HCA Holdings 2011 Annual Report Download - page 14

Physician Services
Physician services are reimbursed under the physician fee schedule (“PFS”) system, under which CMS has
assigned a national relative value unit (“RVU”) to most medical procedures and services that reflects the various
resources required by a physician to provide the services relative to all other services. Each RVU is calculated
based on a combination of work required in terms of time and intensity of effort for the service, practice expense
(overhead) attributable to the service and malpractice insurance expense attributable to the service. These three
elements are each modified by a geographic adjustment factor to account for local practice costs and are then
aggregated. The aggregated amount is multiplied by a conversion factor that accounts for inflation and targeted
growth in Medicare expenditures (as calculated by the sustainable growth rate (“SGR”)) to arrive at the payment
amount for each service. While RVUs for various services may change in a given year, any alterations are
required by statute to be virtually budget neutral, such that total payments made under the PFS may not differ by
more than $20 million from what payments would have been if adjustments were not made.
The PFS rates are adjusted each year, and reductions in both current and future payments are anticipated.
The SGR formula, if implemented as mandated by statute, would result in significant reductions to payments
under the PFS. Since 2003, the U.S. Congress has passed multiple legislative acts delaying application of the
SGR to the PFS. The most recent legislative delay extends calendar year 2011 payment rates through
December 31, 2012. We cannot predict whether the U.S. Congress will intervene to prevent this reduction to
payments in the future. Barring delay or repeal of the SGR by Congress, Medicare payments to physicians are
scheduled to be cut by more than 30% effective January 1, 2013.
Other
Under PPS, the payment rates are adjusted for the area differences in wage levels by a factor (“wage index”)
reflecting the relative wage level in the geographic area compared to the national average wage level. Beginning
in federal fiscal year 2007, CMS adjusted 100% of the wage index factor for occupational mix. The redistributive
impact of wage index changes, while slightly negative in the aggregate, is not anticipated to have a material
financial impact for 2012. However, the Health Reform Law requires HHS to provide Congress with
recommendations on how to comprehensively reform the Medicare wage index system.
Medicare reimburses hospitals for a portion of bad debts resulting from deductible and coinsurance amounts
that are uncollectible from Medicare beneficiaries. The Middle Class Tax Relief and Jobs Creation Act of 2012
(the “Jobs Creation Act”) reduces the percentage of bad debt amounts that Medicare reimburses from 70% to
65% beginning in federal fiscal year 2013. These reductions are intended to offset, in part, the impact of the most
recent legislative delay of the SGR reductions in physician compensation under the PFS. The U.S. Congress has
not permanently addressed the SGR reductions, and any further delays or revisions to the SGR may be offset by
additional reductions in Medicare payments to other types of providers.
As required by the MMA, CMS is implementing contractor reform whereby CMS has competitively bid the
Medicare fiscal intermediary and Medicare carrier functions to 15 Medicare Administrative Contractors
(“MACs”), which are geographically assigned and service both Part A and Part B providers within a given
jurisdiction. Although CMS has awarded initial contracts to all 15 MAC jurisdictions, full transition to the MAC
jurisdictions has been delayed due to CMS resoliciting some bids and implementing other corrective actions in
response to filed protests. While chain providers had the option of having all hospitals use one home office
MAC, HCA chose to use the MACs assigned to the geographic areas in which our hospitals are located. The
individual MAC jurisdictions are in varying phases of transition. During the transition periods and for a
potentially unforeseen period thereafter, all of these changes could impact claims processing functions and the
resulting cash flow; however, we are unable to predict the impact at this time.
Under the Recovery Audit Contractor (“RAC”) program, CMS contracts with RACs on a contingency basis
to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare
program. CMS has implemented the RAC program on a permanent, nationwide basis as required by statute.
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