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[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Appendices]
[Appendix D. Medicare Reimbursement to Hospitals]
[From the U.S. Government Printing Office, www.gpo.gov]

 
     APPENDIX D. MEDICARE REIMBURSEMENT TO HOSPITALS AND PHYSICIANS

                                CONTENTS

                           Part I: Hospitals

General Summary
Basic Payment System
  Update Factors
  Prospective Payment System Update Factors and Increases in 
            Operating Payments
  Source and Calculation of the Hospital Wage Index
  Sample Payment Calculation
Additional Payment Amounts
  Graduate Medical Education
  Disproportionate Share Hospitals
  ESRD Beneficiary Discharges
  Outliers
Payment for Capital
Payments on a Reasonable Cost Basis
  Physicians in Teaching Hospitals
  Qualified Nonphysician Anesthetists in Certain Rural 
            Hospitals
  Organ Acquisition Costs
  Passthrough Payments for Hemophilia Inpatients
  Bad Debts of Medicare Beneficiaries
Special Treatment of Certain Facilities Under PPS
  Sole Community Hospitals
  Medicare Dependent Hospitals
  Referral Centers
  Critical Access Hospitals
  Geographic Reclassification of Hospitals
Hospitals Excluded From the Prospective Payment System
  PPS-Exempt Hospitals
  State Systems
Administration
  Prospective Payment Assessment Commission/Medicare Payment 
            Advisory Commission
  Administrative and Judicial Review
  Review Activities
Historical Trends in PPS Payments, Costs, and Margins
  Medicare Payments to Hospitals
  Trends in PPS Operating Payments and Costs
  PPS Inpatient Margins
  Inpatient Margins by Hospital Type
  Total Margins
  Additional Hospital Data

                          Part II: Physicians

Physician Payment Reform
Medicare Fee Schedule
  Relative Value Unit
  Geographic Adjustment Factor
  Conversion Factor
  Payment Formula
Sustainable Growth Rate and Conversion Factor Updates
Limits on Beneficiary Liability
Initial Impact of the Balanced Budget Act on Medicare Payments 
        to Physicians
Historical Data
  Assignment Rate Experience
  Participating Physician Program Data
  Distribution of Physician Services
References

                           PART I: HOSPITALS

                            GENERAL SUMMARY

    Medicare pays for inpatient hospital care using 
prospectively set rates established by the prospective payment 
system (PPS). PPS started for hospital cost reporting periods 
beginning on or after October 1, 1983. PPS was enacted by the 
Social Security Amendments of 1983 (Public Law 98-21). This 
appendix describes the major reimbursement provisions of PPS.
    Medicare payments are made at predetermined, specific rates 
which represent the average cost, nationwide, of treating a 
Medicare patient according to his or her medical condition. The 
classification system used to group hospital inpatients 
according to their diagnoses is known as diagnosis-related 
groups (DRGs). Payments to hospitals will vary depending on 
whether a hospital is located in a large urban area (greater 
than 1 million population, or 970,000 in New England) or other 
area of the country, as determined by the Office of Management 
and Budget metropolitan statistical area (MSA) system.
    During a 4-year transition period, a declining portion of 
the total prospective payment was based on a hospital's 
historical reasonable costs and an increasing portion was based 
on a combination of regional and national Federal DRG rates. 
Since the fifth year of the program (fiscal year 1988), 
Medicare payments have been generally determined under a 
national DRG payment methodology. If a hospital can treat a 
patient for less than the payment amount, it can keep the 
savings. If the treatment costs more, the hospital must absorb 
the loss. A hospital is prohibited from charging Medicare 
beneficiaries any amounts (except for deductibles, copayment 
amounts, and services not covered by Medicare) which represent 
any difference between the hospital's cost of providing covered 
care and the Medicare DRG payment amount.
    Certain hospital costs are excluded from the PPS and are 
paid on a reasonable cost basis, subject to rate of increase 
limits. Authority is provided for States to establish their own 
all-payer hospital payment systems if they meet certain Federal 
requirements.

                          BASIC PAYMENT SYSTEM

    Unless excluded from PPS, each Medicare participating 
hospital is paid a predetermined payment rate per discharge for 
each type of patient treated. Types of patients are defined by 
the DRG patient classification system which assigns each 
hospital inpatient to one of 499 patient categories (DRGs) 
based on the diagnosis and the type of treatment received 
(medical or surgical).
    A hospital's DRG payment is the product of two components: 
(1) a standardized amount which is adjusted by the hospital's 
area average wage level; and (2) the DRG's relative weight. The 
standardized amount is intended to represent the cost of a 
typical (average) Medicare inpatient case. Two separate 
standardized amounts are calculated: one amount applies to 
hospitals in large urban areas and the other amount applies to 
hospitals in other areas. The DRG weight represents the 
relative costliness of an average case in the particular DRG 
compared to the cost of the average Medicare case.

                             Update Factors

    PPS payment rates are updated each year using an ``update 
factor.'' The annual update factor applied to the standardized 
amounts is determined, in part, by the projected increase in 
the hospital market basket index (MBI). The MBI measures the 
cost of goods and services purchased by hospitals, yielding one 
price inflator for all hospitals in a given year. Table D-1 
shows the categories of expense used in developing the index. 
The update factor may include adjustments for increases in 
hospital productivity, technological change, and other factors 
that affect the level of operating cost per discharge. The 
annual update factor may also be adjusted to correct for 
increases in average payments per case attributable to 
increases in case mix due to improvements in coding and 
reporting accuracy.
    Before fiscal year 1988, the same factor was used for all 
hospitals; however, in subsequent years separate factors were 
applied to hospitals according to their locations. However, 
beginning October 1, 1995, a single update factor applied for 
all hospitals in all areas. Table D-2 compares the hospital 
market basket increases to actual updates for past years and 
shows the increases in PPS payments per case that resulted from 
the updates and other policy changes.
    The Balanced Budget Act of 1997 (BBA 1997) sets the update 
for fiscal year 1998 at 0 percent; fiscal year 1999 at the MBI 
minus 1.9 percent; fiscal year 2000 at the MBI minus 1.8 
percent; fiscal years 2001 and 2002 at the MBI minus 1.1 
percent; and for fiscal year 2003 and each subsequent fiscal 
year, at the MBI percentage increase for all hospitals in all 
areas.

