[Federal Register Volume 59, Number 235 (Thursday, December 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29915]


[[Page Unknown]]

[Federal Register: December 8, 1994]


    1  
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Part III





Department of Health and Human Services





_______________________________________________________________________



Health Care Financing Administration



_______________________________________________________________________



Medicare Program; Physician Fee Schedule Update for Calendar Year 1995; 
Physician Volume Performance Standard Rates of Increase for Federal 
Fiscal Year 1995; Notice
DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration
RIN 0938-AG69
[BPD-807-FN]

 

Physician Fee Schedule Update for Calendar Year 1995 and 
Physician Volume Performance Standard Rates of Increase for Federal 
Fiscal Year 1995

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final notice.

-----------------------------------------------------------------------

SUMMARY: This final notice announces the calendar year (CY) 1995 
updates to the Medicare physician fee schedule and the Federal fiscal 
year (FY) 1995 volume performance standard rates of increase for 
expenditures for physicians' services under the Medicare Supplementary 
Medical Insurance (Part B) program as required by sections 1848(d) and 
(f), respectively, of the Social Security Act. The fee schedule update 
for CY 1995 is 12.2 percent for surgical services, 7.9 percent for 
primary care services, and 5.2 percent for other nonsurgical services. 
While it does not affect payment, there was a 7.7 percent increase in 
the update for all physicians' services for 1995. The physician volume 
performance standard rates of increase for Federal FY 1995 are 9.2 
percent for surgical services, 13.8 percent for primary care services, 
4.4 percent for other nonsurgical services, and a weighted average of 
7.5 percent for all physicians' services.
    In our December 2, 1993 notice announcing the CY 1994 update to the 
Medicare physician fee schedule and FY 1994 volume performance standard 
rates of increase, we invited public comment on the update indicators 
for surgical and nonsurgical procedures that were new or revised in 
1994. There were no public comments on those indicators. We have 
decided not to establish a public comment period for the codes that are 
new and revised in 1995 since, although these codes are initially 
classified as surgical or nonsurgical based on the clinical judgment of 
our medical staff, that classification ultimately rests on charge data 
that we use when they become available to determine whether the codes 
classified as surgical meet the criteria specified in our December 1993 
notice. Because the classification is finally based on empirical data, 
public comment is unnecessary. Any changes to the classification of 
codes that are new or revised in 1995, based on our analysis of 1995 
charge data, will not be effective before October 1, 1995, for volume 
performance standard purposes, or before January 1, 1996, for update 
purposes.
    In our proposed rule published in the June 24, 1994 Federal 
Register entitled ``Medicare Program; Refinements to Geographic 
Adjustment Factor Values and Other Policies Under the Physician Fee 
Schedule (BPD-789-P)'', we invited public comments on a proposal to 
include clinical laboratory services performed in hospital outpatient 
settings in the MVPS beginning in FY 1996. We received two comments on 
this proposal. Since this proposal is related to the MVPS and this 
notice deals with MVPS issues, we are responding to those comments in 
this notice instead of in the final rule for the physician fee schedule 
entitled ``Medicare Program; Refinements to Geographic Adjustment 
Factor Values, Revisions to Payment Policies, Adjustments to the 
Relative Value Units (RVUs), and 5-Year Refinement of RVUs (BPD-789-
FC),'' published elsewhere in this Federal Register issue.

DATES: Effective Date: The volume performance standard rates of 
increase are effective on October 1, 1994. The Medicare physician fee 
schedule update is effective on January 1, 1995.
    Applicability Date: The procedure-specific update indicators apply 
to payment for services furnished on or after January 1, 1995.
    Copies: To order paper copies of the Federal Register containing 
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FOR FURTHER INFORMATION CONTACT: For further information with respect 
to ordering copies of this notice, contact the U.S. Government Printing 
Office according to the above information. For further information 
concerning the content of this notice, contact Don Thompson, (410) 966-
4586.

SUPPLEMENTARY INFORMATION:

