Montana Administrative Register Notice 37-541 No. 16   08/25/2011    
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BEFORE THE Department of Public

health and human services of the



In the matter of the amendment of ARM 37.85.212 and 37.86.105 pertaining to the resource based relative value scale (RBRVS) and the reimbursement for physician administered drugs








TO:  All Concerned Persons


            1.  On May 26, 2011, the Department of Public Health and Human Services published MAR Notice No. 37-541 pertaining to the public hearing on the proposed amendment of the above-stated rules at page 865 of the 2011 Montana Administrative Register, Issue Number 10.  On July 14, 2011, the Department of Public Health and Human Services published MAR Notice No. 37-541 pertaining to the amended notice of public hearing and extension of comment period of the above-stated rules at page 1287 of the 2011 Montana Administrative Register, Issue Number 13.


            2.  The department has amended the above-stated rules as proposed.


            3.  The department has thoroughly considered the comments and testimony received.  A summary of the comments received and the department's responses are as follows:


Comment #1:  Senator Jason Priest, Senator Mary Caferro, and hospital representatives commented that all physicians, at a minimum, should be paid the same Medicaid rates they received in 2010.


Response #1:  Section 53-6-124(7), (MCA), defines the resource based relative value scale (RBRVS) to mean the Medicare resource based relative value scale contained in the physician's Medicare fee schedule adopted by the Centers for Medicare and Medicaid Services (CMS) of the U.S. Department of Health and Human Services.  Senate Bill 241 (SB241) did not change the definition of RBRVS.

 The RBRVS system is used nationwide by most health plans, including Medicare and most state Medicaid programs.  The system was developed for Medicare by CMS and the American Medical Association (AMA) and implemented in 1992.  In 1997 the Montana Department of Public Health and Human Services (the department) adopted an RBRVS based fee schedule as the basis for Montana Medicaid's payment for almost all services provided to Montana Medicaid clients by physicians, mid-level practitioners, therapists, and other individual practitioners.  Montana Medicaid has used an RBRVS system to calculate provider rates since 1997.

 The relative value unit (RVU) component of the RBRVS system is revised annually by CMS and the AMA.  The RVUs for 2011 were adopted by CMS at 75 Federal Register 228, 73504 on November 29, 2010 and corrected at 76 Federal Register 7, 1670 on January 11, 2011.  An RVU is a numerical value assigned to every medical procedure based on its relative value in relation to other medical services.  There are thousands of medical procedures identified by current procedural terminology (CPT) codes.  RVUs are added for new procedures and the RVUs for existing medical procedures may increase or decrease from year to year.  The department annually proposes to amend ARM 37.85.212(1)(i) to adopt CMS' and the AMA's current RVUs.

 The RBRVS system for setting rates uses the following formula to set a reimbursement rate for a medical procedure:

               RVU * Conversion Factor * Policy Adjuster (if any) = Reimbursement rate

 The department annually calculates conversion factors for allied services, mental health services, and anesthesia services.  These conversion factors are calculated by dividing the Montana Legislature's appropriation for Medicaid clients' health care during the upcoming State Fiscal Year (SFY) by the estimated total units of health care, expressed as total RVUs paid, to be provided during the upcoming SFY.  The resulting quotient is the conversion factor.  The conversion factor for licensed physicians is described in 53-6-124 and 53-6-125, MCA.

 The new language of 53-4-125(2)(a), MCA enacted by the Legislature in SB241 is: "For state fiscal years 2011 through 2013, the conversion factor is $40.09. The conversion factor may be adjusted by the department in order to maintain reimbursement, at a minimum, at the fiscal year 2010 reimbursement rate." (Emphasis added).  This language does not require that every physician be paid the same fee for a procedure as was paid in SFY 2010.  It requires that the reimbursement rate in the aggregate be maintained at the 2010 reimbursement rate.

The 62nd session of the Montana Legislature in House Bill 2 (HB2) appropriated the Medicaid program the same amount for physician services in SFY 2012 that it appropriated in SFY 2010 with an adjustment for increased caseload only.  The Legislature intended in the aggregate to reimburse physicians the same amount of money in SFY 2012 that Montana Medicaid paid in SFY 2010.