  TABLE D-1.--HOSPITAL PROSPECTIVE PAYMENT SYSTEM INPUT PRICE INDEX (``THE MARKET BASKET'') EXPENSE CATEGORIES AND RATES OF PRICE CHANGE, FISCAL YEARS
                                                                        1993-2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Base-year                     Federal fiscal year percentage rates of price change
                                                       1992    -----------------------------------------------------------------------------------------
                 Expense category                  weights \1\
                                                    (percent)   1993 \2\  1994 \2\  1995 \2\  1996 \2\  1997 \2\  1998 \2\  1999 \2\  2000 \3\  2001 \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Wages and salaries \4\...........................      50.24         3.1       3.0       2.7       2.9       2.8       3.5       3.2       3.5       3.4
Employee benefits \4\............................      11.15         5.7       4.2       2.7       2.1       1.5       2.4       2.6       3.5       3.3
Professional fees: Nonmedical \4\................       2.13         4.2       3.4       2.6       3.0       2.6       3.2       3.0       3.4       3.6
Utilities........................................       1.54         3.7       2.5       0.3       1.4       2.3       0.3      -0.6       2.9       1.7
    Electricity..................................       0.93         2.2       1.5       2.4       0.2       0.1      -0.8      -1.1       1.5       1.0
    Fuel oil, coal, etc..........................       0.37         6.1       3.2      -6.7       2.6       7.7       0.2      -1.7       6.4       1.3
    Water and sewerage...........................       0.25         5.9       5.2       3.5       3.9       2.5       3.8       2.3       2.4       4.2
Liability insurance..............................       1.19         3.4      -0.7      -3.4      -1.1      -1.5      -0.4       1.3       2.3       2.3
All other........................................      33.75         2.1       1.6       4.5       1.9       1.1       2.3       1.5       2.7       2.6
    All other products...........................      24.83         1.8       1.2       5.1       1.8       0.3       1.9       1.1       2.5       2.4
        Pharmaceuticals..........................       4.16         5.0       3.5       2.5       3.8       2.6      13.8       8.4       2.8       3.6
        Food: Direct purchase....................       2.31         1.0       1.9       0.1       5.0       1.8      -1.7      -0.7       1.3       2.2
        Food: Contract service...................       1.07         1.7       1.7       2.2       2.3       2.9       2.6       2.5       2.7       3.7
        Chemicals................................       3.67         1.4       0.5      14.7      -1.0       0.3      -2.8      -4.2       6.0       3.8
        Medical instruments......................       3.08         2.3       0.8       1.1       1.4      -0.8      -1.3      -0.3      -0.6       0.8
        Photographic supplies....................       0.39        -1.0       0.4       0.6       2.9       0.3      -0.4      -0.5      -1.3       0.7
        Rubber and plastics......................       4.75         0.9       0.8       5.6       0.6      -0.6      -0.4      -0.5       2.1       1.7
        Paper....................................       2.08        -0.3       0.1      13.3       2.5      -4.9       2.3       0.0       4.3       2.0
        Apparel..................................       0.87         1.3       0.2       0.5       0.7       0.5       0.7       0.5      -0.3       0.5
        Machinery and equipment..................       0.21         0.4       0.8       1.0       0.5      -0.5      -0.8      -0.6      -0.2       0.1
        Miscellaneous............................       2.24         1.6       0.4       1.7       2.4       1.3      -0.9       1.0       2.9       1.1
    All other services...........................       8.93         2.9       2.6       2.6       2.0       3.2       3.3       2.7       3.2       3.3
        Telephone................................       0.58         0.2       1.8       0.8       1.2       1.9       0.4      -0.4       0.8       0.8
        Postage \4\..............................       0.27         0.0       0.0       7.7       2.4       0.0       0.0       2.2       0.7       2.3
        All other labor intensive \4\............       7.28         3.2       2.7       2.5       2.0       3.5       3.8       3.0       3.5       3.6
        All other nonlabor intensive.............       0.80         3.0       2.6       2.8       2.8       2.7       1.6       1.9       2.9       2.4
                                                  ------------------------------------------------------------------------------------------------------
            Total................................     100.00         3.1       2.6       3.1       2.4       2.0       2.9       2.5       3.2       3.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Weights may not sum due to rounding.
\2\ Historical data, subject to revision of underlying series.
\3\ Projected data, subject to change in future forecasts.
\4\ Considered labor related.

 Source: Health Care Financing Administration, Office of the Actuary.

 TABLE D-2.--COMPARISON OF INCREASE IN PPS HOSPITAL MARKET BASKET INDEX, AVERAGE PPS UPDATE, AND INCREASE IN PPS
                                     PAYMENTS PER CASE, FISCAL YEARS 1984-97
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                    Forecasted                      Increase in
                                                                    increase in   Average update     operating
                           Fiscal year                             market basket        \2\        payments per
                                                                     index \1\                       case \3\
----------------------------------------------------------------------------------------------------------------
1984............................................................             4.9             4.7            18.5
1985............................................................             4.0             4.5            10.5
1986............................................................             4.3             0.5             3.2
1987............................................................             3.7             1.2             5.4
1988............................................................             4.7             1.5             6.0
1989............................................................             5.4             3.3             6.6
1990............................................................             5.5             4.7             6.5
1991............................................................             5.2             3.4             6.0
1992............................................................             4.4             3.0             5.2
1993............................................................             4.1             2.7             3.8
1994............................................................             4.3             2.0             3.6
1995............................................................             3.6             2.0             4.0
1996............................................................             3.5             1.5             4.2
1997............................................................             2.5             2.0            2.5
----------------------------------------------------------------------------------------------------------------
\1\ Based on data available when final prospective payment system rates were set.
\2\ From 1988 to 1995, there were separate updates for hospitals in large urban, other urban, and rural areas.
  Update for 1990 adjusted to reflect 1.22 percent across-the-board reduction in DRG weights.
\3\ Data on prospective payment system operating payments for 1984 through 1997 are for hospital accounting
  years beginning during each Federal fiscal year. Changes are based on cohorts of hospitals with Medicare Cost
  Reports in two consecutive years.

 Source: Medicare Payment Advisory Commission.

  Prospective Payment System Update Factors and Increases in Operating 
                                Payments

    Public Law 98-21 required the Secretary to adjust the DRG 
definitions and relative weights in fiscal year 1986 and at 
least every 4 years thereafter to reflect changes in treatment 
patterns, technology, and other factors which may change the 
relative use of hospital resources. Public Law 99-509, however, 
required the Secretary to adjust the DRG definitions and 
relative weights each year, beginning in fiscal year 1988.
    The Omnibus Budget Reconciliation Act (OBRA) of 1989 
required the Secretary to reduce the relative weight for each 
DRG by 1.22 percent for discharges in fiscal year 1990. In 
addition, the Secretary was prohibited from adjusting DRG 
relative weights on other than a budget neutral basis beginning 
in fiscal year 1991.
    Table D-3 shows the 25 DRGs accounting for the largest 
numbers of Medicare inpatient discharges during fiscal year 
1997. DRG relative weights appear in table D-17 at the end of 
part I of this appendix.

