[Federal Register Volume 60, Number 236 (Friday, December 8, 1995)]
[Notices]
[Pages 63358-63366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29754]
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 /
Notices
[[Page 63358]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[BPD-828-FN]
RIN 0938-AH03
Medicare Program; Physician Fee Schedule Update For Calendar Year
1996 and Physician Volume Performance Standard Rates of Increase for
Federal Fiscal Year 1996
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Final notice.
-----------------------------------------------------------------------
SUMMARY: This final notice announces the calendar year 1996 updates to
the Medicare physician fee schedule and the Federal fiscal year 1996
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
calendar year 1996 is 3.8 percent for surgical services, -2.3 percent
for primary care services, and 0.4 percent for other nonsurgical
services. While it does not affect payment for any particular service,
there was a 0.8 percent increase in the update for all physicians'
services for 1996. The physician volume performance standard rates of
increase for Federal fiscal year 1996 are -0.5 percent for surgical
services, 9.3 percent for primary care services, 0.6 percent for other
nonsurgical services, and a weighted average of 1.8 percent for all
physicians' services.
In our July 26, 1995 proposed rule concerning revisions to payment
policies under the Medicare physician fee schedule for calendar year
1996, we proposed using category-specific volume and intensity growth
allowances in calculating the default Medicare Volume Performance
Standard (MVPS). We received 20 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 fee schedule entitled ``Medicare Program; Revisions
to Payment Policies and Adjustments to the Relative Value Units Under
the Physician Fee Schedule for Calendar Year 1996'' published elsewhere
in this Federal Register issue.
EFFECTIVE DATE: The volume performance standard rates of increase are
effective on October 1, 1995. The Medicare physician fee schedule
update is effective on January 1, 1996.
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section.
Content information: Contact either Don Thompson, (410) 786-4586,
or Rick Ensor, (410) 786-5617.
SUPPLEMENTARY INFORMATION:
I. Background and Summary of Legislation
A. The Physician Fee Schedule Update and Medicare Volume Performance
Standard
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, and a conversion factor. 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 conversion factor. The RVUs and anesthesia
base units reflect the relative amount of resources used by physicians
to furnish the service, and the geographic adjustment factor measures
practice cost differences between areas. The geographically adjusted
RVUs are multiplied by a conversion factor to obtain the physician fee
schedule payment amounts. The 1996 conversion factors are $15.28 for
anesthesia services, $40.7986 for surgical services, $35.4173 for
primary care services, and $34.6293 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 growth in actual expenditures for physicians' services
in the prior fiscal year.
The relationship between that growth and the volume
performance standard rate of increase.
Changes in the volume and intensity of services.
Access to services.
Other factors that may contribute to changes in the volume
and intensity of services or access to services.
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 (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
calendar year 1996 update would equal the 1996 MEI increased or
decreased by the difference between the rate of increase in
expenditures for fiscal year 1994 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
[[Page 63359]]
no restriction on upward adjustments to the MEI.
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
updates for the following calendar year.
The 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.
2. Medicare Volume Performance Standard Rates of Increase Section
1848(f) of the Act requires the Secretary to establish volume
performance standard rates of increase for Medicare expenditures for
physicians' services. The use of volume performance standard rates of
increase is intended to control the rate of increase in expenditures
for physicians' services.
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 fiscal year 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 health maintenance organization
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.
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 fiscal
year 1996 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 calendar year 1995 and calendar year 1996 contained in fiscal year
1996.
1.0 plus the Secretary's estimate of the percentage change
(divided by 100) in the average number of Part B enrollees (excluding
risk health maintenance organization enrollees) from fiscal year 1995
to fiscal year 1996.
1.0 plus the Secretary's estimate of the average annual
percentage growth (divided by 100) in the volume and intensity of all
physicians' services or of the category of physicians' services for
fiscal year 1990 through fiscal year 1995.
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 fiscal year 1996 as compared with expenditures for
physicians' services in fiscal year 1995.
