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1993.05.07 :  Medicare Fees for 1994

Contact:  Anne Verano
Friday, May 7, 1993                          (202) 690-6145

       HHS Secretary Donna E. Shalala recommended today that the
Medicare physician fees for calendar year 1994 be increased by
10.2 percent for surgical services, 6.6 percent for primary care
services and 4.6 percent for other nonsurgical services.
       The Medicare physician fee schedule, effective since the
beginning of 1992, sets the rates that Medicare pays doctors for
services to beneficiaries.
       Secretary Shalala's recommendations are consistent with a
budget proposal of President Clinton to save $200 million in
fiscal year 1994 and $1.25 billion over five years by limiting
the increases of physician fees.
       Even with the savings, however, Medicare spending on
physicians' services is projected to increase from $35.7 billion
in FY 1993 to $40.2 billion in FY 1994, a growth rate of 12.6
percent.
        For all medical services except primary care, the fee
increases proposed by the secretary are 2.0 percentage points
less than those that would be set by a statutory formula in the
absence of action by Congress. 
       The fee increases for primary care physicians are
protected at the level that would be reached under current law,
reflecting  
Clinton administration priorities of increasing the number of
primary care physicians and expanding access to basic and
preventive services.
     Under the formula prescribed by law, annual updates in
Medicare physician fees are based on two factors:
     o    An allowance for inflation in doctors' practice costs.
     o    The performance of doctors in meeting goals for the
          growth rate of Medicare spending for physicians'
          services in a prior year.
       Medicare spending for surgical services declined 3.3
percent in FY 1992, leading to the higher update calculated
according to the formula.  (See attached Fact Sheet.)
       The goals are known as Medicare Volume Performance
Standards. The proposed 1994 updates of the fee schedule reward
physicians because the growth rate of Medicare spending for their
services in FY 1992 was less than the MVPS for that year.
       Secretary Shalala recommended to Congress that the MVPS
spending goals for FY 1994 be set at 9.4 percent for surgical
services and 7.6 percent for nonsurgical services.  The 1994 MVPS

affects the 1996 fee updates.
       Included in the MVPS target are estimates of inflation,
growth in the number of Medicare enrollees, effects of the aging
of the enrollment population, changes in technology, volume and
intensity of physicians' services and other factors. 

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EDITOR'S NOTE: The Health Care Financing Administration, an
agency of the U.S. Department of Health and Human Services,
directs the Medicare and Medicaid programs, which help pay the
medical bills of 67 million Americans. HCFA's estimated fiscal
year expenditures are almost $230 billion.

                            FACT SHEET


      CALCULATING THE MEDICARE FEE SCHEDULE UPDATES FOR 1994
                                 

       If Congress does not legislate the Medicare fee schedule
updates for calendar year 1994, a formula set by law will
automatically establish the updates.  The formula uses two
factors:
     o    The estimated 1994 inflation rate of 2.4 percent for
          the costs of medical practice.
     o    The performance of physicians in meeting the FY 1992
          Medicare Volume Performance Standards, which are goals
          for the growth rate of Medicare spending for
          physicians' services.
       In FY 1992, the MVPS for Surgical Services was 6.5
percent, but Medicare spending for surgical services declined 3.3
percent.
     o    Under the statutory formula, the difference of 9.8
          percent is added to the 1994 inflation estimate of 2.4
          percent to calculate a 1994 update of 12.2 percent.
       In FY 1992, the MVPS for nonsurgical services was 11.2
percent, but expenditures by Medicare for nonsurgical services
increased 7.0 percent.
     o    The difference of 4.2 is added to the 2.4 percent
          inflation estimate to arrive at a 1994 update of 6.6
          percent.
       Under Secretary Shalala's recommendation, primary care
services would receive the 6.6 percent increase in fees, while
the updates for other physician services are reduced 2.0
percentage points to make them consistent with the president's FY
1994 budget proposals.
      
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