     TABLE D-3.--MEDICARE SHORT-STAY HOSPITAL DIAGNOSIS-RELATED GROUPS RANKED BY DISCHARGE, FISCAL YEAR 1997
                                            [In thousands of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                          Total         Total
 Rank    DRG             Description           Discharges \1\  Percent      Total       Medicare     beneficiary
       number                                                           payments \2\    payments    payments \3\
----------------------------------------------------------------------------------------------------------------
    1     127  Heart failure and shock.......        725,256       6.1    $3,617,653    $3,255,544      $362,109
    2     089  Simple pneumonia and pleurisy         472,587       4.0     2,486,332     2,214,672       271,660
                \4\..........................
    3     088  Chronic obstructive pulmonary         391,747       3.3     1,784,597     1,568,248       216,348
                disease......................
    4     014  Specific cerebrovascular              377,861       3.2     2,209,676     1,979,829       229,846
                disorders except transient
                ischemic attack..............
    5     209  Major joint and limb                  365,405       3.1     3,785,782     3,540,052       245,731
                reattachment procedures......
    6     430  Psychoses.....................        303,463       2.5     1,988,671     1,789,701       189,971
    7     174  Gastrointestinal hemorrhage           250,987       2.1     1,199,479     1,060,110       139,370
                with complicating conditions.
    8     079  Respiratory infections and            248,773       2.1     1,967,563     1,836,680       130,884
                inflammations \4\............
    9     296  Nutritional and miscellaneous         238,230       2.0     1,057,169       938,326       118,843
                metabolic disorders \4\......
   10     112  Vascular procedures except            238,146       2.0     2,470,711     2,345,799       124,912
                major reconstruction without
                pump.........................
   11     182  Esophagitis, gastroenteritis,         237,375       2.0       877,168       747,053       130,115
                and miscellaneous digestive
                diseases \4\.................
   12     416  Septicemia, age +17...........        232,695       1.9     1,717,950     1,593,369       124,581
   13     462  Rehabilitation................        225,553       1.9     2,240,215     2,187,896        52,319
   14     138  Cardiac arrhythmia and                210,855       1.8       813,788       698,436       115,351
                conduction disorders, with
                complicating condition.......
   15     320  Kidney and urinary tract              179,001       1.5       796,524       697,926        98,598
                infections \4\...............
   16     132  Atherosclerosis with                  175,844       1.5       552,874       461,773        91,101
                complicating conditions......
   17     121  Circulatory disorders with            166,418       1.4     1,123,013     1,121,533         1,480
                acute myocardial infarction,
                with cardiovascular catheter
                discharged alive.............
   18     124  Circulatory disorders                 155,525       1.3       992,867       909,723        83,143
                excluding acute myocardial
                infarction, with
                cardiovascular catheter with
                complex diagnosis............
   19     148  Major small and large bowel           148,685       1.2     2,572,174     2,478,138        94,036
                procedures with complicating
                conditions...................
   20     015  Transient ischemic attack and         146,785       1.2       505,418       414,602        90,817
                precerebral occlusions.......
   21     143  Chest pain....................        145,286       1.2       367,102       278,867        88,235
   22     210  Hip and femur procedures              142,808       1.2     1,253,713     1,164,275        89,438
                except major joint \4\.......
   23     478  Other vascular procedures with        126,327       1.1     1,528,418     1,461,624        66,793
                complicating conditions......
   24     475  Respiratory system diagnosis          110,465       0.9     2,132,273     2,065,892        66,381
                with ventilator support......
   25     140  Angina pectoris...............        108,593       0.9       302,437       242,698        59,739
                                              ------------------------------------------------------------------
                   Total, all DRGs...........     11,952,088     100.0    88,340,773    81,588,972     6,751,802
----------------------------------------------------------------------------------------------------------------
\1\ Based on the stay records for 100 percent of Medicare aged and disabled beneficiaries as recorded in the
  MEDPAR file.
\2\ Total payments represent total hospital revenue for Medicare enrollee utilization, including Medicare
  payments and beneficiary obligations. Excluded bills for no pay, at-risk managed care utilization and no-pay
  Medicare secondary payer bills.
\3\ Beneficiary payments are the responsibility of the beneficiary or other third party payor.
\4\ Age +17 with complicating conditions.

 Source: Health Care Financing Administration.

           Source and Calculation of the Hospital Wage Index

    The hospital wage index is used to adjust the national 
standardized amount to account for the wage level in the 
hospital's area. This is accomplished by multiplying the labor-
related component of the national standardized payment amount 
by a wage index. The wage index is intended to measure the 
average wage level for hospital workers in each urban area 
(metropolitan statistical area or MSA) or rural area (non-MSA 
parts of States) relative to the national average wage level.
    The Secretary is required to update the wage index annually 
beginning October 1, 1993. The Secretary is required to base 
the update on a survey of wages and wage-related costs of 
short-term acute care hospitals. Tables D-14, D-15, and D-16, 
at the end of part I of this appendix, give the current wage 
index values for urban areas, for all rural areas in a State, 
and a special index for hospitals that are reclassified.
    Calculation of the index begins with the area average 
hospital hourly wage. For each MSA or non-MSA area (i.e., all 
non-MSA counties in a State), total county compensation and 
total paid hours data are summed separately over all counties 
included in the area. Then aggregate hospital compensation for 
the area is divided by aggregate paid hours of hospital 
employment in the area to produce the area average hourly wage. 
The hospital wage index is calculated by dividing the average 
hourly wage for each area by the national average hourly wage 
(determined by dividing national aggregate compensation by 
national aggregate paid hours of employment).
    This procedure results in an index number, such as 0.8884 
(Asheville, North Carolina) or 1.2284 (Sacramento, California), 
for each MSA or non-MSA area in the United States. Since the 
national average wage level is represented by an index value of 
1.000, the wage index value for any area has a direct and 
simple interpretation. The value of 1.2284 for Sacramento means 
that the hourly wage rate for hospital workers is 22.84 percent 
higher in the Sacramento MSA than nationwide.
    Thus, in computing the hospital payment rates applicable 
for hospitals in the Sacramento MSA, the labor-related 
component of the national large urban adjusted standardized 
payment amount ($2,809.18) is multiplied by 1.2284 in order to 
adjust for the higher level of hourly wage rates in this area. 
Similarly, the calculation of the labor portion of the rates 
for hospitals in Asheville would involve a reduction in the 
published labor-related component of the national adjusted 
standardized payment amount, to reflect the fact that hourly 
wage levels in this MSA are 11.16 percent lower than the 
national average (as indicated by the wage index value of 
0.8884).