 The medical procedures identified in RBRVS fee schedules are not static.  As explained above, the RBRVS schedule is modified every year to take into account new medical procedures and to implement changes in the relative value units of one procedure in relation to other procedures.  The RBRVS system provides a method for a U.S. health care plan to calculate the reimbursement it will pay for medical procedures during a year in the aggregate.  Like other health care plans, the department annually determines Montana Medicaid's RBRVS reimbursement rate in the aggregate.  If the department were required to use the RBRVS system to accomplish two goals - one, calculate the 2012 reimbursement rate in aggregate at the 2010 appropriation level and two, maintain each fee in the schedule at a level no lower than the 2010 fee - it would have to disregard new procedures and changes in RVUs for procedures and maintain the 2010 Medicare RVU scale.  Using the 2010 Medicare RVUs scale in SFY 2012 would result in inaccurate fees that would be out of compliance with the definition of "resource based relative value scale" at 53-6-124(7), MCA.

 The new statute specifically refers to reimbursement in the aggregate "at the fiscal year 2010 reimbursement rate", not to individual fees for a particular procedure.

 The department believes that the approach proposed in this rule meets the intent of SB241 to not lower reimbursement from 2010, while continuing to also meet the intent of the remaining portions of the MCA by keeping the Medicare RBRVS in place.  While this approach will pay some individual services and provides an amount that is less than or more than what was paid historically, the department has made every effort to assure that the aggregate payments will remain the same for physicians.

 Comment #2:  Hospital representatives commented that SB241 does not direct the department to separate or differentiate between services provided by physicians who are hospital based (hereafter "facility-based providers") and physicians who are office based (hereafter "non-facility-based providers").  SB241 states that the conversion factor may be adjusted by the department in order to maintain reimbursement, at a minimum, at the SFY 2010 rate.  The comment suggests this statement specifically and clearly indicates the legislative intent that all physicians should be treated the same, regardless of facility or non-facility-provider status. The commenter also commented that all physicians should, at a minimum, be paid at the same Medicaid rate they received in 2010.  The commenter states that while Medicaid is moving to the 2011 RBRVS schedule, several other payers like Blue Cross-Blue Shield of Montana and Allegiance Benefit Plan Management will remain on the 2010 schedule, creating an administrative burden for hospitals to manage two payment schedules.

 Response #2:  ARM 37.85.212 is necessary not only to implement the legislative action taken in SB241, but also to implement annual rate changes required by 53-6-124 through 127, MCA.  Section 53-6-124(7), MCA defines the RBRVS to mean the Medicare resource based relative value scale contained in the physician's Medicare fee schedule adopted by the CMS.

 Since 1997, Montana Medicaid has used the RBRVS system as a basis for paying most physician and midlevel services and updates the RVUs annually to provide consistency for providers enrolled with Medicaid.  In 2003, the department recognized Medicare provider-based entities and adopted enhanced payments to hospitals for provider-based physicians (hereafter "provider-based clinic providers"). RBRVS has always differentiated payments for providers based on the place the service is provided by delineating separate and distinct rates for services provided in an office or facility setting.  Payment for services provided in an office setting normally represent total payment for physicians' work (physician time, difficulty, judgment, and technical skill), practice expense (office overhead, ancillary personnel, and supplies), as well as malpractice insurance RVUs.  Facility-based provider payments are normally lower because the hospital receives a separate payment for practice expenses.  The RBRVS method was designed to address practice costs in office and facility settings.

 In 2010, CMS began using different practice expense data to calculate the RVUs.  The new data from the physician practice information survey resulted in significant changes to the practice expense values for many services.  For Montana Medicaid to maintain aggregate payment levels for physician services at the same level as 2010, the Montana conversion factor was adjusted to reflect the overall increase to physician practice expenses and maintain payments within the appropriated amount.  In order to minimize the impact of the significant changes to practice expense, the department chose to follow Medicare policy to transition these changes over a four- year period, phasing in the impact from 2010 through 2013.

 Comment #3:  Hospital representatives commented that the action taken by the department in this rule treats facility-based providers differently from non-facility- based providers and creates a bifurcated system that is bad public policy.

 Response #3:  Non-facility-based providers do receive a higher reimbursement for their physician services.  However, they do not receive a second facility payment.  Facility-based providers receive two payments,-a service payment and a facility payment.  This reimbursement differential has been in place for many years.  Beginning seven years ago, the department also adopted provider-based reimbursement methodology.  This method was adopted to increase reimbursement for services performed in a provider-based clinic and provide a guaranteed level of access to services.  Elimination of this differentiation would lower total reimbursement to facility-based providers, creating a larger disparity in the reimbursement received for services performed at provider-based clinics.

 Comment #4:  A representative of the Association of Montana Health Care Providers (MHA) and hospital representatives commented that they are concerned that the department has failed to recognize the nationwide trend of physicians migrating from non-facility-based practice to facility-based practice.  A large portion of the overall decline in reimbursement comes from providers shifting to the facility setting.  It is unlikely that Montana will experience a flat Medicaid utilization level given the requirements specified under the health care reform regulations.

