MEDICARE PROPOSES 2000 PHYSICIAN FEE SCHEDULE

The Health Care Financing Administration (HCFA) published a proposed physician fee schedule for calendar year 2000 that continues the transition to a fairer physician payment system.

Continuing the reforms initiated in the 1999 fee schedule, the 2000 Medicare physician fee schedule relates payment for physician practice expenses to the actual resources used to provide medical services rather than physicians' historical charges.

"Breaking the link between Medicare practice expense payments and historical charges will create a fairer payment system," said HCFA Deputy Administrator Michael Hash. "The proposed 2000 fee schedule represents an important next step in making sure Medicare pays physicians fairly. By refining the payment system to be more equitable, we help Medicare beneficiaries to stay healthy and productive by preserving access to physicians."

HCFA, the agency that runs Medicare, published the proposed regulation in the July 22 Federal Register. The final version will be published in the Fall.

The fee schedule specifies payments to physicians for more than 7,000 services and procedures, ranging from routine office visits to cardiac bypass surgery. In 2000, Medicare will spend about $37 billion on physician services.

Under the proposed fee schedule for calendar year 2000, physicians who provide services primarily in office settings, such as family practice and internal medicine specialists, would receive slightly increased payments, while physicians who provide services primarily in the hospital setting would receive slightly decreased payments. However, because of the malpractice insurance cost adjustments, emergency department physicians would receive a 2.7 percent increase and nephrologists a 1.3 percent increase. No specialties are expected to receive payment decreases or increases greater than 1 percent.

The resource-based practice expense component of the Medicare fee schedule is being phased in during a four-year transition period that began Jan.1, 1999. Payments under the 2000 fee schedule will be based on blend of 50 percent of the resource-based practices expenses and 50 percent of the old, charge-based system. When the resource-based practice expense is fully effective in 2002, all components of the fee schedule, including physician services, malpractice insurance expense and practice expense, will be resource-based, creating a more equitable system.

The proposed rule would implement the resource-based malpractice relative value units required by the 1997 Balanced Budget Act. Using data on how much various medical specialties spent on malpractice insurance, HCFA adjusted each service for the cost of malpractice insurance associated with it. This adjustment is not expected to have a significant effect on overall payments made to various medical specialties.

The proposed rules also would extend Medicare coverage for prostate cancer screening tests for all male beneficiaries effective Jan.1, 2000. President Clinton's June 29 proposal to modernize Medicare contained a proposal to eliminate all coinsurance and copayments associated with health screening tests. Prostate cancer is the most commonly diagnosed cancer in men and the second leading cause of death from cancer among American men.

The new payment system was prompted by studies that showed that the old charge-based system did not fairly compensate physicians for practice expenses. For example, under the old system, coronary bypass surgery would receive practice expense payments more than 100 times greater than those for an office visit, although costs for bypass surgery are only about 40 times higher.

Practice expenses are composed of direct and indirect expenses. Direct expenses include non-physician labor, medical equipment and medical supplies needed for each procedure. Indirect expenses such as the cost of general office supplies and utilities cannot be tied to individual procedures, so HCFA used accepted accounting techniques to allocate expenses to each medical procedure. Working with all major medical specialty societies, HCFA convened expert panels and conducted extensive research to estimate the direct expenses for different medical procedures and services. HCFA also used information gathered by the American Medical Association's Socioeconomic Monitoring Survey.

Before implementation of the fee schedule in 1992, Medicare based payments on each physician's charges. The fee schedule was created to relate payments to the resources physicians use to provide a service rather than what physicians charge for a service.

For two of the three categories of resources--physician work and practice expenses--each medical procedure is now measured relative to all other procedures according to the amount of resources used. The third element--resource-based malpractice insurance expense--is being incorporated into the fee schedule for 2000.

The fee schedule allowance for a procedure equals the sum of the three rankings, expressed as relative value units (RVUs), adjusted for payment locality cost differences and multiplied by a conversion fact that translates RVUs into dollars.

The relative values for physician work--the physician's own time and effort and the intensity of the procedure--have been established since the inception of the Medicare fee schedule. In 1994, Congress instructed HCFA to design a similar resource-based value system for physician practice expenses. The law required the new payment system to be budget neutral, meaning total physician payments cannot exceed what they would have been without the changes.

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Note: HHS press releases are available on the World Wide Web at: http://www.hhs.gov.