The Reason Behind the Raise
By Becky Kesner

For the first time in three years, O&P received a raise. As of Jan. 1, after a three-year freeze, Medicare payments for O&P increased by 4.3 percent. 

The short-term effect means a welcome rise in your bottom line. But looking at the history behind the freeze and the effects of the raise provides some needed context. 

How did it happen?
Practitioners around in 2003 will remember the lengthy discussions Congress held on Medicare reform, ultimately leading to the three-year payment freeze that went into effect in 2004. 

In 2003, Medicare spending for O&P had grown by 35 percent over the past three years. Desiring to bring this escalation under control, Congress considered several options: a seven-year Medicare payment freeze for all non-custom fabricated orthotic devices and DME, a competitive bidding program for off-the-shelf orthotic devices and DME, or both. 

After extensive discussion with Congressional staff, who assured AOPA that at least one of these options was a certainty, AOPA reluctantly pushed for Congress to accept the competitive bidding program, as that would affect far less of O&P than a payment freeze. However, pressure from DME groups to accept the payment freeze gave Congress a mixed message, which drove it to choosing the third option. Though AOPA was able to mitigate the effects of this confusion, the ultimate outcome was a three-year payment freeze, followed by a competitive bidding program for off-the-shelf orthotic devices. 

Memories of that fight created concern last summer that Congress might extend the freeze beyond its scheduled end date of Dec. 31, 2006. 

The danger this time came from physicians. Physicians, a much larger group than O&P, were slated to receive a 5 percent cut in their Medicare payments, and their powerful lobbying presence meant that Congress wanted to avoid that cut. But to do that, Congress had to find money to cut elsewhere—and the funds could have come from O&P. 

This time, however, O&P’s voice was heard clearly. Congress prevented the physicians’ Medicare cut by voting to maintain their 2006 rates. And, heeding the concerns of AOPA and other O&P advocacy groups, Congress elected not to extend the current freeze on the Medicare fee schedule. It adjourned without making any changes to the Medicare O&P fee schedule, ensuring that the CPI increase would go into effect. 

What are the new fees?
The recently released 2007 fee schedule, available online at www.aopanet.org/hot_op_issues/index.php, reflects this CPI increase. While you do not have to change how you submit claims to take advantage of the raised fees, here is what you should know about what has gotten changed and what hasn’t. 

While most of the codes have received fees, some of the new codes published in last month’s issue (see “Navigate the New HCPCS Code Changes” in the January 2007 O&P Almanac) have not. Most of the new codes that have been crosswalked seem to have received the same fees (updated by 4.3 percent) that the original codes had. Entirely new codes, however, have to go through a process called gap-filling to determine a fee. 

This method starts with DME MACs gathering data from various sources, including manufacturers, private insurers who may already pay for the device, provider-submitted charges, and data from various other resources. With this information, a temporary figure is established. 

After the DME MAC determines a temporary figure for the new code, it then lowers the amount by a deflation factor until it reaches an estimate of what the allowable amount would have been in 1986/1987. This deflated amount is then recalculated based on each year’s annual update to arrive at an allowable for the current year. 

Why does this occur?
The original Medicare fee schedule for O&P, which went into effect on Jan. 1, 1989, was based on data gathered in those years. By law, Medicare is required to use 1986/1987 as its basis when determining new O&P allowables. 

In an effort to establish a fair reimbursement, CMS has implemented this deflation/inflation process to calculate the current allowable amount for new codes thatare not sufficiently similar to already existing codes. 

The new codes
Just because a new code has not been assigned a set allowable amount does not mean that the code is any less valid. If a code does not yet have an allowable amount assigned to it, you can usually still bill using the new code. (The exception is for new codes that describe services not covered by Medicare.) However, you will be reimbursed based on individual consideration. In this case, you would determine an appropriate charge based on your own company’s costs and prepare to provide documentation if necessary. AOPA will inform you through AOPA In Advance, AOPA’s electronic members-only newsletter, when fees for new codes are set. 

But the effects of the payment freeze still linger. Over the last three years, the consumer price index (CPI) —the most conservative economic indicator—has gone up by 8 percent. However, medical inflation, a measure that tracks more closely with the costs of doing business in health care, has gone up much more. 

Losing out on the CPI increase for those three years is a gap that will persist over time. Projected over 10 years, (2004-2014), the three-year O&P payment freeze (2004-2006) will result in approximately $1.1 billion in lost Medicare payments alone. Not only that, but the lost CPI increases will continue to affect how new payments are set, as explained above. 

Can another freeze happen?
So will Congress consider a payment freeze again? It’s always possible. As Democrats talk about trying to close the “doughnut hole” in Medicare’s Part D prescription drug benefit, and since physicians are scheduled for another decrease in payment for 2008, Congress will once again be looking for savings. Two things will help. 

One is for O&P to continue to have a unified voice. The O&P Alliance is a significant step toward ensuring Congress has a clear understanding of what O&P does. And the recent “Shared Vision” conference (see “A Shared Vision for O&P") is another step toward making sure that the field is involved. See that article for ways to get involved. 

The second is simply for you to understand what happens to the Medicare fee schedule every year. Without knowing how Medicare sets your fees, you won’t be able to assess the impact proposed changes might have on your business. Keep reading this column to get an education on how different policies affect your practice.

Becky Kesner is the managing editor of the O&P Almanac.