                       Sample Payment Calculation

    The Federal large urban and other area payment amounts per 
discharge for fiscal year 2000 were published in the Federal 
Register on July 30, 1999 (table D-4). The payment rates for 
most hospitals are computed using the national adjusted 
operating standardized amounts. Puerto Rico has its own 
adjusted operating standardized amounts for DRG payment 
purposes. BBA 1997 changes the way the standardized amount for 
Puerto Rico is determined from a 25 percent Federal, 75 percent 
local blend rate, to a 50 percent Federal, 50 percent local 
rate.

        TABLE D-4.--NATIONAL AND REGIONAL ADJUSTED STANDARDIZED AMOUNTS, LABOR/NONLABOR, FISCAL YEAR 2000
----------------------------------------------------------------------------------------------------------------
                                                                     Large urban areas          Other areas
                                                                 -----------------------------------------------
                                                                     Labor     Nonlabor      Labor     Nonlabor
                                                                    related     related     related     related
----------------------------------------------------------------------------------------------------------------
National average................................................   $2,809.18   $1,141.85   $2,764.70   $1,123.76
Puerto Rico:
    National....................................................    2,785.40    1,132.18    2,785.40    1,132.84
    Puerto Rico.................................................    1,336.54      538.00    1,315.38     529.48
----------------------------------------------------------------------------------------------------------------
Source: Federal Register, 1999.

    Each payment amount is divided into a labor-related 
component and a nonlabor-related component. The sum of these 
components represents the standardized amount that would apply 
for a hospital located in an area with a wage index of 1.0 
(i.e., average wage rates for hospital workers in the area 
match the national average of hospital wage rates across all 
areas).
    The basic payment to a hospital for a case in a particular 
DRG is the applicable national payment amount, adjusted by the 
local wage index value and multiplied by the weighting factor 
for the DRG.
    For an example of a payment calculation, assume a hospital 
is located in Washington, DC. Such a hospital would be in a 
large urban area. Payment is based on the large urban national 
standardized amount. First, the labor-related portion of this 
amount ($2,809.15 in fiscal year 2000) is multiplied by the 
appropriate wage index (1.1053 for Washington, DC):

                 $2,809.18  1.1053 = $3,104.99

To this total is added the nonlabor-related portion of the 
standardized amount:

                   $3,104.99 + $1,141.85 = $4,246.84

    For each discharge, this new total is then multiplied by 
the relative weight factor for the DRG to which the case has 
been assigned. These weights range from a low of 0.0968 for DRG 
448 (allergic reactions, age 0-17) to a high of 17.7902 for DRG 
103 (heart transplant). The payment rates for the sample 
hospital in fiscal year 2000 would therefore vary from a low of 
$411.09 ($4,246.84  0.0968) to a high of $75,552.13 
($4,246.84  17.7902).
     Certain hospitals receive other adjustments to their base 
payment rates under PPS. Hospitals in Alaska and Hawaii have a 
cost-of-living adjustment to recognize the higher cost of 
nonlabor input there. In addition, sole community hospitals 
(SCHs) have the option of payments based on their own updated 
base-year costs or the PPS rate (see discussion of sole 
community hospitals below). Hospitals also can be reclassified 
into areas where they are not located for the purpose of 
qualifying for a higher standardized payment amount or wage 
index. These factors may substantially increase payments to 
some hospitals, although by definition they have no impact on 
total PPS payments.
    In addition to the basic payment amount for each case, 
additional payments may be made to teaching hospitals and 
hospitals that serve a disproportionate share of low-income 
patients. Any hospital may receive additional payments for 
outliers (cases with extraordinarily high costs relative to 
other cases in the DRG) and for treatment of beneficiaries with 
end-stage renal disease (ESRD). Finally, certain hospital costs 
are excluded from PPS and reimbursed separately. The next 
sections of this appendix discuss additional PPS payments and 
the separate reimbursement of excluded costs.

                       ADDITIONAL PAYMENT AMOUNTS

    In addition to the DRG prospective payment rates, Medicare 
payments are made to hospitals for four additional items or 
services.

