Medicare Fees on the Rise in 1999

from the National Psychologist, 1998, Volume 8 Number 1.

By Paula Hartman-Stein, Ph.D.


Finally, some good news!

The slide in pay for psychologists has stopped – at least for providers who perform psychotherapy with Medicare patients under fee-for-service plans.

The increases, beginning in 1999, will be 7 to 9%, according to the Health Care Financing Administration (HCFA).

HCFA recently completed a review of work values for medical services reimbursement under the Medicare system. In comparing the family of codes most used by psychologist, "We fared best," said James Georgoulakis, Ph.D, APA’s representative to the Resource Value Update Committee (RUC).

Based on the committee’s recommendation, HCFA has assigned greater "work values" for some mental health service codes. These will result in 7 to 9 % increases for psychotherapy with outpatients. Slightly lower reimbursement will apply for therapy performed with hospital and nursing home patients. However, allowable fees for these services are already higher compared to outpatient therapy.

Although allowed fees vary from region to region because of differences in overhead and malpractice costs, an example using Ohio and West Virginia’s amounts illustrates the increase. In 1998, the participating fee schedule amount for an hour of psychotherapy for an outpatient was $79.54, and in 1999, the amount is $86.74. A controversy exists regarding the percentage for which Medicare will pay. For medical services, the reimbursement rate is 80% of the schedule amount, while for psychotherapy services Medicare reimburses 50% of the allowed rate. The provider agrees to make an attempt to collect the balance of the allowed fees from the patient. Although many co-insurances will pay at least a percentage of the balance, state Medicaid payments are at a lower rate than most private secondary insurances.

Medicare fees are predicated on the Resource Based Relative Value Scale (RBRVS) system originally developed by William Hsiao, Ph.D. of Harvard University School of Public Health. In 1992, the Harvard researchers formed a Technical Consulting Group of seven psychologists to help explain characteristics of psychology practice.

After the original work was completed, a committee with representatives from psychology, psychiatry and social work convened periodically to update work values. Georgoulakis explains that the increase in psychotherapy fees reflects that "the work we do in comparison to other medical services is valued more now. In 1999, we have the highest work values since the inception of the system in 1992." The Nov. 16, 1998 issue of the American Medical News reports that physician fees overall will increase an average of 2.3% in 1999. Physicians and psychologists are paid the same for psychotherapy services in the physician fee schedule.

Payment for all medical and psychological services under the Medicare system are based on a statistically-derived factor, a multiplier of $34.73 (also known as a conversion factor,) plus the relative value units of work, expense of malpractice insurance and overhead costs. In 1999, the conversion factor decreased by nearly $2. If work values had remained constant, the fees would have decreased this year. The value of work is determined by three factors which are technical skill and physical effort, mental effort and judgement, and stress associated with risk to the patient or others.


Psychotherapy with medication management, testing pays less

To the chagrin of psychiatrists, medication management of psychiatric disorders now has a lower work value than does psychotherapy. The Resource Value Update Committee determined that psychotherapy requires a higher skill level than does reviewing medications. "This may become another major fight with psychiatry," speculated Georgoulakis.

While psychotherapy fees will see an increase, all psychological testing fees will be decreased slightly. To date, HCFA has not yet assigned any work values to these codes, a skirmish which has persisted since 1992.

The fees practitioners receive for these services are based only on the conversion factor plus malpractice and overhead costs. Since the conversion factor decreased from the 1998 amount, the allowed total for these services has been impacted negatively. Georgoulakis believes that psychologists "shot themselves in the foot" by having extenders perform psychological testing. He explained that it is difficult to assign work values for the professional component of this service when lesser trained professionals have been used to perform the technical part of such services.

As a result of a congressional mandate, physicians’ fees under the Medicare system finished a five-year review in June 1998. Georgoulakis believes that work values will not change significantly during the foreseeable future.


Continued fee increases unlikely

Although psychologists will benefit in 1999 from the increase in work values assigned to therapy codes, fees for psychological services in the future are likely to drop, Georgoulakis believes. The reason: The conversion factor will drop as more people utilize Medicare services within the constraints of a limited federal budget.

The ever-growing number of eligible Medicare beneficiaries combined with an influx of new medical providers result in a sizable increase in annual Medicare expenditure. In 1999, many health maintenance organizations (HMOs) with Medicare managed care contracts have raised havoc among seniors by dropping out of the program.


Published in the Jan./ Feb. 1999 issue of the National Psychologist.

Other articles by Dr. Hartman-Stein published in the National Psychologist are available here.

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