, says Coletta.

"Franchising yourself with the most dominant insurer in the marketplace might be in a physician’s long term benefit," says Coletta.