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
fiscal year 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' Medicare Volume Performance Standard Rates of Increase
and Physician Fee Schedule Updates
MVPS rates have been established under section 1848 of the Act
since fiscal year 1990. Calendar year 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 fiscal year since
their inception, the actual rates of increase in expenditures, and the
corresponding updates in the second subsequent calendar year.
Fee Schedule Update
[In percent]
----------------------------------------------------------------------------------------------------------------
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
CY 1996:
Surgical.................................... 2.0 1.8 .............. 3.8
Primary care................................ 2.0 -4.3 .............. -2.3
Other Nonsurgical........................... 2.0 -1.6 .............. 0.4
----------------------------------------------------------------------------------------------------------------
[[Page 63360]]
Medicare Volume Performance Standard Rates of Increase
[In percent]
----------------------------------------------------------------------------------------------------------------
Fiscal year MVPS Actual Difference
----------------------------------------------------------------------------------------------------------------
FY 1990:
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 7.3 1.8
Primary care................................................ 10.5 14.8 -4.3
Other nonsurgical........................................... 9.2 10.8 -1.6
FY 1995:
Surgical.................................................... 9.2 .............. ..............
Primary care................................................ 13.8 .............. ..............
Other nonsurgical........................................... 4.4 .............. ..............
FY 1996:
Surgical.................................................... -0.5 .............. ..............
Primary care................................................ 9.3 .............. ..............
Other nonsurgical........................................... 0.6 .............. ..............
----------------------------------------------------------------------------------------------------------------
Separate MVPS rates for surgical and nonsurgical services were not required until fiscal year 1991. Separate fee
schedule updates were not required until calendar year 1993. Beginning with the calendar year 1994 fee
schedule update and the fiscal year 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
fiscal year 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.
As stated in our December 8, 1994 final notice (59 FR 63638)
announcing the fiscal year 1995 volume performance standard rates of
increase, we are including outpatient diagnostic laboratory tests paid
through intermediaries in the MVPS definition of physicians' services
beginning in fiscal year 1996 (59 FR 63640).
C. Definition of Surgical, Primary Care, and Other Nonsurgical Services
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
1987) (Public Law 100-203), enacted on December 22, 1987, we rely on
the conference report accompanying OBRA 1987 (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 1989) (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 1996 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
[[Page 63361]]
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 1995. For
the 1996 classification of the new 1995 codes, however, we used 6
months of 1995 data to determine whether they meet the criteria for
being considered surgical services. Based on these data, we did not
need to reclassify any codes as surgical or nonsurgical.
For 1996, we have classified monthly end-stage renal disease
services (HCPCS codes 90918 through 90921) as primary care services.
For a full discussion of this classification, see the final rule with
comment period entitled ``Medicare Program; Revisions to Payment
Policies and Adjustments to the Relative Value Units Under the
Physician Fee Schedule for Calendar Year 1996'' 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,
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 1996 are shown in
Addendum C of the physician fee schedule final rule, published
elsewhere in this Federal Register issue.
II. Analysis of and Responses to Public Comments
In our July 26, 1995 proposed rule (60 FR 38400) concerning
revisions to payment policies under the Medicare physician fee schedule
for calendar year 1996, we invited public comments on a proposal to use
category-specific volume and intensity growth allowances in calculating
the default MVPS (60 FR 38416). 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 physician fee schedule,
published elsewhere in this Federal Register issue. Our responses to
the comments follow:
Comment: Several commenters stated that the use of category-
specific volume and intensity growth allowances is counter to the
spirit of the MVPS since categories with higher than average volume and
intensity growth receive higher MVPS targets, and categories with lower
than average volume and intensity growth receive lower targets.
