63358 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

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.

ADDRESSES: Copies: To order paper

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FOR FURTHER INFORMATION CONTACT:

Ordering information: See ADDRESSES

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
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 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]

Calendar year MEI Performance

adjustment

Legislative

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
63360 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

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 longterm 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
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 63361

assist us in making these

determinations, we considered the typeof-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 categoryspecific 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 weightedaverage increase in physicians’ fees and

the percentage change in expenditures
63362 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

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:

[In percent]

Surgical servicesPrimary care

services

Nonsurgical

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 budgetneutrality 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 budgetneutrality 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:

[In percent]

Legislative factors Surgical

services

Primary care

services

Nonsurgical

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
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 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 weightedaverage 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]

1989

weights 2

CY 1966

percent

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

1The 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. 2The 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. 3The 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. 4The 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.
63364 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

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 weightedaverage 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
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 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 weightedaverage 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.
63366 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

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 budgetneutral 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