I. Background and Summary of Legislation

A. The Physician Fee Schedule Update and Medicare Volume Performance 
Standard (MVPS)

    Section 1848 of the Social Security Act (the Act) requires the 
Secretary of Health and Human Services to--
     Establish annual updates to payment rates under the 
Medicare physician fee schedule, and
     Establish volume performance standard rates of increase to 
help control the rate of growth in expenditures for physicians' 
services.
    Under section 1848(b)(1) of the Act, payment for physicians' 
services, except for anesthesia services, equals the product of the 
relative value units (RVUs) for a service, a geographic adjustment 
factor (GAF), and a conversion factor (CF). Anesthesia services are 
paid under a different relative value system, and payment is equal to 
the sum of the base and time units for the service multiplied by a 
geographically adjusted anesthesia-specific CF. The RVUs and anesthesia 
base units reflect the relative amount of resources used by physicians 
to furnish the service, and the GAF measures practice cost differences 
between areas. The geographically adjusted RVUs are multiplied by a CF 
to obtain the physician fee schedule payment amounts. The 1995 CFs are 
$14.770 for anesthesia services, $39.447 for surgical services, $36.382 
for primary care services, and $34.616 for other nonsurgical services.
1. Physician Fee Schedule Update
    Section 1848(d) of the Act requires the Secretary to provide the 
Congress with her recommendation of a physician fee schedule update by 
April 15 of each year. Under section 1848(d)(2)(A) of the Act, the 
Secretary is required to consider a number of factors, including the 
following:
     The percentage change in the Medicare economic index 
(MEI), a measure of the change in the cost of operating a medical 
practice.
     The percentage by which actual expenditures for all 
physicians' services in the first preceding FY were less than or 
exceeded the actual expenditures in the second preceding FY.
     The relationship between the percentage determined above 
and the volume performance standard rate of increase for the same FY.
     Changes in the volume and intensity (VI) of services.
     Access to services.
     Other factors that may contribute to changes in VI of 
services or access to services.
    On May 20, 1994, the Secretary recommended to the Congress a 
physician fee schedule update for CY 1995 of 10.2 percent for surgical 
services, 9.4 percent for primary care services, and 3.7 percent for 
other nonsurgical services. The Secretary's update recommendation was 
based on our preliminary estimate of the MEI, adjusted for our 
estimated rate of increase in expenditures compared to the MVPS for 
each category of physicians' services. For surgical and nonsurgical 
services, the Secretary recommended a reduction of 3.0 percentage 
points to adjust for inappropriately high MVPS goals from prior years. 
The Secretary's update recommendation is consistent with the 
President's FY 1995 budget, which included a proposal to base the CY 
1995 update on the current law methodology less 3.0 percentage points 
for all services except primary care. If the Secretary's update 
recommendation, adjusted for more recent performance adjustment and MEI 
data, had been adopted by the Congress, Medicare payments for 
physicians' services furnished in 1995 would have increased by an 
estimated $1.5 billion relative to the payments for physicians' 
services furnished in 1994. The actual 1995 updates will increase 
payments for physicians' services furnished in 1995 by an estimated 
$2.2 billion relative to the payments for physicians' services 
furnished in 1994. The actual updates are required by the Medicare 
statute, and any budget implications associated with them are due to 
the requirements of the law and not this notice.
    If the Congress does not set the update, section 1848(d)(3) of the 
Act establishes the process for updating the physician fee schedule. 
Under section 1848(d)(3), unless otherwise specified by the Congress, 
the fee schedule update for a category of physicians' services equals 
the appropriate update index (that is, the MEI) adjusted by the number 
of percentage points by which expenditure growth exceeded or was less 
than the volume performance standard rates of increase for the second 
preceding year for that category of physicians' services. That is, the 
CY 1995 update would equal the 1995 MEI increased or decreased by the 
difference between the rate of increase in expenditures for FY 1993 and 
the volume performance standard for that year. However, section 
1848(d)(3)(B) of the Act limits the maximum downward adjustment for 
1995 and any succeeding year to 5.0 percentage points. There is no 
restriction on upward adjustments to the MEI.
    While the Congress has not specifically set the level of physician 
fee schedule updates, section 13511 of the Omnibus Budget 
Reconciliation Act of 1993 (OBRA '93) (Public Law 103-66), enacted on 
August 10, 1993, amended section 1848(d)(3)(A) of the Act to require 
the Secretary to reduce the MEI by 2.7 percentage points in 1995 for 
both surgical and nonsurgical services. Primary care services are 
exempt from the statutory reductions in the MEI in 1995.
    Section 1848(d)(1)(C) of the Act requires the Secretary to publish 
in the Federal Register, within the last 15 days of October, the update 
for the following CY.
2. MVPS Rates
    Section 1848(f) of the Act requires the Secretary to establish 
volume performance standard rates of increase for Medicare expenditures 
for physicians' services. We refer to these rates of increase as the 
MVPS rates. The use of volume performance standard rates of increase is 
intended to involve physicians in the effort to slow the annual rate of 
increase in expenditures by having physicians carefully evaluate their 
services and eliminate those that are inappropriate or ineffective.
    The volume performance standard rates of increase are not limits on 
expenditures. Payments for services are not withheld if volume 
performance standard rates of increase are exceeded. Rather, the 
appropriate fee schedule update, as specified in section 1848(d)(3)(A) 
of the Act, is adjusted to reflect the success or failure in meeting 
the volume performance standard rates of increase.
    Section 1848(f) of the Act sets forth the process for establishing 
the volume performance standard rates of increase by requiring the 
Secretary to recommend to the Congress the physician volume performance 
standard rates of increase for the following Federal FY by not later 
than April 15. The Secretary is required to recommend MVPS rates for 
surgical, primary care, other nonsurgical, and all physicians' 
services. In making the recommendations, the Secretary is required to 
confer with organizations that represent physicians and to consider the 
following factors:
     Inflation.
     Changes in the number and age composition of Medicare 
enrollees under Part B (excluding risk HMO enrollees).
     Changes in technology.
     Evidence of inappropriate utilization of services.
     Evidence of lack of access to necessary physicians' 
services.
     Other appropriate factors as determined by the Secretary.
    The Secretary recommended volume performance standard rates of 
increase for FY 1995 of 5.8 percent for surgical services, 11.1 percent 
for primary care services, 3.3 percent for other nonsurgical services, 
and 5.6 percent for all physicians' services, which included the effect 
of proposals in the President's FY 1995 budget and a proposal to change 
the allocation of clinical diagnostic laboratory services in FY 1996.
    If the Congress does not set the volume performance standard rates 
of increase, section 1848(f)(2) (A) and (B) of the Act requires the 
Secretary to set MVPS rates for all physicians' services and each 
category of physicians' services equal to the product of the following 
four factors reduced by a performance standard factor, which for FY 
1995 is 4.0 percentage points:
     1.0 plus the Secretary's estimate of the weighted-average 
percentage increase (divided by 100) in fees for all physicians' 
services or for the category of physicians' services for the portions 
of CY 1994 and CY 1995 contained in FY 1995.
     1.0 plus the Secretary's estimate of the percentage change 
(divided by 100) in the average number of Part B enrollees (excluding 
risk HMO enrollees) from FY 1994 to FY 1995.
     1.0 plus the Secretary's estimate of the average annual 
percentage growth (divided by 100) in VI of all physicians' services or 
of the category of physicians' services for FY 1989 through FY 1994.
     1.0 plus the Secretary's estimate of the percentage change 
(divided by 100) in expenditures for all physicians' services or of the 
category of physicians' services that will result from changes in law 
or regulations in FY 1995 as compared with expenditures for physicians' 
services in FY 1994.
    Section 1848(f)(1)(C) of the Act requires the Secretary to publish 
in the Federal Register within the last 15 days of October of each year 
the volume performance standard rates of increase for all physicians' 
services and for each category of physicians' services for the Federal 
FY that began on October 1 of that year. (The MVPS for all physicians' 
services has no practical effect on the update. We publish it only 
because we are required to do so by section 1848(f) of the Act.)
3. Past Years' MVPS Rates and Physician Fee Schedule Updates
    MVPS rates have been established under section 1848 of the Act 
since FY 1990. CY 1992 was the first year in which the update was 
affected by expenditures under the MVPS system. The following tables 
illustrate the MVPS rates in each FY since their inception, the actual 
rates of increase in expenditures, and the corresponding updates in the 
second subsequent CY.

