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1991.11.15 :  Inflation Adjustment of Medicare Physician Services Payment

Contact:  Bob Hardy (202) 245-6145
November 15, 1991                 

       The inflation adjustment of Medicare payments for
physicians' services will be 1.9 percent for calendar year 1992,
HHS Secretary Louis W. Sullivan, M.D., announced today.
       If Congress does not legislate the update for the next
year, the secretary is required to establish the rate according
to a formula set by law.      
       The update in the payments for medical services will be
applied to the new Medicare physician fee schedule that will be
implemented beginning Jan. 1, 1992.
       The Omnibus Budget Reconciliation Act of 1989 provided
major revisions of the Medicare system for paying physicians. It
requires creation of a national Medicare fee schedule based on
the work and overhead costs of providing each medical service. 
       It also provides for modification of the annual update
to reflect whether total Medicare spending for physician services
exceeded a performance standard for the second preceding fiscal
year.  The performance standard is established to define the
acceptable growth rate for Medicare spending on physicians'
services in each fiscal year.
       A notice announcing the update in Medicare physician fees
for 1992 will be published in the Federal Register.  As required
by 
law, the following methodology was used to calculate the 1.9
percent update: 

                             - More -
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       The Medical Economic Index estimates that the costs of
medical practice will increase in 1992 at a rate of 3.2 percent.
Congress in the Omnibus Budget Reconciliation Act of 1990
required that the MEI for 1992 be reduced by .4 percentage
points.  The MEI is further reduced by .9 to reflect the
percentage by which Medicare spending for physicians' services in
1990 exceeded the performance standard for that fiscal year.

       Total Medicare spending for physicians' services in 1990
increased at a rate of 10 percent, while the performance standard
for that year was 9.1 percent.

       The notice also establishes performance standard rates of
increase for the 1992 fiscal year.  The standards are 10 percent
for all physician services, 6.5 percent for surgical services and
11.2 percent for nonsurgical services.

       The performance standards are based on the increase in
fees, the projected increase in the number of Medicare
beneficiaries, the average annual growth in the volume and
intensity of physicians' services, and the estimated effects of
changes in law and regulations on Medicare spending for
physicians' services.

       A performance standard includes a behavioral adjustment to
account for increases in physicians' services in response to
Medicare payment changes.  Had this behavioral adjustment not
been included in the performance standard for FY 1990, that
standard
would have been set at 6.9 percent instead of 9.1 percent.  The
actual spending increase of 10 percent in FY 1990 demonstrates
the usefulness of the behavioral adjustment in predicting
expenditures for physicians' services.
 
       Without the behavioral adjustment, the 1990 spending
increase for physicians' services would have exceeded the 1990
performance standard by 3.1 percentage points instead of .9
percentage points. That would have resulted in a larger reduction
in the 1992 update of fees, although the law would limit such a
reduction in 1992 to 2 percentage points.

       Without the behavioral adjustment, the FY 1992 performance
standard would be set at 7.4 percent instead of 10 percent.


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