Response: The use of category-specific volume and intensity is more
consistent with section 1848(f)(2)(A) of the Act, which describes the
calculation of the volume performance standards. Section 1848(f)(2)(A)
states that one of the factors in calculating the volume performance
standards for all physicians' services and for each category of
physicians' services shall be equal to ``1 plus the Secretary's
estimate of the annual percentage growth (divided by 100) in the volume
and intensity of all physicians' services or of the category of
physicians' services, respectively, under this part for the 5-fiscal-
year period ending with the preceding fiscal year * * *'' As stated in
our July 26, 1995 proposed rule, although historically the data
available to us allowed an accurate estimate of the overall growth in
the volume and intensity of physicians' services, they did not allow us
to estimate the volume and intensity growth for each individual
category of service with the degree of accuracy required for the MVPS
calculation. More recent data now allow us to do this. So while it is
true that the targets move in the direction of volume and intensity
growth, this is a result of the statutory volume performance standard
methodology.
Comment: Several commenters stated that the proposed change in
methodology does not take into account the ``appropriateness'' of the
differential volume and intensity growth allowances.
Response: As stated in the response to the prior comment, the use
of category-specific volume and intensity growth allowances is more
consistent with section 1848(f)(2)(A) of the Act. The appropriateness
of the volume performance standards in any given year, or of the
statutory methodology itself, can be handled through the MVPS
recommendation process. Section 1848(f)(1) of the Act requires the
Secretary and the Physician Payment Review Commission to provide
recommendations to the Congress on the MVPS for the coming year. The
Congress can choose to act on these recommendations or can set the MVPS
itself.
Comment: One commenter opposed the use of category-specific volume
and intensity growth allowances on the grounds that it was a
``stopgap'' policy and recommended a legislative change to a single
conversion factor and volume performance standard.
Response: As we stated in our July 26, 1995 proposed rule, we
proposed this change in our regulations to address immediate problems
in the physician fee schedule. The Act does not allow us to create a
single conversion factor and volume performance standard for all
Medicare physician fee schedule services.
Comment: One commenter believed that we provided no justification
for our proposal other than to increase payment for primary care
services.
Response: As stated above, the use of category-specific volume and
intensity is more consistent with section 1848(f)(2)(A) of the Act. In
addition, although for fiscal year 1996 this change in methodology
would result in a higher primary care MVPS, this does not necessarily
mean the change would have a similar result in future years. The impact
on any individual category of physicians' services is dependent on the
future relationship between the average volume and intensity growth for
that category and for physicians' services overall. If future growth in
the volume and intensity of primary care services is lower than overall
growth in physicians' services, this change would result in a lower
MVPS for primary care services. Similar reasoning applies to the
categories of surgical services and nonsurgical services other than
primary care.
Comment: Several commenters believed that use of category-specific
volume and intensity growth allowances would provide a more accurate
baseline against which to compare volume and intensity growth. They
also stated that the proposal was more consistent with our use of
category-specific estimates of the MVPS factors for the weighted-
average increase in physicians' fees and the percentage change in
expenditures
[[Page 63362]]
resulting from changes in law or regulations.
Response: The use of category-specific volume and intensity growth
will make the volume performance standards more comparable with the
actual growth in allowed charges for a given category of physicians'
services. In addition, we agree that the use of category-specific
volume and intensity growth allowances is more consistent with our use
of category-specific estimates of the MVPS factors for fees and changes
in law or regulations. The language in section 1848(f)(2)(A) of the Act
regarding these two MVPS factors is similar to the language describing
the volume and intensity factor.
Final decision: Beginning with fiscal year 1996, we will use
category-specific volume and intensity growth allowances in calculating
the default volume performance standards.
III. Provisions of This Final Notice
A. Physician Fee Schedule Update for Calendar Year 1996
Under the requirements of section 1848(d)(3) of the Act, the fee
schedule update for calendar year 1996 will be 3.8 percent for surgical
services, -2.3 percent for primary care services, and 0.4 percent for
other nonsurgical services. While it does not affect payment, there was
a 0.8 percent increase in the update for all physicians' services for
1996. We determined this update as follows:
----------------------------------------------------------------------------------------------------------------
Surgical Primary care Nonsurgical
services services services
----------------------------------------------------------------------------------------------------------------
1996 MEI........................................................ 2.0 2.0 2.0
MVPS Adjustment................................................. 1.8 -4.3 -1.6
1996 Update..................................................... 3.8 -2.3 0.4
----------------------------------------------------------------------------------------------------------------
In our July 26, 1995 proposed rule (60 FR 38400) concerning
revisions to payment policies under the Medicare physician fee schedule
for calendar year 1996, we proposed applying budget-neutrality
adjustments to the conversion factors rather than to the RVUs (60 FR
38401 to 38402). As discussed in the physician fee schedule final rule,
published elsewhere in this Federal Register issue, the 0.36 percent
budget-neutrality adjustment for 1996 will be made on the conversion
factors. However, if in the future the Congress explicitly sets a
conversion factor at a fixed dollar amount for a given year, we will
consider establishing a separate budget-neutrality adjuster or applying
the adjustment to the RVUs.