 Response #4:  The department recognizes the national trend of physicians migrating to facility-based employment and also recognizes that any savings in the physician reimbursement resulting from this shift will be offset by increases in reimbursement to facilities for their facility payment.  The department calculated its model based on historical claims data that specifically address changes in the conversion factor and RVUs, and eliminates caseload adjustments from the calculation of the conversion factor.  The department does not believe utilization will be flat.  Increases related to changes in utilization are not included in RBRVS modeling as they integrate variability into the calculation of a budget-neutral conversion factor.  Caseload adjustments are budgeted separately.

 Comment #5:  A representative of MHA and hospital representatives commented that the proposed fee schedule adversely impacts facility-based providers due to a decrease in the RVUs for practice expense in facility settings.  The department should adopt one or more strategies to mitigate these changes.

 Response #5:  Section 53-6-125, MCA requires the department to use the RBRVS system adopted by CMS.  The RBRVS system has separate fees for services performed in the facility and nonfacility settings.  The cause of the change is a change in the practice expense component of RVUs.  Montana Medicaid and other health plans do not determine how hospitals respond to the change in RVUs or how hospitals determine the compensation of their employees.

 Concerns regarding inequities of fees that may occur based on the facility or office setting may be directed to CMS.  However, the department addressed this inequity when it adopted the concept of provider-based clinics several years ago.  Provider- based clinics are not a required service of Medicaid agencies and most states have not adopted this concept.  Services performed in provider-based clinics are allowed an additional facility payment, and in aggregate act to enhance reimbursement for services performed there.  No other funding is available at this time to further enhance fees for services performed in a facility setting.

 Comment #6:  A hospital representative commented that administering two fee schedules will be burdensome for providers.

 Response #6:  The department understands that this burden will be in place, regardless of the department action, due to the need to administer fee schedules for Medicare and other insurers.

 The department believes updating RVUs annually maintains the accuracy and defensibility of this reimbursement system.  This reimbursement system allows the department to react to changes in the health care system and is a useful tool in assuring that rates do not become outdated and obsolete.  Without this capability, the system would not be able to reflect changes in technology and innovation, obsolescence of certain activities, and correction and balancing necessary to maintain pace with advances in medicine.  The department believes that primary care services have been historically undervalued in the system and is encouraged to see that the value of these services is being recognized relative to the value of other services.  The department further believes that changes occurring to the relative values are changes in the right direction and represent appropriate health policy for Medicaid.

 Comment #7:  A representative of MHA commented that the department should adopt a policy modification to smooth transition of this change.

 Response #7:  The department agrees with this comment and has implemented a four-year transition period.  This transition was initiated in 2010 and will continue through 2013, blending the impact of the practice expense changes at 25% per year over this period.

 Comment #8:  A hospital representative requested that the department undertake a fiscal impact analysis for the five largest hospitals in Montana providing services to Medicaid eligible individuals.

 Response #8:  The department explained the analysis and rate-setting model to interested associations and their members and agreed to consider revisions to its model and recalculate rates based on input received through these discussions.  The department provided necessary data to providers so that individual providers could perform their own analysis.  Completing specific analysis for some providers without making the same analysis available to all would not be equitable.  Given the large number of providers in this group, the department made every reasonable effort to provide data necessary for each provider to evaluate and perform individual analysis without differential treatment between independent and facility-based providers.

 Comment #9:  A hospital representative questioned the reasonable necessity for the department to implement these provider rate reductions.

 Response #9:  Provider rates will be reduced for allied service and mental health service providers only, due to provider rate increases that went into effect in fiscal year (FY) 2010, were held constant in FY 2011, and were paid for with one-time-only (OTO) funding appropriated by the 61st Legislative session in 2009.  This OTO funding was not included in the base budget for FY 2012 and the funds were not appropriated by the 62nd Legislative session in 2011.  The net result is a funding decrease of approximately 2% for allied service and mental health service providers.  Failure to reduce these providers' fees will overspend the Medicaid appropriation.

 Physician service and anesthesia service providers will not receive a payment reduction because they did not receive this 2% OTO payment increase in SFY 2010 or SFY 2011.  Physician service providers received a 6% increase in conversion factor in SFY 2010.  The increase, coupled with changes in RVUs and policy adjustors, equated to a 12.7% increase to rates in aggregate for physician providers. 

 Comment #10:  A representative from MHA and hospital representatives commented that the proposed fee schedule will underspend appropriations.