                           Fee Schedule Update                          
------------------------------------------------------------------------
                                       Performance  Legislative         
        Calendar year           MEI     adjustment   adjustment   Update
------------------------------------------------------------------------
CY 1992:                                                                
    All services............     3.2%      -0.9%        -0.4%       1.9%
CY 1993:                                                                
    Surgical................     2.7%       0.4%    ...........     3.1%
    Nonsurgical.............     2.7%      -1.9%    ...........     0.8%
CY 1994:                                                                
    Surgical................     2.3%      11.3%        -3.6%      10.0%
    Primary care............     2.3%       5.6%         0.0%       7.9%
    Other nonsurgical.......     2.3%       5.6%        -2.6%       5.3%
CY 1995:                                                                
    Surgical................     2.1%      12.8%        -2.7%      12.2%
    Primary care............     2.1%       5.8%         0.0%       7.9%
    Other nonsurgical.......     2.1%       5.8%        -2.7%       5.2%
------------------------------------------------------------------------


                                  MVPS                                  
------------------------------------------------------------------------
                Fiscal year                   MVPS    Actual  Difference
------------------------------------------------------------------------
FY 1990:\1\                                                             
  All services............................     9.1%    10.0%      -0.9% 
FY 1991:                                                                
  Surgical................................     3.3%     2.9%       0.4% 
  Nonsurgical.............................     8.6%    10.5%      -1.9% 
FY 1992:                                                                
  Surgical................................     6.5%    -4.8%      11.3% 
  Nonsurgical.............................    11.2%     5.6%       5.6% 
FY 1993:                                                                
  Surgical................................     8.4%    -4.4%      12.8% 
  Nonsurgical.............................    10.8%     5.0%       5.8% 
FY 1994:                                                                
  Surgical................................     9.1%  .......  ..........
  Primary care............................    10.5%  .......  ..........
  Other nonsurgical.......................     9.2%  .......  ..........
FY 1995:                                                                
  Surgical................................     9.2%  .......  ..........
  Primary care............................    13.8%  .......  ..........
  Other nonsurgical.......................     4.4%  .......  ..........
------------------------------------------------------------------------
\1\Separate MVPS rates for surgical and nonsurgical services were not   
  required until FY 1991. Separate fee schedule updates were not        
  required until CY 1993. Beginning with the CY 1994 fee schedule update
  and the FY 1994 MVPS, we established separate updates and MVPS rates  
  of increase for surgical, primary care, and other nonsurgical         
  services.                                                             

B. Physicians' Services

    Section 1848(f)(5)(A) of the Act defines physicians' services for 
purposes of the volume performance standard rates of increase as 
including other items or services (such as clinical diagnostic 
laboratory tests and radiology services), specified by the Secretary, 
that are commonly performed by a physician or furnished in a 
physician's office. Section 1861(s) of the Act defines medical and 
other health services covered under Part B. As provided for in the FY 
1990 volume performance standard rates of increase notice in the 
Federal Register on December 29, 1989 (54 FR 53819), we are including 
the following medical and other health services in section 1861(s) of 
the Act in the physician volume performance standard rates of increase 
if bills for the items are processed and paid for by Medicare carriers:
     Physicians' services.
     Services and supplies furnished incident to physicians' 
services.
     Outpatient physical therapy and speech therapy services, 
and outpatient occupational therapy services.
     Antigens prepared by or under the direct supervision of a 
physician.
     Services of physician assistants, certified registered 
nurse anesthetists, certified nurse midwives, clinical psychologists, 
clinical social workers, nurse practitioners, and clinical nurse 
specialists.
     Diagnostic x-ray tests, diagnostic laboratory tests, and 
other diagnostic tests.
     X-ray, radium, and radioactive isotope therapy.
     Surgical dressings, splints, casts, and other devices used 
for reduction of fractures and dislocations.
    We stated in our December 29, 1989 notice (54 FR 53819) announcing 
the FY 1990 volume performance standard rates of increase that we would 
consider including outpatient diagnostic laboratory tests paid through 
intermediaries in the MVPS definition of physicians' services. We have 
always included diagnostic laboratory tests if paid through the 
carriers, but have not included them if paid through intermediaries 
since the detailed information required to set the volume performance 
standard rates of increase was not readily available from our data 
collection systems. This information is now more easily accessible, 
and, therefore, on June 24, 1994, we published in the Federal Register 
a proposed rule, ``Medicare Program; Refinements to Geographic 
Adjustment Factor Values and Other Policies Under the Physician Fee 
Schedule (BPD-789-P)'' (59 FR 32754), which announced our intention to 
include these services in the nonsurgical category beginning with the 
FY 1996 MVPS. We received two comments regarding this proposal, and we 
respond to these comments in section II. of this notice. We will 
include outpatient diagnostic laboratory tests paid through the 
intermediaries on the basis of the clinical diagnostic laboratory fee 
schedule in the nonsurgical MVPS category beginning in FY 1996.