Applying the updates and budget neutrality adjustment to the 1995
conversion factors of $39.447 for surgical services (other than
anesthesia services), $36.382 for primary care services, and $34.616
for nonsurgical services yields 1996 conversion factors of $40.7986 for
surgical services, $35.4173 for primary care services, and $34.6293 for
other nonsurgical services. The 1995 anesthesia conversion factor of
$14.77, which includes the effect of the 1995 RVU budget-neutrality
adjustment, will be updated by the surgical update to $15.28 for 1996,
after adjusting for the 1996 budget-neutrality adjustment.
The specific calculations to determine the fee schedule updates for
physicians' services for calendar year 1996 are explained in section
IV.A. of this notice.
B. Physician Volume Performance Standard Rates of Increase for Fiscal
Year 1996
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 fiscal year 1996 are -0.5 percent
for surgical services, 9.3 percent for primary care services, 0.6
percent for other nonsurgical services, and a weighted average of 1.8
percent for all physicians' services.
This determination is based on the following legislative factors:
----------------------------------------------------------------------------------------------------------------
Surgical Primary care Nonsurgical
Legislative factors services services services
----------------------------------------------------------------------------------------------------------------
Fees............................................................ 2.1 2.1 2.3
Enrollment...................................................... -0.3 -0.3 -0.3
Volume and Intensity............................................ 2.3 5.3 5.1
Legislation..................................................... -0.6 5.7 -2.4
Performance Standard Factor..................................... 4.0 4.0 4.0
-----------------------------------------------
Total..................................................... -0.5 9.3 0.6
----------------------------------------------------------------------------------------------------------------
[[Page 63363]]
The specific calculations to determine the volume performance
standard rates of increase for physicians' services for fiscal year
1996 are explained in section IV.B. of this notice.
IV. Detail on Calculation of the Calendar Year 1996 Physician Fee
Schedule Update and the Fiscal Year 1996 Physician Volume Performance
Standard Rates of Increase
A. Physician Fee Schedule Update
1. The Percentage Change in the Medicare Economic Index
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's 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 man-hour for the
nonfarm business sector to eliminate double counting for productivity
growth in physicians' offices and the general economy.
The physician's practice expense category represents the rate of
price growth in nonphysician inputs to the production of services in
physicians' 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 man-hour for the nonfarm business sector. The physician's
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 1996 update. The calendar year 1996 MEI is 2.0 percent.
Increase in the Medicare Economic Index
[Update for Calendar Year 1996 1]
------------------------------------------------------------------------
CY 1966
1989 percent
weights 2 changes
------------------------------------------------------------------------
Medicare Economic Index Total................. 100.0 2.0
1. Physician's Own Time 3 4............... 54.2 1.7
a. Wages and Salaries: Average hourly
earnings private nonfarm, net of
productivity......................... 45.3 1.6
b. Fringe Benefits: Employment Cost
Index, benefits, private nonfarm, net
of productivity...................... 8.8 2.1
2. Physician's Practice Expense 3......... 45.8 2.4
a. Nonphysician Employee Compensation. 16.3 1.9
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 2.8
b. Office Expense: Consumer Price
Index for Urban Consumers (CPI-U),
housing.............................. 10.3 2.4
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 2.8
d. Professional Liability Insurance:
HCFA professional liability insurance
survey 5............................. 4.8 2.9
e. Medical Equipment: PPI, medical
instruments and equipment............ 2.3 0.9
f. Other Professional Expense......... 6.9 3.3
1. Professional Car: CPI-U,
private transportation........... 1.4 4.8
2. Other: CPI-U, all items less
food and energy.................. 5.5 2.9
Addendum:
Productivity: 10-year moving average of
output per man-hour, 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 2.8
Fringe benefits, not productivity
adjusted............................. 8.8 3.3
Nonphysician Employee Compensation, not
productivity adjusted.................... 16.3 3.1
Wages and salaries, not productivity
adjusted............................. 13.8 3.0
Fringe benefits, not productivity
adjusted............................. 2.5 4.0
------------------------------------------------------------------------
\1\ The rates of change are for the 12-month period ending June 30,
1995, which is the period used for computing the calendar year 1996
update. The price proxy values are based upon the latest available
Bureau of Labor Statistics data as of September 1995.
