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1991.05.02 :  Medicare Physician Fees

Contact:  Bob Hardy (202) 245-6145
May 2, 1991

     In a report to Congress, HHS Secretary Louis W. Sullivan,
M.D., recommended today that Medicare fees for physician services
be increased by 2.2 percent in calendar year 1992.
     He also recommended goals for total Medicare spending for
physician services in fiscal year 1992.  Those goals, known as
Medicare Volume Performance Standards, are 6.2 percent for all
services, 4.1 percent for surgery and 7.1 percent for nonsurgical
services.
     In addition to general inflation, the elements considered in
setting the MVPS goals include the increase in the number of
Medicare beneficiaries, the aging of the beneficiary population,
the volume and intensity of physician services and other factors.
     "Medicare physician payments have increased at double-digit
rates in recent years, more than twice the overall inflation
rate," Secretary Sullivan said.  "Both the administration and
Congress recognize that a rate of increase so much higher than
overall inflation simply cannot be sustained."
     While the 6.2 percent spending goal is below past rates of
increase in spending, it is still higher than the combined
effects of price increases, enrollment growth and the aging of 
the beneficiary population.
     Gail Wilensky, Ph.D., administrator of the Health Care
Financing Administration, said, "This recommendation initiates a
process by which the department works together with Congress, the
Physician Payment Review Commission and the physician community
to assure an appropriate level of growth in Medicare physician
expenditures."
     The Physician Payment Review Commission is required to
review the secretary's MVPS recommendation and report to the
Congress on the results of its review by May 15.  The Congress
may then adopt the secretary's recommendation or enact a
different standard.  If the Congress does not take action to set
a Medicare Volume Performance Standard, the law provides for the
performance standard to be set automatically, based on a formula
specified in the law.
     Under the physician payment reform legislation, the
secretary is required to make his recommendation for a Medicare
Volume Performance Standard each year.  The Medicare Volume
Performance Standard is one factor considered in determining
future Medicare fee increases to physicians, as provided in the
physician payment law.  

     Under the physician payment reform legislation enacted in
the 1989 Omnibus Budget Reconciliation Act, the secretary is
required to make a recommendation for an update to the fee
schedule each year.  The secretary's recommendation takes into
account several factors, such as an index of the medical practice
costs, the Medicare Volume Performance Standard for the second
preceding fiscal year, the rate of increase in actual
expenditures for the same period and other factors.

     In recommending the 2.2 percent update for 1992, the
secretary was required to consider how the rate of increase in
Medicare physician payments for fiscal year 1990 compared to the
Medicare Volume Performance Standard for fiscal year 1990.
     The goal for fiscal year 1990 was 9.1 percent and physician
expenditures actually increased by 10.6 percent.  

     Dr. Wilensky said, "Our recommendation for a fee update for
1992 reflects the fact that the rate of increase in expenditures
was 1.5 percentage points over the goal."    

     As with the Medicare Volume Performance Standard, the
Physician Payment Review Commission is required to review the
secretary's recommendation and report to the Congress on the
results of its review by May 15.  The Congress may then adopt the
secretary's recommendation or enact a different update.  If the
Congress does not take action to set an update, the law provides
for the update to be set automatically, based on a formula
specified in the law.

     The 1992 update would be applied to the initial budget-
neutral fee schedule conversion factor to create actual payment
levels for 1992.  A proposed rule implementing the physician fee
schedule required by the 1989 Act is expected to be released in
the near future.

     The report submitted to Congress today also identifies the
department's plans to monitor the impact on utilization, access
and appropriateness of changes in Medicare physician payments
mandated by the 1989 Reconciliation Act.  

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