C. Definition of Surgical, Primary Care, and Other Nonsurgical Services

    As described below, we have classified codes that are new or 
revised for 1995 as surgical, primary care, or other nonsurgical 
services. We have also changed the classification of eight codes that 
were new or revised for 1994 from surgical to nonsurgical based on data 
from the first 6 months of 1994. Since our definitions of surgical, 
primary care, or other nonsurgical services have not changed, we have 
not changed the classifications of any other codes.
    As described in the December 2, 1993 notice (58 FR 63858) 
containing our definitions of surgical, primary care, or other 
nonsurgical services, we consider a procedure to be surgical if the 
following conditions are met:
     In the HCFA Part B data system, the service is classified 
under ``type of service'' as a ``surgery.''
     The service is performed by surgical specialists more than 
50 percent of the time.
    As also discussed in the December 1993 notice, section 1842(i)(4) 
of the Act defines primary care services as ``office medical services, 
emergency department services, home medical services, skilled nursing, 
intermediate care, and long-term care medical services, or nursing 
home, boarding home, domiciliary, or custodial care medical services.'' 
Since this language was the result of an amendment to the Act made by 
section 4042(b) of the Omnibus Budget Reconciliation Act of 1987 (OBRA 
'87) (Public Law 100-203), enacted on December 22, 1987, we rely on the 
conference report accompanying OBRA '87 (H.R. Rep. No. 100-495, 100th 
Congress, 1st Session 594-595 (1987)) to determine the HCFA Common 
Procedure Coding System (HCPCS) codes to be included in the definition 
of primary care services. In addition, section 6102(f)(10) of the 
Omnibus Budget Reconciliation Act of 1989 (OBRA '89) (Public Law 101-
239), enacted on December 19, 1989, indicated intermediate and 
comprehensive office visits for eye examinations and treatments for new 
patients were to be considered primary care services.
    We classify physicians' services not meeting the surgical or 
primary care definitions as nonsurgical services.
    For a procedure code that is new in 1995 and does not meet the 
primary care definition, we do not have any data for determining how 
often the procedure is performed by surgical specialists and therefore 
whether the service should be classified as surgical or nonsurgical. We 
categorized these codes as surgical or nonsurgical based on the 
judgment of our medical staff. To assist us in making these 
determinations, we considered the type-of-service classification within 
the Physicians' Current Procedural Terminology (CPT) and the 
relationship of services represented by the new codes to surgical 
services meeting the above-described criteria. We followed a similar 
process to classify codes that were new in 1994. For the 1995 
classification of the new 1994 codes, however, we used 6 months of 1994 
data to determine whether they meet the criteria for being considered 
surgical services. Based on these data, we have changed the 
classification of the following HCPCS codes from surgical to 
nonsurgical:

------------------------------------------------------------------------
  HCPCS                                                                 
  code                              Description                         
------------------------------------------------------------------------
33213...  Insertion or replacement of pacemaker pulse generator only;   
           dual chamber.                                                
33214...  Upgrade of implanted pacemaker system, conversion of single   
           chamber system to dual chamber system (includes removal of   
           previously placed pulse generator, testing of existing lead, 
           insertion of new lead, insertion of new pulse generator).    
33220...  Repair of pacemaker electrode(s) only; dual chamber.          
33233...  Removal of permanent pacemaker; pulse generator only.         
33235...  Removal of permanent pacemaker; and transvenous electrode(s), 
           dual lead system.                                            
33247...  Insertion or replacement of implantable cardioverter-         
           defibrillator lead(s), by other than thoracotomy.            
44393...  Colonoscopy through stoma; with ablation of tumor(s),         
           polyp(s), or other lesion(s) not amenable to removal by hot  
           biopsy forceps, bipolar cautery or snare technique.          
48400...  Injection procedure for intraoperative pancreatography.       
------------------------------------------------------------------------

    For 1995, we have classified care plan oversight (HCPCS code 99375) 
as a primary care service. For a full discussion of this 
classification, see the final rule with comment period entitled 
``Medicare Program; Refinements to Geographic Adjustment Factor Values, 
Revisions to Payment Policies, Adjustments to the Relative Value Units 
(RVUs), and 5-Year Refinement of RVUs (BPD-789-FC),'' published 
elsewhere in this Federal Register issue and hereafter referred to as 
the physician fee schedule final rule.
    Also, Addendum B of the physician fee schedule final rule (BPD-789-
FC), published elsewhere in this Federal Register issue, lists the RVUs 
and related information used in determining Medicare payments for HCPCS 
codes. For the purposes of the physician fee schedule, we have assigned 
the following surgical, primary care, or other nonsurgical service 
update indicators to these codes:

------------------------------------------------------------------------
  Update                                                                
 indicator                         Interpretation                       
------------------------------------------------------------------------
S           Surgical services.                                          
P           Primary care services.                                      
N           The physician fee schedule update applies, but the code is  
             not defined as surgical or primary care.                   
O           The physician fee schedule update does not apply.           
------------------------------------------------------------------------

    The MVPS indicator for a procedure code is identical to the update 
indicator for codes that have a surgical, primary care, or other 
nonsurgical service update indicator. However, we consider some codes 
with an update indicator of ``O'' to be nonsurgical for the purposes of 
the MVPS, most notably the clinical diagnostic laboratory codes.
    The update indicators for codes new or revised in 1995 are shown in 
Addendum C of the physician fee schedule final rule (BPD-789-FC), 
published elsewhere in this Federal Register issue.

II. Analysis of and Responses to Public Comments

    Our final notice with comment period published in the December 2, 
1993 Federal Register entitled ``Physician Volume Performance Standard 
rates of increase for Federal Fiscal Year 1994 and Physician Fee 
Schedule Update for Calendar Year 1994 (BPD-774-FNC)'' (58 FR 63856) 
referenced the surgical and nonsurgical update indicators for new and 
revised procedure codes to be used in applying the CY 1994 updates and 
for measuring expenditures under the MVPS for FY 1994. These update 
indicators appeared in Addendum C of our final rule with comment period 
in the December 2, 1993 Federal Register entitled ``Revisions to 
Payment Policies and Adjustments to the Relative Value Units Under the 
Physician Fee Schedule for Calendar Year 1994 (BPD-770-FC)'' (58 FR 
63626). We invited comments on the update indicators for these new and 
revised procedure codes. There were no public comments on those 
indicators.
    In our proposed rule published in the June 24, 1994 Federal 
Register entitled ``Medicare Program; Refinements to Geographic 
Adjustment Factor Values and Other Policies Under the Physician Fee 
Schedule (BPD-789-P)'' (59 FR 32754), we invited public comments on a 
proposal to include clinical diagnostic laboratory services performed 
in hospital outpatient settings in the MVPS beginning in FY 1996. We 
received two comments on this proposal. Since this proposal is related 
to the MVPS and this notice deals with MVPS issues, we are responding 
to these comments in this notice instead of in the physician fee 
schedule final rule (BPD-789-FC), published elsewhere in this Federal 
Register issue. Our responses to the comments follow:
    Comment: One commenter expressed concern over the proposal to 
include clinical diagnostic laboratory services performed in hospital 
outpatient settings in the MVPS beginning in FY 1996 since the 
commenter believed we had not demonstrated that the costs of clinical 
diagnostic laboratory services were entirely attributable to 
physicians. This commenter believed that, in many instances, the 
preadmission testing is ordered by nonphysician staff and is a hospital 
requirement.
    Response: Section 1848(f)(5)(A) of the Act specifies that the MVPS 
category of nonsurgical services includes ``clinical diagnostic 
laboratory tests.'' We have always believed the Congress intended these 
tests to be included in the MVPS category of nonsurgical services 
regardless of the setting where they are performed. As we mentioned 
above, the only reason these tests were not included if performed in 
the outpatient departments of hospitals was that the detailed 
information required to set the volume performance standard rates of 
increase was not readily available under our data collection systems. 
This information is now more easily accessible.
    In addition, we do not believe the majority of these tests are 
ordered by nonphysician hospital staff to satisfy hospital 
requirements. We intend to include these services in the MVPS category 
of nonsurgical services beginning in FY 1996.
    Comment: Two commenters questioned whether this proposal affected 
the setting of the MVPS and consequently the update to the Medicare 
physician fee schedule.
    Response: Since clinical diagnostic laboratory tests are 
nonsurgical services, the inclusion of these services will affect only 
the nonsurgical MVPS. We will account for the effects of including 
these services in setting the nonsurgical MVPS. This change will affect 
the nonsurgical update to the extent that the actual VI increase in 
outpatient laboratory services differs from the allowance for that 
growth in the nonsurgical MVPS.