\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 calendar year 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+.028=1.028 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 (1.028/.012=1.016. 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.
[[Page 63364]]
\5\ Derived from a HCFA survey of several major insurers (the latest
available historical percent change data are for calendar year 1994).
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. Medicare Volume Performance Standard Performance Adjustment
As required by section 1848(d)(3)(B)(i) of the Act, we are
increasing the update by 1.8 percentage points for surgical services
and decreasing it by 4.3 percentage points for primary care and 1.6
percentage points for other nonsurgical services to reflect the
percentage increase in expenditures between fiscal year 1993 and fiscal
year 1994 relative to the volume performance standard rates of increase
for fiscal year 1994.
Our estimate of the percentage growth in surgical services between
fiscal year 1993 and fiscal year 1994 is 7.3 percent. Because the
volume performance standard rate of increase for fiscal year 1994 was
9.1 percent, the rate of increase in expenditures for surgical services
was less than the volume performance standard rate of increase by 1.8
percentage points. For primary care services, the rate of increase in
expenditures was 14.8 percent, 4.3 percentage points greater than the
volume performance standard rate of increase of 10.5 percent. For other
nonsurgical services, the rate of increase in expenditures was 10.8
percent, 1.6 percentage points greater than the volume performance
standard rate of increase of 9.2 percent.
B. Fiscal Year 1996 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 fiscal year 1996.
Factor 1--Weighted-Average Percentage Increase in Fees for Physicians'
Services (Before Applying Legislative Reductions) for Months of
Calendar Years 1995 and 1996 Included in Fiscal Year 1996
This factor was calculated as a weighted average of the fee
increases that apply to fiscal year 1996; that is, the fee increases
that apply to the last 3 months of calendar year 1995 multiplied by 25
percent plus the fee increases that apply to the first 9 months of
calendar year 1996 multiplied by 75 percent. Beginning with calendar
year 1992, physicians' services are updated by a physician fee schedule
update factor that is based on the MEI adjusted for several statutory
factors. The update factor for a category of physicians' services for
calendar year 1996 is adjusted by the number of percentage points that
the rate of increase in expenditures in fiscal year 1994 compared to
fiscal year 1993 was less than the volume performance standard rate of
increase for the category of physicians' services in fiscal year 1994.
Laboratory services are updated by increases in the Consumer Price
Index for Urban Consumers (CPI-U).
Table 2 shows the updates that were used to determine the weighted-
average percentage increase in physician fees.
Table 2.--Medicare Economic Index and Consumer Price Index for Urban
Consumers for Calendar Years 1995 and 1996
------------------------------------------------------------------------
1995 1996
------------------------------------------------------------------------
MEI..................................................... 2.1 2.0
CPI-U................................................... 2.8 3.2
------------------------------------------------------------------------
Physicians' services make up approximately 90 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 approximately 10 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
calendar year to enroll as participating physicians for the next
calendar year. 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 fiscal year 1996 before applying the legislative changes
will be 2.1 percent for surgical services, 2.1 percent for primary care
services, 2.3 percent for other nonsurgical services, and a weighted
average of 2.2 percent for all physicians' services.
