Tuesday, August 4, 2020

CMS New Rules: RVU System Facing Digital Health / iRhythm


Administration Promotes Digital Health

The Trump administration is very strong on innovation and digital health, right up to the last couple weeks, with a piece by Seema Verma in Health Affairs in July emphasizing the agency's rapid pivot to DHealth under COVID (here; news article here.)   In releasing annual summer rulemaking for the physician fee schedule on August 3 (here), the agency emphasized its commitment to ongoing expansion of telehealth (here). (FN1)

How to Price Complex Digital Health Services In a Bottom-Up RVU World

Lost in the weeds is how to price advanced digital health services.   Services that look like E&M visits (e.g. 20 minute encounters with a physician) are being priced at parity to the E&M service currently.  But what about the digital health frontier?   CMS prices physician (e.g. outpatient non hospital) fee schedule services based on a few simple inputs - physician time, clinical staff time, supplies/disposables, capital equipment prorated by the minute, and some extra proportion for overhead (rent, billing staff).   The regulations for this are very simple, at 42 CFR 410.22 (here).  However, as in real-world accounting, you quickly run into situations that don't fit the rules, or lead to dilemmas, or break new ground.   In particular, supply and capital equipment prices are based on open public market prices, so if a service is based on proprietary equipment, expertise, and software, it's hard for CMS to value.   CMS has huge databases of supply and equipment prices, and a couple years ago commissioned a huge survey by a large consultancy to verify and raise and lower is catalog of prices.[FN2]  

RVU Simple Case Study

Here's how it works, with simplified and fictional numbers.  Let's say an MRI scanner costs $600,000, and lasts 5 years and is used 2000 hours a year.  So CMS divides $600,000 by 10,000 hours and gets $60 per hour amortized cost, and if a MRI scan takes 0.5 hr, that's $30 for capital equipment.  Add 45 minutes for technician time at $40 an hour, and it's $30.  Add 1 RVU of physician time (typically circa 20 minutes) for $35 and you've got $95 before layering on top an allotment for indirect cost/overhead based on standard percents for them.  

RVU Conventions In Collision with Digital Reality 

Now let's say you've got a huge investment in proprietary computers, a huge amount of proprietary software, years of R&D research in I.T. and equipment development, manufacturing costs.  There's no way to fit that into the RVU system of physician time, nurse time, disposables, and public capital equipment like an MRI scanner.    Said differently, if you've got $2M in nurse and clinical technician costs, CMS can allocate that in minutes of clinical staff time.   If you've got $2M in software, software engineers, patent attorneys, CMS views it as "overhead" and will value it as the same rate as office overhead, which is typically a billing clerk and a potted tree.  

I think part of the dilemma is a CMS (and perhaps RUC) assumption that we have an elaborate set of rules for pricing things in the RVU/physician world, so we can make the same rules work in a computer-based world.  I don't think that's the case.  I think as the rules migrate from one economic situation to another, the rules may simply fail to fit and work.   For example, in accounting, you have very different rules for financial accounting, tax accounting, cost accounting, and other systems.  It's not one size fits all. [FN3]  Another part of the dilemma is that CMS aims to pay "costs" such as for a physician office, but an innovative medtech or pharma company will have "costs" or "COGS" as only about 20%-25% of total costs (this is true for iRhythm), so it's difficult to show that "costs" add up to the market price of the product.

Irhythm, ZIO Patch, New CPT Codes, RVU Pricing

In pages 274-279 of the inspection copy (typescript) of the CY2021 PFS rule, see the discussion of pricing the ZIO patch, a 7-10 day wearable cardiac rhythm monitoring system.  I've put the relevant pages in the cloud here.

First, the good news.  CMS seems to have handled pricing pretty well for ZIO and iRhythm, with the stock price popping overnight from $129 to $170 (+30%) - the company has a market cap of $4.4B.  See a trade journal article about the new ZIO price proposal here.

However, you can also see in the cloud pages that CMS had difficulty with some aspects of ZIO pricing, including the price of the ZIO device.  CMS engages in some fancy footwork - saying that it doesn't want to accept "clinical invoices" but must have "commercial invoices" (part of the cryptic unwritten rules system that govern nuances of RVU pricing.)  I would think they normally they get "clinical invoices" such as when doctors purchase supplies and equipment.   The whole point is there isn't any factory with a public website selling ZIO patches, they are custom manufactured under a closed-end contract.   CMS declined to enter a permanent market price for the device (SD339, extended external ECG patch) as they "didn't receive a traditional invoice."  Provisionally, they propose to use the "crosswalk" price of a $414 device (neuro stimulation test kit $414, SA022). 

There's also a somewhat cryptic discussion of "typical" and "average" use cases.  

CMS accepts comment on its plans for 60 days.  

AMA CPT Upgrades All the ECG Remote Monitoring Codes

Those who track AMA CPT meeting agendas may recall that AMA CPT did a big revision of the ECG monitoring codes in September 2019, which will be published in the January 2021 AMA CPT code book which appears around September 2020.   

In order to discuss pricing, CMS lists the titles of all the new codes, the first time they've been openly published for the public to see them.  (For example, there's "93XX6 (External electrocardiographic recording for more than 7 days up to 15 days by continuous rhythm recording and storage; scanning analysis with report)" and a number of additional new codes in this code set.


While this blog focuses only on CMS pricing for digital health services in RVUs, there is also an example on the OPPS fee schedule.  

The Heartflow company went through a several year battle trying to enroll in Medicare at all (see legal cases, here).   Then, after getting a CPT Category III code, CMS was forced to classify them in its APC payment system for outpatient hospital services.  In 2019, they were paid at a $1500 rate, based on invoices provided to CMS in 2018.  In 2019 rulemaking, when a few hospital claims were available, CMS dropped the rate to $950 for fees in CY2020.   Now, in August 2020, CMS newly proposes to drop the rate further to $850 based on analysis of the value of 2,800 paid claims on file.  See 85 Fed Reg 48833-4, August 12, 2020.  Here.


FN1.  In the inspection copy of the August 3, 2020, PFS rule, see discussion of telehealth expansion and legal approaches to carry this out, p. 86ff.  

In the RVU world, CMS got a lot of authority and money for surveying RVU pricing in PAMA Section 220.   See  summer 2018  rulemaking for CY2019 which introduced a massive, four year price transition; CMS press release here.  It's called the Market-Based Supply and Equipment Pricing with 4 Year Transition policy, and involved surveys of 2000 prices. My blog from 2018 here.]  

In DME rulemaking in summer 2019, CMS proposed creating a panel of DME experts to advise it on DME equipment pricing.  CMS discussed this idea at some length but didn't act on it yet.   

In the lab world, CMS does have a standing body of experts that advise on the pricing of each new code in an annual summer meeting (here).

For a 2016 book on the RUC by a health policy professor, see Fixing Medical Prices (here).

FN3.  On the theme of different accounting systems, see the 2017 book, Capitalism without Capital here.