                       Graduate Medical Education

    Financing of graduate medical education (GME), the period 
of training following medical school, is provided predominantly 
through inpatient revenues (both hospital payments and faculty 
physician fees) and a complex mix of Federal and State 
government funds. The Federal Government is the largest single 
explicit financing source for GME through the Medicare Program 
and through its support of residencies in Veterans 
Administration hospitals. Medicare recognizes the costs of GME 
under two mechanisms: direct medical education payments and an 
indirect medical education (IME) adjustment.
Direct medical education costs
    The direct costs of approved medical education programs 
(such as the salaries of residents and teachers and other 
education costs for residents, for nurses, and for allied 
health professionals trained in provider-operated programs) are 
excluded from the PPS. The direct medical education costs for 
the training of nurses and allied health professionals in 
provider-operated programs are paid for on a reasonable cost 
basis. Residency training programs for physicians are funded 
through formula payments based on each hospital's per resident 
costs.
    Medicare's payment to each hospital equals the hospital's 
cost per full-time equivalent (FTE) resident, times the 
weighted average number of FTE residents, times the percentage 
of inpatient days attributable to Medicare part A 
beneficiaries. Each hospital's per FTE resident amount is 
calculated using data from the hospital's cost reporting period 
that began in fiscal year 1984, increased by 1 percent for 
hospital cost reporting periods beginning July 1, 1985, and 
updated in subsequent cost reporting periods by the change in 
the Consumer Price Index (CPI). After July 1, 1986, only 
residents in their initial residency period are counted as a 
full FTE. The number of years considered as an initial 
residency period varies by physician specialty. It includes the 
minimum number of years of formal training necessary to satisfy 
specialty requirements for board eligibility plus 1 year, but 
not to exceed 5 years; residents in geriatrics or preventive 
medicine are allowed 2 additional years. Residents who are not 
in their initial residency period are counted as one-half of an 
FTE. Residents who are foreign or international medical 
graduates are not counted as FTE residents unless they have 
passed certain examinations.
    OBRA 1993 provided that the amounts paid per resident for 
the direct costs of GME would not be updated by the CPI for 
cost reporting periods beginning during fiscal years 1994 and 
1995, except for primary care residents and residents in 
obstetrics and gynecology. Primary care residents are defined 
to include family medicine, general internal medicine, general 
pediatrics, preventive medicine, geriatric medicine, and 
osteopathic general practice. For fiscal year 1997, the per 
resident amount was updated by the CPI.
     BBA 1997 made several changes to the way in which Medicare 
makes payments for direct GME costs. BBA 1997 includes: (1) a 
cap on the total number of residents reimbursed under Medicare 
at the level that existed for the cost reporting period ending 
on or before December 31, 1996; (2) payments (for both direct 
and indirect GME) to teaching hospitals for the utilization 
attributed to Medicare+Choice enrollees; (3) payments to 
qualified nonhospital providers for their direct GME costs 
(federally qualified health centers, rural health clinics, 
MedicarePlus organizations, and other appropriate providers); 
(4) incentive payments to teaching hospitals that voluntarily 
agree to reduce the number of medical residents in training; 
(5) a demonstration project under which direct GME payments are 
to be made to qualifying consortia that consist of a teaching 
hospital and one or more specified entities who operate an 
approved medical residency training program; (6) a study on the 
variations in the costs of hospital overhead and supervisory 
physician medical education costs among hospitals; and (7) the 
requirement that the Medicare Payment Advisory Commission 
(MedPAC) make recommendations on long-term payment policies 
regarding teaching hospitals and GME.
     Teaching hospitals' per resident costs vary greatly 
between hospitals. The Balanced Budget Refinement Act (BBRA) of 
1999 will reduce some of the variation in Medicare 
reimbursement for these amounts. Starting in fiscal year 2001, 
hospitals with per resident amounts below 70 percent of the 
national average will be increased to 70 percent of the 
geographically adjusted value. Approximately 265 hospitals will 
receive increased payments under this provision. Those teaching 
hospitals with per resident amounts above 140 percent of the 
national average (adjusted for geographic location) will not 
receive an inflation update for 2 years (fiscal years 2001 and 
2002) and will receive a lower update than other hospitals (CPI 
minus 2 percent) for 3 years (fiscal years 2002-5). About 130 
hospitals with per resident amounts over 140 percent of the 
locality adjusted will be affected by these provisions. 
Hospitals that have per resident amounts that fall between 70 
and 140 percent of the national average adjusted for local cost 
differences will not be affected by these provisions.
Indirect medical education costs
    Additional payments are made to hospitals under PPS for the 
indirect costs attributable to approved medical education 
programs. These indirect costs may be due to a variety of 
factors, including the extra demands placed on the hospital 
staff as a result of the teaching activity or additional tests 
and procedures that may be ordered by residents. Congressional 
reports on the PPS authorizing legislation indicate that the 
IME payments are also to account for factors not necessarily 
related to medical education which may increase costs in 
teaching hospitals, such as more severely ill patients, 
increased use of diagnostic testing, and higher staff-to-
patient ratios.
    The additional payment to a hospital is based on a formula 
that has provided an increase of approximately 7.7 percent in 
the Federal portion of the DRG payment for each 0.1 increase in 
the hospital's intern and resident-to-bed ratio on a 
curvilinear basis (i.e., the increase in the payment is less 
than proportional to the increase in the ratio of interns and 
residents to bed size). BBA 1997 includes reductions in the IME 
adjustment from 7.7 to 7.0 percent in fiscal year 1998; to 6.5 
percent in fiscal year 1999; to 6.0 percent in fiscal year 
2000; and to 5.5 percent in fiscal year 2001 and subsequent 
years.
     BBRA 1999 delayed the reduction in the IME adjustment to 
5.5 percent until fiscal year 2002. Teaching hospitals will 
receive 6.5 percent in fiscal year 2000; 6.25 percent in fiscal 
year 2001 and 5.5 percent in fiscal year 2002 and in subsequent 
years.

                    Disproportionate Share Hospitals

    Public Law 99-272 (Consolidated Omnibus Budget 
Reconciliation Act) provided that additional payments would be 
made to hospitals that serve a disproportionate share of low-
income patients. The adjustment was extended several times 
until OBRA 1990 (Public Law 101-508) made it a permanent 
payment adjustment. A hospital's disproportionate patient 
percentage is defined as the hospital's total number of 
inpatient days attributable to Federal Supplemental Security 
Income Medicare beneficiaries divided by the total number of 
Medicare patient days, plus the number of Medicaid patient days 
divided by the total patient days.
    Table D-5 shows the minimum disproportionate patient 
percentages required to qualify for the adjustment and the 
formulas for computing the adjustment effective October 1, 
1993. For discharges occurring after September 1994, hospitals 
with a disproportionate share greater than 20.2 percent would 
receive a disproportionate share adjustment equal to 5.88 
percent plus 0.825 percent of the difference between 20.2 
percent and the hospital's disproportionate share patient 
percentage.
     BBA 1997 includes reductions in the current 
disproportionate share hospital (DSH) payment formula amounts 
of 1 percent for fiscal year 1998; 2 percent in fiscal year 
1999; 3 percent in fiscal year 2000; 4 percent in fiscal year 
2001; 5 percent in fiscal year 2002; and 0 percent in fiscal 
year 2003 and each subsequent fiscal year. BBA 1997 also 
requires the Secretary to submit to the House Ways and Means 
and Senate Finance Committees, no later than 1 year after 
enactment, a report that contains a new formula for determining 
additional DSH payments to hospitals. As of April 1, 2000, the 
report had not been issued.

  TABLE D-5.--CRITERIA TO QUALIFY FOR DISPROPORTIONATE SHARE ADJUSTMENT
AND FORMULAS FOR COMPUTING ADDITIONAL PAYMENT, EFFECTIVE OCTOBER 1, 1993
------------------------------------------------------------------------
                                      Qualifying
                                   disproportionate    Formula or fixed
        Type of hospital          patient percentage      percentage
                                         (P)              adjustment
------------------------------------------------------------------------
Urban, 100 or more beds........  15 percent.........  (P-15)(0.6) 0.65 +
                                                       2.5.
Urban, 100 or more beds........  20.2 percent.......  (P-20.2) 0.8 +
                                                       5.88.
Urban, 100 or more beds........  30 percent of        35 percent.
                                  inpatient revenue
                                  from State or
                                  local indigent
                                  care funds.
Urban, under 100 beds..........  40 percent.........  5 percent.
Rural, over 500 beds...........  Not specified in     Same as urban, 100
                                  law; regulations     or more beds.
                                  set threshold at
                                  15 percent.
Rural, over 100 beds...........  30 percent.........  4 percent.
Rural, under 100 beds..........  45 percent.........  4 percent.
Rural, sole community hospital.  30 percent.........  10 percent.
Rural, rural referral center
 and--
    (a) not a sole community     30 percent.........  (P-30)(0.6) + 4.0.
     hospital, 100 or more beds.
    (b) not a sole community     45 percent.........  (P-30)(0.6) + 4.0.
     hospital, under 100 beds.
    (c) also a sole community    30 percent.........  Greater of 10
     hospital.                                         percent or (P-
                                                       30)(0.6) + 4.0.
------------------------------------------------------------------------
Note.--The disproportionate patient percentage (P) is equal to the sum
  of (a) the number of Medicare inpatient days provided to Supplemental
  Security Income recipients divided by total Medicare inpatient days,
  and (b) the number of inpatient days provided to Medicaid
  beneficiaries divided by total inpatient days.

