REPORT OF THE BOARD OF TRUSTEES B of T Report 20 - I-04 Subject: Liability Surcharges in Physician Offices (Resolution 213, A-04) Presented by: J. James Rohack, MD, Chair Referred to: Reference Committee L (Andrew W. Gurman, MD, Chair) 1 BACKGROUND 2 3 At the 2004 Annual Meeting, Resolution 213, “Liability Surcharges in Physician Offices,” 4 introduced by the District of Columbia Delegation, asked “that our AMA study, support, and 5 develop guidelines on the issue of „liability surcharges‟ [in conjunction with patient visits at] 6 physician offices, and report back to the House of Delegates at the 2004 Interim Meeting.” The 7 House of Delegates referred the resolution to the Board after Reference Committee B expressed 8 mixed support for the resolution and recommended further development of the legal and political 9 issues presented by a surcharge. 10 11 DISCUSSION OF ISSUE 12 13 Despite mounting economic strain stemming from reduced payments and increased overhead costs, 14 physicians remain limited in their ability to pass on costs as other professionals and various sectors 15 of the economy can, due to contract and other limitations. To maintain financial viability, an 16 increasing number of physicians add surcharges to billings for services provided. Physician 17 surcharges may be designated to defray specific costs, such as medical professional liability 18 insurance (PLI) premiums or administrative work, or act as a retainer. Whatever the origin, the 19 surcharge is intended to cover non-medical services. 20 21 AMA Policy 22 23 The AMA has no Policy directed specifically at physician surcharges. However, AMA Policy H- 24 385.989, “Payment for Physician Services,” (AMA Policy Database) states, “Physicians have the 25 right to establish their fees at a level which they believe fairly reflects the costs of providing a 26 service and the value of their professional judgment.” (See also H-383.989). Two separate 27 policies, each entitled “Payment for Physicians‟ Services,” H-383.990 and H-380.992, support the 28 right of physicians to establish fair and equitable fees. 29 30 Legal Issues 31 32 Physicians considering instituting a “liability surcharge” on either privately or publicly-insured 33 patients should beware of potentially substantial legal barriers. Network service contracts between 34 physicians and private insurance carriers often prohibit physicians from levying redundant or 35 supplementary charges upon insured patients. Likewise, Medicare and Medicaid-participating B of T Report 20 - I-04 -- page 2 1 physicians are contractually obligated not to charge beneficiaries fees beyond the deductible and 2 co-insurance. 3 4 a. Privately-Insured Patients 5 6 Physicians must carefully review the terms of each of their network service contracts with private 7 payers. These contracts commonly prohibit physicians from charging insured patients for any costs 8 already reimbursed by the payer to the physician. These contracts may specify that medical 9 liability insurance costs a physician incurs are “bundled,” or included, in the payment made by the 10 payer for the physician‟s services. If medical liability insurance costs are bundled, they may not be 11 separately billable to prevent redundant patient charges. 12 13 Other contracts forbid physicians from charging patients fees “above and beyond” what the payer 14 agrees to reimburse to the physician, even if costs associated with liability coverage are not 15 specifically mentioned. 16 17 Where a contractual barrier exists, physicians will need to consider renegotiating their contract 18 with the payer to assure adequate payment for liability-related costs directly from the payer. 19 Physicians may also negotiate for the ability to spread costs by surcharging patients. 20 21 State insurance regulations complicate the issue further and need to be checked. Certain states 22 protect enrollees in particular private insurance plans from being billed for any sums beyond what 23 the insurance company pays, except for co-pays and deductibles. (See Connecticut Code § 24 381.193(c) and § 20-7f9b (2004)). 25 26 b. Publicly-Insured Patients 27 28 Medicare and Medicaid-participating physicians cannot charge publicly-insured patients for 29 services already reimbursed by Medicare or Medicaid. A recent Health and Human Services‟ 30 Office of the Inspector General (OIG) alert (OIG Alerts Physicians About Added Charges For 31 Covered Services, Mar. 31, 2004) reminded physicians that “when participating providers request 32 any other payment for covered services from Medicare patients they are liable for substantial 33 penalties and exclusion from Medicare and other Federal health care programs.” The OIG takes 34 the position that non-participating physicians could also be “subject to penalties and exclusion for 35 overcharging beneficiaries for covered services.” Because Medicare payment is determined in part 36 based on the medical liability insurance-related costs physicians pay, physicians are prohibited 37 from charging Medicare or Medicaid beneficiaries surcharges to cover premiums. 