Factor 2--The Percentage Increase in the Average Number of Part B
Enrollees from Fiscal Year 1995 to Fiscal Year 1996
We estimate that average Medicare Part B enrollment in fiscal year
1996 will be 36.2 million. Decreasing that figure by the estimated
enrollment in risk health maintenance organizations of 3.1 million
(those enrolled in risk health maintenance organizations 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 33.0 million Part B enrollees in fiscal
year 1996 not in risk health maintenance organizations.
The corresponding figures for 1995 are estimated to be 35.5 million
total Part B enrollees and 2.4 million risk health maintenance
organization enrollees, which result in an estimate of 33.1 million
Part B enrollees not in risk health maintenance organizations. We
estimate that there will be 0.1 million fewer Part B enrollees not in
risk health maintenance organizations in fiscal year 1996 than in
fiscal year 1995, which represents a -0.3 percent decrease from fiscal
year 1995 to fiscal year 1996 for surgical services, primary care
services, other nonsurgical services, and the average of all
physicians' services.
Factor 3--Average Annual Growth in the Volume and Intensity of
Physicians' Services for Fiscal Year 1991 through Fiscal Year 1995
Section 1848(f)(2)(A)(iii) of the Act requires the Secretary to
estimate the average annual percentage growth in the volume and
intensity of physicians' services or of the category of physicians'
services for fiscal year 1991 through fiscal year 1995. 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 volume and intensity of
services in the Trustees' Report are based on historical trends in
increases in allowed
[[Page 63365]]
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 calendar year
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 volume and intensity component on
the lower 5-year growth in allowed charges and compare the volume
performance standards to the higher growth in expenditures, so we
instead compare the standards to the growth in allowed charges.
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 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 durable medical equipment 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 volume and intensity
increase factor. (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 volume increases
for services performed in independent laboratories were included in the
calculation of the physician increases, as were the volume increases
for clinical laboratory tests performed in hospital outpatient
departments.
As described earlier, the fiscal year 1996 volume performance
standards were calculated using category-specific volume and intensity.
The 5-year average rate of increase in volume and intensity equals 2.3
percent for surgical services, 5.3 percent for primary care services,
5.1 percent for other nonsurgical services. The weighted-average
increase for all physicians' services is 4.4 percent.
Factor 4--Percentage Increase in Expenditures for Physicians' Services
Resulting from Changes in Law or Regulations in Fiscal Year 1996
Compared with Fiscal Year 1995
Legislative changes enacted in OBRA 1993 and changes in the
regulations required by this law, as well implementation of the
physician fee schedule (including refinements made in the RVUs for 1995
and 1996) will have an impact on the volume performance standard rates
of increase for fiscal year 1996.
The net effect of implementing the physician fee schedule after
making the RVU refinements for 1995 and 1996 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 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.
The net adjustments to the physician fee schedule updates will have
the effect of increasing the volume performance standard rate for
surgical services and decreasing the rate for primary care services. It
will have no effect on the rate for other nonsurgical services. OBRA
1993 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. After taking into account these provisions, this factor
equals -0.6 percent for surgical services, 5.7 percent for primary care
services, and -2.4 percent for other nonsurgical services, and a
weighted average of -0.5 percent for all physicians' services.
V. 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 1995 and are effective on
October 1, 1995. 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, 1996,
which is more than 30 days beyond the publication date of this notice.
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.
[[Page 63366]]
B. Effects of the Proposal for Using Category-Specific Volume and
Intensity Growth Allowances in Calculating the Physician Volume
Performance Standard Rates of Increase
The use of category-specific volume and intensity growth allowances
in the calculation of the MVPS is budget-neutral overall, although it
does have redistributional effects on the surgical, nonsurgical, and
primary care categories.
In accordance with the provisions of Executive Order 12866, this
notice was reviewed by the Office of Management and Budget.
(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 28, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: December 1, 1995.
Donna E. Shalala,
Secretary.
[FR Doc. 95-29754 Filed 12-1-95; 4:08 pm]
BILLING CODE 4120-01-P