 Source: Prospective Payment Assessment Commission.

     BBRA 1999 froze the reduction in the DSH payment formula 
to 3 percent for fiscal year 2001 and changed the reduction to 
4 percent for fiscal year 2002. The Secretary is also required 
to collect hospital cost data on uncompensated inpatient/
outpatient care, including non-Medicare bad debt and charity 
care as well as Medicaid and indigent care charges.

                      ESRD Beneficiary Discharges

    Effective with cost reporting periods beginning on or after 
October 1, 1984, additional payments are made to hospitals for 
inpatient dialysis provided to ESRD beneficiaries if total 
discharges of such beneficiaries from non-ESRD related DRGs 
account for 10 percent or more of the hospital's total Medicare 
discharges. A hospital meeting the criteria is paid an 
additional payment for each ESRD beneficiary discharge based on 
the estimated weekly cost of dialysis and the average length of 
stay of its ESRD beneficiaries. In fiscal year 1996, 35 
hospitals received approximately $7 million in ESRD exception 
payments.

                                Outliers

    Additional amounts are paid to hospitals for atypical cases 
(known as ``outliers'') which have either extremely long length 
of stay (day outliers) or extraordinarily high costs (cost 
outliers) compared to most discharges classified in the same 
DRG. The law requires that total outlier payments to all 
hospitals covered by the system represent no less than 5 
percent and no more than 6 percent of the total estimated PPS 
payments for the fiscal year. Effective with discharges 
occurring on or after October 1, 1984, a transferring hospital 
may qualify for an additional payment for extraordinarily high-
cost cases meeting the criteria for cost outliers. Outlier 
payments are financed by an offsetting overall reduction in the 
base payment amount per discharge. Effective October 1, 1986, 
Public Law 99-509 established separate urban and rural set-
aside factors for financing outlier payments. The separate set-
aside factors for rural and urban hospitals for financing 
outlier payments ended when the other urban/rural payment 
differential was eliminated in fiscal year 1995, as enacted in 
OBRA 1990.
    Public Law 100-203 increased payments for outlier cases 
classified in DRGs relating to patients with burns from April 
1, 1988, through September 30, 1989. This legislation also 
prohibited the Secretary from issuing any final regulations 
before September 1, 1988, which changed the method of payment 
for outlier cases (other than burn cases).
    The Secretary published new outlier rules on September 30, 
1988, effective for discharges on or after October 1, 1988. The 
new rules modified the thresholds used in determining whether a 
case is an outlier and increased the allowable payment amounts 
for cost outliers. The effect of the changes increased the 
proportion of all outlier payments going to cost outliers. 
Previously, about 85 percent of outlier payments were made for 
length-of-stay (LOS) outliers and 15 percent for cost outliers. 
Under the new rules, 60 percent of payments were made for cost 
outliers and 40 percent for LOS outliers. (Cases that meet both 
length-of-stay and cost outlier criteria are paid under the 
policy that produces the higher payment.)
    To determine the amount of additional payments for outlier 
cases, the LOS for each case in a diagnosis-related group (DRG) 
is first compared against the applicable LOS threshold for the 
category. If the LOS for a case exceeds the threshold, then the 
case qualifies as a day outlier. In this instance, the hospital 
is paid its regular payment rate per discharge (for this DRG), 
plus a per diem amount (44 percent of the hospital's per diem 
rate for the DRG) for each Medicare covered day above the LOS 
threshold.
    If the case does not qualify as a day outlier, then it may 
qualify as a cost outlier. The case will qualify for extra 
payments on this basis if the hospital's Medicare covered 
charges for the case, adjusted to operating costs (and reduced 
by its indirect teaching and disproportionate share 
adjustments, if applicable), exceed its cost outlier threshold 
for the DRG. In this instance, the hospital is paid its regular 
payment rate per discharge for the DRG, plus the Federal 
portion of 75 percent of the difference between its adjusted 
(and reduced) charges for the case and the cost outlier 
threshold.
    In October 1991, Medicare began a transition from cost-
based to prospective payment for hospital capital expenses (see 
below). In the August 30, 1991, final rule implementing this 
change, the Secretary established a unified outlier payment 
system for capital and operating costs. For day outliers, 
payments for covered days were set equal to a percentage of the 
combined per diem operating and capital payment rates for the 
DRG. For cost outliers, payments are made only if the combined 
operating and capital cost for the case exceed the cost outlier 
threshold for the DRG. As in the case of operating cost 
payments, standardized capital payment amounts are reduced to 
establish a pool for outlier payments.
    OBRA 1993 legislated two changes in outlier policy that 
became effective in fiscal year 1995. First, day outliers were 
phased out over a period of 4 years. By fiscal year 1999, all 
outlier payments were based solely on cost. Second, cost-
outlier thresholds are based on a fixed amount beyond the 
payment rate for each case so that hospitals incur the same 
loss on every case before outlier payments are applied.
    BBA 1997 eliminates the use of the IME adjustment and DSH 
payments as part of costs that trigger outlier payments, 
effective beginning in fiscal year 1998. The new calculation 
has the effect of increasing outlier payments to hospitals 
receiving IME and DSH payments because it increases the 
hospitals' costs with respect to the outlier threshold.

