[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
_______________________________________________________________________
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.
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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