38 39 In instances where physicians are neither prohibited by contract, nor by state or federal law or 40 regulations, from assessing a liability surcharge, the advantages and disadvantages of doing so 41 must be assessed, preferably with assistance from appropriate legal counsel. 42 43 Benefits and Drawbacks of Liability Surcharges 44 45 The most obvious benefit of a liability surcharge is the cost-offset to a physician. 46 47 A physician‟s thorough explanation of the reasons behind the surcharge may also help patients 48 better understand the current medical liability crisis and the connection between costs associated 49 with litigation and the rising cost of healthcare, along with access to care issues. B of T Report 20 - I-04 -- page 3 1 2 The most obvious drawback is the potential of a surcharge to alienate patients and harm the 3 physician-patient relationship. There is also a risk that critics will point to surcharges as evidence 4 physicians care predominantly about personal pocketbook issues rather than patient concerns. 5 6 Unease about a physician‟s “undue influence” over patients lead some critics to assert that even 7 voluntarily-accepted surcharges are not truly voluntary. Others consider insurance premiums a 8 “physician issue” that should not involve patients directly. 9 10 Finally, the AMA‟s continued advocacy centered on reforming the Medicare Sustainable Growth 11 Rate (SGR) may be diluted by a coinciding campaign bringing attention to inadequate professional 12 liability insurance payments under Medicare. 13 14 Ethical Issues Surrounding Surcharges 15 16 The AMA has no express ethical guidelines regarding liability surcharges. According to existing 17 ethical policy, physicians have an obligation to support access to medical care (Principle IX of the 18 “Principles of Medical Ethics” and E-9.065). More specifically, Opinion E-6.12, “Forgiveness or 19 Waiver of Co-Insurance Payments,” states, “When a co-payment is a barrier to needed care because 20 of financial hardship, physicians should forgive or waive the co-payment.” By analogy, physicians 21 should not impose a liability surcharge if it would constitute a barrier to needed care. However, in 22 fulfilling their obligation to support access, it is not expected that physicians would compromise 23 the viability of their practice (E-10.05). 24 25 Taken together, these ethical considerations caution that liability surcharges should not be applied 26 without careful balancing of patient and physician interests. 27 28 Implementation of Surcharges 29 30 Implementation of liability surcharges should be handled with care. Physicians may find legal 31 barriers to surcharges so significant that they become impractical. To start, Medicare and Medicaid 32 patients must be exempted outright. State law restrictions should identified—along with 33 restrictions in existing network contracts with private payers. 34 35 After accounting for legal prohibitions, physicians may find a relatively small number of patients 36 remain eligible for a surcharge. Physicians should consider the fairness and practicality of 37 charging a small portion of their total patient base a surcharge that other patients are not subject to. 38 39 Even if no contract restrictions appear, it may still be advisable to inform private payers in advance 40 of implementing a liability surcharge in order to preclude any argument that the physician is 41 charging above and beyond contracted rates or fee schedules for covered services. 42 43 The logistics of implementing a liability surcharge also need to be considered. Questions to be 44 answered include whether the surcharge will be assessed annually, quarterly, per visit or otherwise; 45 and what is a “reasonable” surcharge. Affected patients should be given ample advance, written 46 notice of the surcharge and the reasons behind it. All communications should make clear that the 47 patient‟s decision whether or not to pay will have no effect on the physician-patient relationship or 48 quality of care. 49 B of T Report 20 - I-04 -- page 4 1 It is recommended that any physician considering implementing a surcharge proceed with the 2 advice of knowledgeable legal counsel. 