III. Provisions of this Final Notice

A. Physician Fee Schedule Update for CY 1995

    Under the requirements of section 1848(d)(3) of the Act, the fee 
schedule update for CY 1995 will be 12.2 percent for surgical services, 
7.9 percent for primary care services, and 5.2 percent for other 
nonsurgical services. While it does not affect payment, there was a 7.7 
percent increase in the update for all physicians' services for 1995. 
We determined this update as follows:

------------------------------------------------------------------------
                                                   Primary              
                                        Surgical     care    Nonsurgical
                                        services   services    services 
                                       (percent)  (percent)   (percent) 
------------------------------------------------------------------------
1995 MEI.............................       2.1        2.1         2.1  
OBRA '93 Adjustment..................      -2.7        0.0        -2.7  
MVPS Adjustment......................      12.8        5.8         5.8  
1995 Update..........................      12.2        7.9         5.2  
------------------------------------------------------------------------

    Applying these updates to the 1994 CFs of $35.158 for surgical 
services and $32.905 for nonsurgical services results in CFs of $39.447 
for surgical services and $34.616 for nonsurgical services (other than 
anesthesia and primary care services) for 1995. The 1994 CF of $33.718 
for primary care services will be updated by 7.9 percent to $36.382 for 
primary care services for 1995. The 1994 anesthesia CF of $14.20, which 
includes the effect of the 1994 RVU budget-neutrality adjustment, will 
be updated by the nonsurgical update to $14.77 for 1995, after 
adjusting for the 1995 RVU budget-neutrality adjustment.
    The specific calculations to determine the fee schedule updates for 
physicians' services for CY 1995 are explained in section IV.A. of this 
notice.

B. Physician Volume Performance Standard Rates of Increase for FY 1995

    Under the requirements in section 1848(f)(2)(A) and (B) of the Act, 
we have determined that the volume performance standard rates of 
increase for physicians' services for FY 1995 are 9.2 percent for 
surgical services, 13.8 percent for primary care services, 4.4 percent 
for other nonsurgical services, and a weighted average of 7.5 percent 
for all physicians' services.
    This determination is based on the following legislative factors:

------------------------------------------------------------------------
                                                   Primary              
                                        Surgical     care    Nonsurgical
    Legislative factors (percent)       services   services    services 
                                       (percent)  (percent)   (percent) 
------------------------------------------------------------------------
Inflation............................       2.3        2.3         2.4  
Enrollment...........................       0.7        0.7         0.7  
VI...................................       4.4        4.4         4.4  
Legislation..........................       5.3        9.5         0.7  
Performance Standard Factor..........      -4.0       -4.0        -4.0  
                                      ----------------------------------
Total................................       9.2       13.8         4.4  
------------------------------------------------------------------------

    The specific calculations to determine the volume performance 
standard rates of increase for physicians' services for FY 1995 are 
explained in section IV.B. of this notice.

IV. Detail on Calculation of the CY 1995 Physician Fee Schedule Update 
and the FY 1995 Physician Volume Performance Standard Rates of Increase

A. Physician Fee Schedule Update

1. The Percentage Change in the MEI
    The MEI measures the weighted-average annual price change for 
various inputs needed to produce physicians' services. The MEI is a 
fixed-weight input price index, with an adjustment for the change in 
economy-wide labor productivity. This index, which has 1989 base 
weights, is comprised of two broad categories: (1) Physician's own 
time, and (2) physician practice expense.
    The physician's own time component represents the net income 
portion of business receipts and primarily reflects the input of the 
physician's own time into the production of physicians' services in 
physicians' offices. This category consists of two subcomponents, wages 
and salaries and fringe benefits. These components are adjusted by the 
10-year moving average percent change in output per manhour for the 
nonfarm business sector to eliminate double counting for productivity 
growth in physician offices and the general economy.
    The physician practice expense category represents the rate of 
price growth in nonphysician inputs to the production of services in 
physician offices. This category consists of wages and salaries and 
fringe benefits for nonphysician staff and other nonlabor inputs. Like 
physician's own time, the nonphysician staff categories are adjusted 
for productivity using the 10-year moving average percent change in 
output per manhour for the nonfarm business sector. The physician 
practice expense component also includes the following categories of 
nonlabor inputs: office expense, medical materials and supplies, 
professional liability insurance, medical equipment, professional car, 
and other expense. The table below presents a listing of the MEI cost 
categories with associated weights and percent changes for price 
proxies for the 1995 update. The CY 1995 MEI is 2.1 percent.