 Response #10:  Fees for physician and anesthesia services are to remain at SFY 2010 levels.  Allied and mental health services fees are reduced by 2% due to the loss of one-time funding sources.  The department remodeled its claims data for the proposed SFY 2012 fee schedule and determined the conversion factors for physicians and mental health services can be increased slightly from that published in the first notice.  This change is reflected in the final rule.

 Comment #11:  A hospital representative commented that the proposed fee schedule will reduce aggregate Medicaid physician reimbursement for a particular facility significantly more than the 2% the department estimates.

 Response #11:  The department proposes to reduce reimbursement to allied and mental health providers by 2% and to keep physician and anesthesia reimbursement at SFY 2010 levels.  The reimbursement to a particular facility will be influenced by practice patterns and changes to RVUs.  These changes are budget neutral when reviewed for all physician providers.

 Comment #12:  The Montana Medical Association commented that RBRVs system establishes specific rates for facility-based and non-facility based providers. The AMA opposes a policy adjustor to equalize the rates.

 Response #12:  The department agrees with the commenter.

 Comment #13:  A Montana Children's Initiative representative objected to section 4 of the Notice of Public Hearing on Proposed Amendment, Statement of Reasonable Necessity, and the department rationale that the impact of the rate changes on efficiency, economy, quality of care, and access to Medicaid services were considered and the department concluded that the rates are still sufficient to meet the requirements of 42 USC 1396a(a)(30)(A).  The commenter requested the department to provide the process and results of this consideration.

 Response #13:  Montana Medicaid fees were compared with Medicare and surrounding states' fees.  Montana Medicaid fees were found to be comparable and reasonable.

 Comment #14:  Senators Priest and Caferro and hospital representatives commented that the proposed rule changes do not comply with the intent or the plain language of SB241.  They state that the legislative intent of SB241 is for all physicians to be treated the same, regardless of employment status, and that all physicians should at a minimum be paid the same Medicaid rates they received in SFY 2010.  They request that the department explain what ambiguity exists in SB241 and what authority the department has to set rates that may vary from SFY 2010 rates.

 Response #14:  The department reviewed SB241 and believes the proposed amendment conforms to the requirements of the bill.  The department has the same level of appropriations for physician RBRVS reimbursement as in SFY 2010.  There have always been differentiating reimbursement levels for RBRVS providers practicing in facility and non-facility settings.  Fees for facility-based providers will generally be less than non-facility based providers.  A provider practicing in an office setting will receive reimbursement for one claim.  This claim must capture all expenses incurred in the office setting.  Providers practicing in a facility setting will submit separate claims for professional charges and facility expenses resulting in two claim forms and two payments.

 The new language of 53-6-125(2)(a), MCA, states:  "For state fiscal years 2011 through 2013, the conversion factor is $40.09.  The conversion factor may be adjusted by the department in order to maintain reimbursement, at a minimum, at the fiscal year 2010 reimbursement rate".  This language must be read in conjunction with the definitions in 53-6-124, MCA, including the definition for resource based relative value scale, and 53-6-113(3), MCA.

 The Legislature has established a system for setting Medicaid rates.  The intent of the statute is to set the rates for all services, including physician services.  Physician services are based on the RBRVS system and the factors listed in 53-6-113(3), MCA.  The department has implemented the new language of SB241 to be consistent with all the provisions of Title 53, chapter 6 adopted by the Legislature.

 Comment #15:  A Montana Children's Initiative representative commented that the Medicaid Mental Health and Mental Health Services Plan fee schedules were inaccurate and said the department should conduct a second hearing and allow additional time for comment.

 Response #15:  The Medicaid Mental Health and Mental Health Services Plan fee schedule was inaccurate and has been corrected.  Those fee schedules were not proposed as part of ARM 37.85.212 which are RBRVSs fee schedules.  The erroneous fee schedules were published as an amendment to ARM 37.87.901 in MAR Notice 37-543.  The department conducted a second hearing on the Medicaid Mental Health and Mental Health Services Plan fee schedules and allowed additional time for comment.

 Comment #16:  The Children's, Families, Health, and Human Services Interim Committee, by letter dated June 22, 2011, requested that the department schedule a second hearing and extend the comment period on ARM 37.85.212.

 Response #16:  The department complied with the request of the committee.  Two public hearings were held on the proposed rule change and public comments were accepted through July 25, 2011.


/s/ John Koch                                     /s/ Laurie G. Lamson for                              

Rule Reviewer                                               Anna Whiting Sorrell, Director

                                                                        Public Health and Human Services



Certified to the Secretary of State August 15, 2011




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