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Date: Tuesday, Aug. 6, 1996
FOR IMMEDIATE RELEASE
Contact:  HCFA Press Office, (202) 690-6145

HHS Secretary Donna E. Shalala today recommended to Congress an update for physician fees in 1997 of 0.8 percent, as well as elimination of payment differentials that now exist among different categories of services. The recommendations were also included in the President's fiscal year 1997 budget proposals.

Under the current system, payment for services with the same amount of work can vary, depending on whether the service is defined as surgical, primary care or other nonsurgical. The President's FY 1997 budget proposed eliminating payment differentials based on these categories. This would be accomplished by establishing a single conversion factor for the Medicare physician fee schedule.

"Our physician fee proposal is part of a longer-term change in the way Medicare updates payment for physician fees and the way goals are established that set the rate of future growth for physician services," Secretary Shalala said. "If enacted, these reforms alone would achieve savings of $10.7 billion from fiscal year 1997 through 2002."

In a report to Congress, Secretary Shalala said the update recommendation would require Congress to change the law covering Medicare's payments to physicians. If Congress fails to enact Secretary Shalala's recommendation by Oct. 31, the physician fee update will be based on a "default" formula set by a 1989 law and will go into effect on Jan. 1.

The "default" estimate under the current law's formula would result in increases for Medicare physician fees of 2.1 percent for surgical services and 2.7 percent for primary care services. Fees would be lowered by 0.6 percent for other nonsurgical services. This would result in a weighted average update of 0.8 percent for all physician services. These estimates are subject to change later in the year when more complete data are available.

Medicare spending on physician services is projected to increase from $33.5 billion in FY 1996 to $35.1 billion in FY 1997, a 4.8 percent increase.

Current law also requires the Secretary to set volume performance standards, which establish goals for the rate of growth in expenditures for physician services. The standards incorporate a formula that uses a five-year average of the growth in the volume and intensity of physician services. The 1997 standards will affect the 1999 fee updates.

Consistent with the President's FY 1997 budget, Secretary Shalala recommended replacing the volume performance standards with a single target based on a new sustainable growth rate (SGR) system.

The volume performance standards, which differ by service category, are based on the estimated inflation rate, the projected growth in the number of Medicare beneficiaries, changes in spending due to law or regulation, and other factors. Under SGR, a single target would be established for growth in the volume and intensity of services, based on growth in the gross domestic product.

Pursuant to SGR, the Secretary's recommendation was a 2.6 percent increase for all physician services.

"The Administration's proposal would change the methodology used in calculating the target growth rates for Medicare physician expenditures," said Bruce Vladeck, administrator of the Health Care Financing Administration, which oversees the Medicare program.

Under the current formula, the estimate of the performance standards is a 0.1 percent increase for all physician services, a 5.1 percent increase for primary care services, a 1.5 percent decrease for surgical services, and a 0.8 percent decrease for other nonsurgical services.

"This change to a single target breaks the link with historical levels of the volume and intensity of physician services, and ties future Medicare spending for physician services to overall economic growth," Vladeck said.