     Increase in the Medicare Economic Index, Update for CY 1995\1\     
------------------------------------------------------------------------
                                                               CY 1995  
                                                    1989       percent  
                                                 weights\2\    changes  
------------------------------------------------------------------------
Medicare Economic Index Total.................        100.0          2.1
    1. Physician's Own Time\3\\4\.............         54.2          1.6
        a. Wages and Salaries: Average hourly                           
         earnings private nonfarm, net of                               
         productivity.........................         45.3          1.3
        b. Fringe Benefits: Employment Cost                             
         Index, benefits, private nonfarm, net                          
         of productivity......................          8.8          3.4
    2. Physician Practice Expense\3\ \4\......         45.8          2.6
        a. Nonphysician Employee Compensation.         16.3          2.1
            1. Wages and Salaries: Employment                           
             Cost Index, wages and salaries,                            
             weighted by occupation, net of                             
             productivity.....................         13.8          1.8
            2. Fringe Benefits: Employment                              
             Cost Index, fringe benefits,                               
             white collar, net of productivity          2.5          3.4
        b. Office Expense: CPI-U, housing.....         10.3          2.6
        c. Medical Materials and Supplies:                              
         Producer Price Index (PPI), ethical                            
         drugs/PPI, surgical appliances and                             
         supplies/CPI-U, medical equipment and                          
         supplies (equally weighted)..........          5.2          3.2
        d. Professional Liability Insurance:                            
         HCFA professional liability insurance                          
         survey\5\............................          4.8          4.0
        e. Medical Equipment: PPI, medical                              
         instruments and equipment............          2.3          1.2
        f. Other Professional Expense.........          6.9          2.8
            1. Professional Car: CPI-U,                                 
             private transportation...........          1.4          1.8
            2. Other: CPI-U, all items less                             
             food and energy..................          5.5          3.0
Addendum:                                                               
    Productivity: 10-year moving average of                             
     output per manhour, nonfarm business                               
     sector...................................          n/a          1.2
    Physician's Own Time, not productivity                              
     adjusted.................................         54.2          2.9
        Wages and salaries, not productivity                            
         adjusted.............................         45.3          2.5
        Fringe benefits, not productivity                               
         adjusted.............................          8.8          4.7
        Nonphysician Employee Compensation,                             
         not productivity adjusted............         16.3          3.3
        Wages and salaries, not productivity                            
         adjusted.............................         13.8          3.0
        Fringe benefits, not productivity                               
         adjusted.............................          2.5         4.6 
------------------------------------------------------------------------
\1\The rates of change are for the 12-month period ending June 30, 1994,
  which is the period used for computing the CY 1995 update. The price  
  proxy values are based upon the latest available Bureau of Labor      
  Statistics data as of September 9, 1994.                              
\2\The weights shown for the MEI components are the 1989 base-year      
  weights, which may not sum to subtotals or totals because of rounding.
  The MEI is a fixed-weight, Laspeyres-type input price index whose     
  category weights indicate the distribution of expenditures among the  
  inputs to physicians' services for CY 1989. To determine the MEI level
  for a given year, the price proxy level for each component is         
  multiplied by its 1989 weight. The sum of these products (weights     
  multiplied by the price index levels) over all cost categories yields 
  the composite MEI level for a given year. The annual percent change in
  the MEI levels is an estimate of price change over time for a fixed   
  market basket of inputs to physicians' services.                      
\3\The Physician's Own Time and Nonphysician Employee Compensation      
  category price measures include an adjustment for productivity. The   
  price measure for each category is divided by the 10-year moving      
  average of output per man-hour in the nonfarm business sector. For    
  example, the wages and salaries component of Physician's Own Time is  
  calculated by dividing the rate of growth in average hourly earnings  
  by the 10-year moving average rate of growth of output per man-hour   
  for the nonfarm business sector. Dividing one plus the decimal form of
  the percent change in the average hourly earnings (1+.025=1.025) by   
  one plus the decimal form of the percent change in the 10-year moving 
  average of labor productivity (1+.012=1.012) equals one plus the      
  change in average hourly earnings net of the change in output per man-
  hour (1.025/1.012=1.013). All Physician's Own Time and Nonphysician   
  Employee Compensation categories are adjusted in this way. Due to a   
  higher level of precision the computer-calculated quotient may differ 
  from the quotient calculated from rounded individual percent changes. 
\4\The average hourly earnings proxy, the Employment Cost Index proxies,
  as well as the CPI-U, housing and CPI-U, private transportation are   
  published in the Current Labor Statistics Section of the Bureau of    
  Labor Statistics' Monthly Labor Review. The remaining CPIs and PPIs in
  the revised index can be obtained from the Bureau of Labor Statistics'
  CPI Detailed Report or Producer Price Indexes.                        
\5\Derived from a HCFA survey of several major insurers (the latest     
  available historical percent change data are for CY 1993). This is    
  consistent with prior computations of the professional liability      
  insurance component of the MEI.                                       
n/a Productivity is factored into the MEI compensation categories as an 
  adjustment to the price variables, therefore no explicit weight exists
  for productivity in the MEI.                                          

2. Adjustment in Update
    As required by section 1848(d)(3)(A) of the Act, as amended by 
section 13511 of OBRA '93, we are reducing the update by 2.7 percentage 
points for surgical services and nonsurgical services other than 
primary care services.
3. MVPS Performance Adjustment (MPA)
    As required by section 1848(d)(3)(B)(i) of the Act, we are 
increasing the update by 12.8 percentage points for surgical services 
and by 5.8 percentage points for primary care and other nonsurgical 
services to reflect the percentage increase in expenditures between FY 
1992 and FY 1993 relative to the volume performance standard rate of 
increase for FY 1993.
    Our estimate of the percentage growth in surgical services between 
FY 1992 and FY 1993 is -4.4 percent. Because the volume performance 
standard rate of increase for FY 1993 was 8.4 percent, the rate of 
increase in expenditures for surgical services was less than the volume 
performance standard rate of increase by 12.8 percentage points. For 
primary care and other nonsurgical services, the rate of increase in 
expenditures was 5.0 percent, 5.8 percentage points less than the 
volume performance standard rate of increase of 10.8 percent.

B. FY 1995 Physician Volume Performance Standard Rates of Increase

    Below we explain how we determined the increases for each of the 
four factors used in determining the volume performance standard rates 
of increase for FY 1995.