                          PAYMENT FOR CAPITAL

    Until fiscal year 1992, Medicare paid a share of hospitals' 
reasonable capital-related costs, based on services used by 
beneficiaries as a proportion of total services furnished by 
the hospital. (Payments in recent years have been subject to 
fixed percentage reductions described below.) Four basic types 
of costs are allowable for Medicare reimbursement:
 1. Interest on mortgages, bonds, or other borrowing used to 
        finance capital investments or current operations. 
        Interest costs are generally offset by any interest 
        income earned by the hospital on investments;
 2. Depreciation, figured on a straight line basis, for plant 
        and equipment, but not for land;
 3. Rental payments for plant and equipment;
 4. Property taxes and insurance premiums related to capital 
        assets.
    One other type of capital cost was formerly recognized 
under Medicare, but has not been reimbursable for hospital 
services since fiscal year 1989: return on equity for investor-
owned hospitals. Return on equity payments provided a return to 
investors equivalent to what they would have earned if they had 
used their money for some other purpose.
    When the new prospective payment system (PPS) was enacted 
in 1983, Congress excluded capital costs. However, the 
Secretary was instructed to report to Congress on methods for 
including capital in PPS and was authorized (but not required) 
to implement prospective payment for capital on or after 
October 1, 1986.
    The Secretary's authority to include capital in PPS was 
postponed twice. The Supplemental Appropriations Act of 1986 
(Public Law 99-349) delayed prospective capital payment until 
October 1, 1987. OBRA 1987 (Public Law 100-203) delayed 
prospective payment until October 1, 1991. However, the 
Secretary was required, not merely authorized, to implement a 
prospective system by that date. The system was required to 
provide that capital payments be made on a per-discharge basis, 
with adjustments based on each discharge's classification under 
the DRGs or some similar system. At the Secretary's discretion, 
the system could include adjustments to reflect variations in 
costs of construction or borrowing, exceptions (including 
exceptions for hospitals with existing obligations), and 
adjustments to reflect hospital occupancy rates.
    While prospective payment for capital was delayed (see 
below), Congress included in budget reconciliation legislation 
fixed percentage reductions in amounts otherwise payable by 
Medicare for capital costs. These cuts began in fiscal year 
1987, with a 3.5-percent reduction. Medicare would compute its 
share of total costs for each hospital and then reduce that 
computed share by 3.5 percent. The percentage reduction 
increased to 7 percent for the first quarter of fiscal year 
1988, 12 percent for the rest of that fiscal year, and 15 
percent for fiscal year 1989 through fiscal year 1991. Delays 
in completing budget legislation meant that there were brief 
intervals in 1987 and 1989 when no reduction was taken. The 
reductions originally applied only to capital costs related to 
inpatient care. Beginning in fiscal year 1990, capital payments 
for outpatient hospital services were also reduced. The 
reductions did not apply to certain types of rural hospitals 
defined in Medicare law, including SCHs, essential access 
community hospitals, and rural primary care hospitals.
     OBRA 1990 (Public Law 101-508) continued capital payment 
reductions through fiscal year 1995, with the reduction 
percentage lowered to 10 percent for fiscal years 1992 through 
1995. Because prospective payment began in fiscal year 1992, 
the reductions were not applied directly to each hospital's 
computed capital costs. Instead, the Secretary was required to 
set payments under the new system (or under the new system and 
PPS combined) in such a way as to achieve an aggregate 
inpatient hospital capital spending reduction of 10 percent, as 
compared to what would have been spent under the reasonable 
cost system.
    The administration's rules for prospective payment for 
capital costs were published in the Federal Register on August 
30, 1991. The rule provides for a 10-year transition to fully 
prospective payment beginning October 1, 1991.
    Under the rule, the Secretary establishes a standard per 
case capital payment rate, based on average capital costs per 
case in fiscal year 1989 and updated for inflation and other 
factors. Through fiscal year 1995, the base rate was adjusted 
in order to meet the requirement that capital payment rates be 
set in such a way as to achieve an aggregate saving of 10 
percent relative to what would have been paid under a full cost 
system. Beginning with fiscal year 1996, that requirement 
expired. As a result, the standardized payment rates increased 
by more than 20 percent. The capital standard Federal payment 
rate for fiscal year 2000 is $377.03 ($174.81 for Puerto Rico). 
The rates are adjusted using the DRG weights and a geographic 
factor based on area wage indices. Tables D-14, D-15, and D-16 
at the end of part I of this appendix give the current 
geographic adjustment factors (GAFs) for urban areas, for all 
rural areas in a State, and the factors for hospitals that have 
reclassified.
    In addition, hospitals in large urban areas receive a 3-
percent increase and hospitals in Alaska and Hawaii receive a 
cost-of-living adjustment. A disproportionate share adjustment 
is provided for urban hospitals with more than 100 beds. A 
hospital receives approximately a 2.1 percentage point increase 
in capital payments for each 10 percent increment in its 
disproportionate share percentage.
    An adjustment is also made for the indirect costs of 
medical education. This adjustment is based on the ratio of 
residents to average daily inpatient census. Capital payments 
increase approximately 2.8 percentage points for each 10 
percent increment in the residents to average daily census 
ratio. Additional capital payments are issued for outlier 
cases.
    During a transition period that ends September 30, 2000, 
each individual hospital's capital payment rate is a blended 
rate based partly on its own historic capital costs and partly 
on the Federal rate. In fiscal year 1996, rates were 50 percent 
hospital-specific and 50 percent Federal. The hospital-specific 
portion will drop by 10 percent a year, until fully Federal 
rates take effect in fiscal year 2001.
     OBRA 1993 (Public Law 103-66) reduced the Federal rate for 
inpatient capital expenses by 7.4 percent to correct for 
inflation forecast errors.
     The transition rules include two provisions to assist 
hospitals most disadvantaged by the shift to prospective 
payment: a ``hold harmless'' payment system and exception 
payments for certain facilities. Hospitals with base year 
capital costs above average continue to be paid on a cost basis 
for the portion of their costs related to ``old'' capital 
investments (generally assets put in use or obligated by the 
end of 1990). The rest of the hospital's capital payments are 
based on the prospective rates. For example, if 75 percent of a 
hospital's costs are for depreciation and interest on a pre-
1990 building, the hospital is paid Medicare's share of those 
costs (subject to the current 10-percent reduction). For 
``new'' capital, it receives a portion of the prospective rate 
based on the hospital's own ratio of new to total capital. In 
this case, because old capital accounts for 75 percent of 
costs, the hospital's new capital payment is 25 percent of the 
prospective rate for each case treated. This hold harmless 
payment system will continue until the end of the 10-year 
transition, or until a hospital's old capital costs drop to the 
point at which it is more advantageous for the hospital to 
shift to fully prospective payment.
    Exception payments are made to hospitals whose capital 
payments under the new system fall significantly short of their 
actual capital costs. Most hospitals are assured of receiving a 
minimum of 70 percent of costs. Specified urban hospitals with 
a disproportionate share of low-income patients receive at 
least 80 percent of costs, and rural SCHs at least 90 percent. 
Computation of exception payments is cumulative. If a hospital 
received more than the minimum in 1 year but a shortfall the 
next, the surplus from the first year would be applied before 
any additional payment would be made in the second year.
     The Balanced Budget Act (BBA) of 1997 requires the 
Secretary to rebase the capital payment rates for discharges 
occurring on or after October 1, 1997 by the actual rates in 
effect in fiscal year 1995, so that aggregate capital payments 
will equal 90 percent of what payments would have been under 
reasonable cost payments, with an additional reduction in the 
capital payment rate of 2.1 percent from October 1, 1997 
through September 30, 2002. BBA 1997 eliminates the allowance 
for return on equity capital. In addition, when a facility 
undergoes a change of ownership, the BBA 1997 provides for a 
depreciation adjustment of the historical cost of the asset 
recognized by Medicare, less depreciation allowed, to the owner 
of record as of the date of enactment, or to the first owner of 
record of the asset in the case of an asset not in existence as 
of the date of enactment.
    Table D-6 shows the average capital payments per case 
received by PPS hospitals in each year since the implementation 
of PPS for inpatient operating costs in 1984. The decrease in 
average capital payments per case in 1988 reflects the 
provision in OBRA 1986 and 1987 that reduced Medicare payments 
below costs. The decrease in 1994 reflects the provision in 
OBRA 1993 that corrected for previous errors in setting the 
base capital payment rates. Capital payments generally have 
stayed between 8 and 9 percent of total inpatient payments. The 
proportion of capital costs covered by those payments fell from 
100 percent under cost-based reimbursement to a low of 87.4 
percent in 1990. The implementation of capital PPS initially 
resulted in increased payment-to-cost ratios, but those fell as 
the payment rates were adjusted to reflect more accurate data. 
The jump in the payment-to-cost ratio in 1995--when Medicare 
inpatient capital payments exceeded cost for the first time 
ever--reflects the elimination of the budget neutrality 
requirement in fiscal year 1996.
    The per case capital payment amount varies widely by 
hospital group, as shown in table D-7. Urban hospitals had an 
average payment rate of $727 in 1997, for example, while rural 
hospitals received only $436 per case. Major teaching hospitals 
were paid $1,017 for each case, while nonteaching hospitals got 
$561. However, the share of capital payments as a proportion of 
total PPS inpatient payments, which include both operating and 
capital payments, was very similar for different types of 
hospitals. Despite urban hospitals' much higher average 
payment, almost twice that paid to rural hospitals, the urban 
payment equalled 113 percent of their capital costs, while 
rural hospitals were paid 111.9 percent of their capital costs.