3 4 AMA Policy on Medicare Payment Reform 5 6 Liability surcharges seem increasingly necessary in the broader context of ever-declining payments 7 from public and private payers, coupled with skyrocketing malpractice insurance premiums. While 8 surcharges offer a short-term solution to inadequate payment for insurance premiums, a 9 fundamental restructuring of Medicare payment methods, in particular the SGR formula on which 10 payments are partially based, is needed in the long-term. The priority the AMA has given to 11 achieving significant reform of physician payments under Medicare is reflected in numerous HOD 12 Policies. 13 14 “Malpractice Insurance Rate Increases and Physician Reimbursement,” H-435.996, reads, “Our 15 AMA will: (1) call upon the CMS to use current data in calculating the malpractice insurance 16 portion of the Resource-Based Relative Value Scale and that this calculation take into account 17 inter-specialty and geographic variances; and (2) study the calculated malpractice insurance portion 18 of the RBRVS to determine the effect increasing malpractice insurance costs have on physician 19 reimbursement.” “Malpractice Costs in the Medicare Fee Schedule,” H-400.981, affirms “It is the 20 policy of the AMA: (1) to review the recommendations for incorporating malpractice costs in 21 Relative Value Units in order to correct inequities in such a system so that physicians will be 22 reimbursed for current costs in a fair and equitable manner under the Medicare Physician Payment 23 System; and (2) to pursue legislative, regulatory and all other relevant means to effect such 24 change.” “Physician Payment Reform,” H-400.972, calls for the same actions to combat 25 “inequities in the implementation of the RBRVS.” 26 27 Basic Medicare Payment Methodology 28 29 In 1992, Medicare began reimbursing physicians using a standardized physician payment schedule 30 based on a Resource-Based Relative Value Scale (RBRVS). Physician payments for services 31 under this system are based on the costs of providing each service as divided into three 32 components: physician work, practice expense and PLI. The sum of the relative values of these 33 components is multiplied by a monetary conversion factor and adjusted geographically. Many 34 private payers in turn use the RBRVS to calculate their payments to physicians. 35 36 Resource-Based PLI RVUs were introduced only in 2000 upon the government‟s recognition of the 37 unique and important nature of liability costs compared to other practice expenses. The PLI RVS 38 component is the smallest, constituting about 4% of the total relative value for each service. As 39 mentioned above, because physicians are reimbursed by Medicare based partially on PLI costs, 40 physicians are prohibited from charging beneficiaries a surcharge to cover liability costs. 41 42 CMS surveys medical malpractice premium rates across the country to calculate the PLI percentage 43 basis in RBRVS. Data for the survey is obtained from state departments of insurance and also 44 from the largest insurers in 33 states. The survey does not contemplate claims-made policies, and 45 so PLI values do not account for costs associated with tail coverage. 46 47 CMS has recently completed a review of the PLI RVUs and has published its proposal for 48 calculation in the August, 5, 2004 Federal Register. The AMA and the AMA/Specialty Society 49 RVS Update Committee (RUC) have raised a number on concerns regarding the methodology used B of T Report 20 - I-04 -- page 5 1 to calculate the revised PLI RVUs. The AMA has separately testified before the Physician 2 Payment Advisory Committee (PPAC) on the issue of insufficient PLI RVUs. Advocacy efforts 3 aimed foremost at changing the SGR formula are necessary so a PLI increase can be fully factored 4 into the conversion factor and not offset by the spending targets. 5 6 The Board is aware of the shortcomings in Medicare payment methodology generally and the PLI 7 component specifically and AMA‟s advocacy efforts will continue to address these concerns. 8 9 RECOMMENDATIONS 10 11 The Board of Trustees recommends that the following be adopted in lieu of Resolution 213 (A-04) 12 and the remainder of this report be filed: 13 14 1) That our AMA support the ability of a physician to institute a “liability surcharge” 15 where not prohibited by contract, state or federal law or regulation, but urges 16 physicians to seek legal counsel in doing so. (New HOD Policy) Fiscal note: None.
"Liability Insurance Costs"