Factor 1--Weighted Average Percentage Increase in Fees for Physicians' 
Services (Before Applying Legislative Reductions) for Months of CYs 
1994 and 1995 Included in FY 1995

    This factor was calculated as a weighted average of the fee 
increases that apply to FY 1995; that is, the fee increases that apply 
to the last 3 months of CY 1994 multiplied by 25 percent plus the fee 
increases that apply to the first 9 months of CY 1995 multiplied by 75 
percent. Beginning with CY 1992, physicians' services are updated by a 
physician fee schedule update factor that is based on the MEI adjusted 
for several statutory factors. For instance, the MEI for 1995 is 
reduced 2.7 percentage points for surgical services and nonsurgical 
services other than primary care services. The update factor for a 
category of physicians' services for CY 1995 is also adjusted by the 
number of percentage points that the rate of increase in expenditures 
in FY 1993 compared to FY 1992 was less than the volume performance 
standard rate of increase for the category of physicians' services in 
FY 1993. Laboratory services are updated by increases in the Consumer 
Price Index for Urban Consumers (CPI-U). For 1995, the laboratory 
update will be 0.0 percent, as required by section 1833(h)(2)(ii) of 
the Act, as amended by section 13551 of OBRA '93.
    We are showing the MEI and CPI-U in Table 2 below unadjusted for 
the legislated 2.7 percentage point reduction in the surgical and other 
nonsurgical updates and the legislated 0.0 percent laboratory update 
because of section 1848(f)(2)(A)(iv) of the Act as amended by section 
4118(e) of the Omnibus Budget Reconciliation Act of 1990 (OBRA '90) 
(Public Law 101-508), enacted on November 5, 1990. We interpreted 
section 4118(e) to account for legislated adjustments to the physician 
fee schedule and laboratory updates in Factor 4 rather than Factor 1.
    Table 2 shows the updates that were used to determine the weighted-
average percentage increase in physician fees.

              Table 2--MEI and CPI-U for CYs 1994 and 1995              
------------------------------------------------------------------------
                                                             1994   1995
------------------------------------------------------------------------
MEI.......................................................    2.3    2.1
CPI-U.....................................................    3.3    2.8
------------------------------------------------------------------------

    Physicians' services make up 91 percent of the total expenditures 
in the definition of physicians' services used for purposes of the 
volume performance standard rates of increase; laboratory services 
represent 9 percent.
    In addition to the annual updates and individual weights of the 
above services, one other element has an effect on the rate of increase 
in physician fees. Section 1842(h)(1) of the Act provides for 
``participating physicians'' who agree to accept Medicare payment as 
payment in full and to bill Medicare beneficiaries only for the 20 
percent coinsurance amount and any unmet portion of the $100 annual 
deductible amount. Sections 1842(b)(4)(A)(iv) and 1848(a)(3) of the Act 
provide that nonparticipating physicians are paid 5 percent less for 
their Medicare services than participating physicians. The 
nonparticipating physicians are given an opportunity at the end of each 
CY to enroll as participating physicians for the next CY. Participation 
rates have increased each year, and we assume that this trend will 
continue. The increase in the number of participating physicians and 
the fact that they are paid at a rate higher than nonparticipating 
physicians also add to the rate of increase in the weighted-average 
percentage increase in physician fees.
    After taking into account all the elements described above, we 
estimate that the weighted-average increase in fees for physicians' 
services in FY 1995 before applying the legislative changes will be 2.3 
percent for surgical services, 2.3 percent for primary care services, 
2.4 percent for other nonsurgical services, and a weighted average of 
2.4 percent for all physicians' services.

Factor 2--The Percentage Increase in the Average Number of Part B 
Enrollees From FY 1994 to FY 1995

    We estimate that average Medicare Part B enrollment in FY 1995 will 
be 35.728 million. Decreasing that figure by the estimated enrollment 
in risk HMOs of 2.364 million (those enrolled in risk HMOs whose 
Medicare-covered medical care is paid for through the adjusted average 
per capita cost mechanism and is therefore outside the scope of the 
MVPS) results in an estimate of 33.364 million Part B enrollees in FY 
1995 not in risk HMOs.
    The corresponding figures for 1994 are estimated to be 35.069 
million total Part B enrollees and 1.938 million risk HMO enrollees, 
which result in an estimate of 33.131 million Part B enrollees not in 
risk HMOs. We estimate that there will be 0.233 million more Part B 
enrollees not in risk HMOs in FY 1995 than in FY 1994, which represents 
a 0.7 percent increase from FY 1994 to FY 1995 for surgical services, 
primary care services, other nonsurgical services, and the average of 
all physicians' services.

Factor 3--Average Annual Growth in VI of Physicians' Services for FY 
1990 Through FY 1994

    Section 1848(f)(2)(A)(iii) of the Act requires the Secretary to 
estimate the average annual percentage growth in the VI of physicians' 
services or of the category of physicians' services for FY 1990 through 
FY 1994. This estimate must be based upon information contained in the 
most recent annual report issued by the Board of Trustees of the 
Supplementary Medical Insurance Trust Fund (Trustees' Report).
    The data on the percentage increase in the VI of services in the 
Trustees' Report are based on historical trends in increases in allowed 
charges, which are not influenced by the Part B deductible. The volume 
performance standard rates of increase under this notice, however, have 
historically been compared to increases in expenditures, which are 
influenced by the Part B deductible. Section 1832(b) of the Act 
specifies that the Part B deductible will be $100 for CY 1991 and 
subsequent years. The effect of the deductible remaining fixed at $100 
is that the overall annual increases in allowed charges for MVPS 
physicians' services are lower than the overall annual increases in 
expenditures. Although we believe it would be consistent with a literal 
interpretation of section 1848(f)(2)(A)(iii) of the Act, it would be 
inappropriate to base the VI component on the lower 5-year growth in 
allowed charges and compare this with the higher growth in 
expenditures. Rather than adjust Factor 3 of the MVPS, as we have done 
in the past, to account for the effect of the fixed deductible, we will 
simply compare the MVPS to the growth in allowed charges. This has 
exactly the same effect as adjusting Factor 3 for the fixed deductible 
and comparing the MVPS to the growth in expenditures.
    Consistent with data contained in the Trustees' Report, we 
estimated Factor 3 using a definition of physicians' services that 
includes certain supplies and nonphysician services not otherwise 
included in computing the volume performance standard rates of increase 
(primarily durable medical equipment (DME) and ambulance services). We 
included data for these services because we were required to base the 
estimate on data contained in the Trustees' Report, and it was not 
feasible to recompute the data from the 5-year period to exclude these 
supplies and nonphysician services. We believe the inclusion of these 
nonphysician supplies and services in this component has a minimal 
effect on the estimate because the component measures rates of change. 
Since DME and ambulance services constitute only about 10 percent of 
the total charges used in the Trustees' Report, the rate of change for 
these nonphysician services and supplies would have to be significantly 
different from the rate of change for physicians' services to have any 
measurable impact on this VI increase factor. The volume increases for 
services performed in independent laboratories were included in the 
calculation of the physician increases. (Factor 3 is the only component 
of the volume performance standard rate of increase that was estimated 
using data that included nonphysician services and supplies.) The 5-
year average rate of increase in VI of physicians' services equals 4.4 
percent for surgical services, primary care services, other nonsurgical 
services, and the average of all physicians' services.

