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The Centers for Medicare & Medicaid Services (CMS) today announced final payment policies and payment rates under the Medicare Physician Fee Schedule for physicians who treat Medicare beneficiaries. Total payments to physicians and other non-physician practitioners under Part B of Medicare are projected to increase by 1 percent in 2002, from $41.2 billion in 2001 to $41.7 billion.

The rule adds to the list of preventive services covered by Medicare annual glaucoma screenings for persons with Medicare coverage who are at high risk for contracting the disease, and medical nutrition therapy for those with diabetes or renal disease. The final rule also increases payment rates for screening mammography by nearly 17 percent, effective January 1, 2002.

The Medicare law requires that the update reflect inflation in the costs of medical goods and services, as well as actual spending compared to target spending – the sustainable growth rate or SGR. Designed by the Physician Payment Review Commission, the predecessor of the Medicare Payment Advisory Commission, this reformed formula was adopted by Congress as part of the Balanced Budget Act of 1997. Between 1998 and 2001, the new update formula worked well for physicians – the cumulative increase in the update was 15.9 percent compared to a medical inflation increase of 9.3 percent. The multi-year, statutory formula is designed to correct any such over-adjustments from prior years.

“The law designing the physician update is incredibly prescriptive,” said CMS Administrator Tom Scully. “The law gives us no flexibility in adjusting this multi-year formula.”

This formula, using new economic data from a slowing economy and high levels of expenditures for physicians’ services, has produced a negative update for the base physician fee calculation for calendar year 2002. As a result, although total spending is projected to increase by about 1 percent in 2002, the factor used to update payment rates for individual services will go down by 4.8 percent, and the conversion factor will be still lower (5.4% below 2001 levels). Still, even with this year’s adjustment, physician payment rates have increased well above the inflation rate under this payment system.

“The formula locks us in, there is no wiggle room,” said Scully. “However, in other areas, we are redoubling our efforts to find ways to make the Medicare program work better in other ways for physicians. In particular, our Physicians’ Open Door Initiative and our Physicians Issues Project have recently announced some concrete regulatory improvements for physicians. These efforts aim to free physicians up from paperwork to concentrate on patient care.”

The final rule will be published in the November 1 Federal Register.

NOTE: For information about CMS’s efforts to reduce regulatory burden, see the press releases on the CMS Website, as well as the Provider Education materials on Medicare Learning Network.