Factor 4--Percentage Increase in Expenditures for Physicians' Services 
Resulting from Changes in Law or Regulations in FY 1995 Compared with 
FY 1994

    Legislative changes enacted in OBRA '93 and changes in the 
regulations required by this law, implementation of the physician fee 
schedule (including refinements made in the RVUs for 1994 and 1995), 
and adjustments in the physician fee schedule updates will have an 
impact on the volume performance standard rates of increase for FY 
1995.
    The net effect of implementing the physician fee schedule after 
making the RVU refinements for 1994 and 1995 will increase payment 
rates and, therefore, the volume performance standard for primary care 
services. Similarly, the net effect of refining the RVUs and 
implementing the new fee schedule will reduce payment rates for most 
surgical services and many nonsurgical services other than primary 
care, thus, lowering the volume performance standard rates of increase 
for these services. Implementing the fee schedule will have no effect 
on the volume performance standard rates of increase for all 
physicians' services because the net effect of increases in payment for 
certain services and decreases in payment for other services will have 
a budget-neutral effect on payment for all physicians' services 
throughout the transition to the physician fee schedule. That is, 
payment rates are, in effect, being determined so that outlays for 
physicians' services under the physician fee schedule equal the outlays 
that would have occurred had the reasonable charge payment system been 
continued.
    The net adjustments to the physician fee schedule updates will have 
the effect of increasing the volume performance standard rates for 
surgical, primary care, and other nonsurgical services. Nonsurgical 
services other than primary care will also be affected by a payment 
freeze and a lower payment limit for clinical laboratory services. OBRA 
'93 also included a provision to lower payment for practice expenses 
for certain services paid under the physician fee schedule, which will 
have the effect of lowering the MVPS for both surgical and nonsurgical 
services. An OBRA '93 provision that limits payment for the anesthesia 
care team will also have the effect of reducing the MVPS for surgical 
services. After taking into account all of these provisions, this 
factor equals 5.3 percent for surgical services, 9.5 percent for 
primary care services, 0.7 percent for other nonsurgical services, and 
a weighted average of 3.5 percent for all physicians' services.

V. Other Required Information

A. Inapplicability of 30-Day Delay in Effective Date

    We usually provide a delay of 30 days in the effective date for 
final Federal Register documents. In this case, however, the volume 
performance standard rates of increase are required by law to be 
published in the last 15 days of October 1994 and are effective on 
October 1, 1994. Thus, the Congress has clearly indicated its intent 
that the rates of increase be implemented without the usual 30-day 
delay in the effective date and has foreclosed any discretion by us in 
this matter. Therefore, the requirement for a 30-day delay in the 
effective date does not apply to this notice. With regard to the 
physician fee schedule, the effective date will be January 1, 1995, 
which is more than 30 days beyond the publication date of this notice.

B. Collection of Information Requirements

    This notice does not impose information collection or recordkeeping 
requirements. Consequently, it need not be reviewed by the Office of 
Management and Budget under the authority of the Paperwork Reduction 
Act of 1980 (44 U.S.C. 3501 et seq.).

VI. Regulatory Impact Statement

A. Regulatory Flexibility Act

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless the Secretary certifies that a notice will not have 
a significant economic impact on a substantial number of small 
entities. For purposes of the RFA, States and individuals are not 
entities, but we consider all physicians to be small entities.
    We are not preparing a regulatory flexibility analysis since we 
have determined, and the Secretary certifies, that this notice will not 
have a significant economic impact on a substantial number of small 
entities.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis if a notice may have a significant impact 
on the operations of a substantial number of small rural hospitals. 
This analysis must conform to the provisions of section 604 of the RFA. 
For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.
    We are not preparing a rural impact analysis since we have 
determined, and the Secretary certifies, that this notice will not have 
a significant impact on the operations of a substantial number of small 
rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
final notice was reviewed by the Office of Management and Budget.

B. Effects of the Proposal for Physician Volume Performance Standard 
Rates of Increase (Inclusion of Outpatient Clinical Diagnostic 
Laboratory Services in the MVPS Category of Nonsurgical Services)

    The inclusion of clinical diagnostic laboratory services in the 
MVPS category of nonsurgical services beginning in FY 1996 is estimated 
to result in savings of $25 million in FY 1998 and $75 million in FY 
1999. These savings result from our current projections that growth in 
the volume and intensity of these services will exceed the overall 
growth in the volume and intensity of the other services in this 
category. However, $37 million of these savings will be used to offset 
the FY 1996 through FY 1999 estimated costs of two Medicare physician 
fee schedule changes: separate payment for care plan oversight of 
certain home health agency and hospice services ($15 million) and the 
inclusion of the end-stage renal disease monthly capitation payment in 
the fee schedule ($22 million). Both of these changes are described in 
the physician fee schedule final rule (BPD-789-FC), published elsewhere 
in this Federal Register issue.


(Sections 1848(d) and (f) of the Social Security Act) (42 U.S.C. 
1395w-4(d) and (f))

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: November 14, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: November 16, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-29915 Filed 12-1-94; 10:20 am]
BILLING CODE 4120-01-P