 TABLE D-6.--PPS CAPITAL PAYMENTS PER CASE, SHARE OF TOTAL PPS INPATIENT
            PAYMENTS, AND RATIO OF PAYMENTS TO COSTS, 1984-97
------------------------------------------------------------------------
                                                      In percent
                                             ---------------------------
                                   Capital      Share of
             Year               payments per    total PPS    Payment-to-
                                    case        inpatient    cost ratio
                                                payments
------------------------------------------------------------------------
1984..........................          $310           8.1         100.0
1985..........................           371           8.6         100.0
1986..........................           409           9.1          99.3
1987..........................           426           9.0          97.5
1988..........................           423           8.5          90.2
1989..........................           463           8.6          87.9
1990..........................           476           8.3          87.4
1991..........................           510           8.4          87.6
1992..........................           586           9.1          97.2
1993..........................           589           8.9          95.2
1994..........................           585           8.5          92.7
1995..........................           628           8.8         101.6
1996..........................           702           9.4         119.0
1997..........................           666           8.8        112.9
------------------------------------------------------------------------
Note.--Data on prospective payment system capital costs and payments are
  for hospital accounting years beginning during each Federal fiscal
  year. Hospitals in Massachusetts and New York excluded from data in
  1984 and 1985; hospitals in New Jersey excluded from data in 1984
  through 1988; hospitals in Maryland excluded from data in all years.

 Source: Medicare Payment Advisory Commission analysis of Medicare Cost
  Report data from the Health Care Financing Administration.

 TABLE D-7.--PROSPECTIVE PAYMENT SYSTEM CAPITAL PAYMENTS PER CASE, SHARE
   OF TOTAL PPS INPATIENT PAYMENTS, AND RATIO OF PAYMENTS TO COSTS, BY
                          HOSPITAL GROUP, 1997
------------------------------------------------------------------------
                                                      In percent
                                             ---------------------------
                                                 Capital
                                   Capital     payments as
        Hospital group          payments per  a percentage   Payment-to-
                                    case      of total PPS   cost ratio
                                                inpatient
                                                payments
------------------------------------------------------------------------
Urban.........................       $726.51           8.8         113.0
Rural.........................        436.09           8.9         111.9

Large urban...................        779.82           8.7         114.2
Other urban...................        659.12           8.9         111.4
Rural referral................        522.88           9.0         108.0
Sole community................        413.64           8.5         111.7
Other rural...................        383.29           8.9         116.1

Major teaching................        101.67           8.0         117.4
Other teaching................        715.56           8.7         113.8
Nonteaching...................        561.46           9.2         110.6

Disproportionate share large          831.71           8.4         113.5
 urban........................
Disproportionate share other          677.41           8.6         112.8
 urban........................
Disproportionate share rural..        446.47           8.9         112.3
Nondisproportionate share.....        602.22           9.2         111.9

Teaching and disproportionate         828.78           8.3         114.4
 share........................
Teaching only.................        740.88           8.9         116.4
Disproportionate share only...        594.31           9.0         111.0
Nonteaching                            537.6           9.4         110.3
 nondisproportionate share....

Voluntary.....................        683.49           8.8         114.4
Proprietary...................        681.06           9.5         104.4
Urban government..............        698.11           7.9         112.8
Rural government..............        390.11           8.6         116.2

All hospitals.................        666.43           8.8        112.9
------------------------------------------------------------------------
Source: Medicare Payment Advisory Commission analysis of Medicare Cost
  Report data from the Health Care Financing Administration.

                  PAYMENTS ON A REASONABLE COST BASIS

    Costs for certain items are excluded from the PPS and thus 
are not included in the prospective payment rates. As explained 
in the sections below, Medicare pays for its share of several 
costs according to the former reasonable cost-based system.

                    Physicians in Teaching Hospitals

    Physician services in hospitals are paid under the 
physician fee schedule. If a teaching hospital so elects, the 
direct medical and surgical services of physicians in such 
hospitals would be paid for on the basis of reasonable costs.

     Qualified Nonphysician Anesthetists in Certain Rural Hospitals

     Anesthesia services furnished by hospital-employed 
nonphysician anesthetists (certified registered nurse 
anesthetists and anesthesiologist's assistants) or obtained 
under arrangement may be paid on a reasonable cost basis, if 
the rural or nonurban hospital demonstrates to its intermediary 
that it meets established criteria regarding employment 
arrangements and volume of services provided. In fiscal year 
1999, 639 hospitals received approximately $33.9 million in 
Medicare payments for these services.

                        Organ Acquisition Costs

    The estimated net expenses associated with Medicare organ 
acquisition in certified transplantation centers are excluded 
from the PPS and paid on a reasonable cost basis.

             Passthrough Payments for Hemophilia Inpatients

    The Omnibus Budget Reconciliation Act (OBRA) of 1989 
excluded the cost of administering blood clotting factors for 
hemophilia inpatients from PPS, for items furnished from June 
19, 1990, through December 19, 1991. OBRA 1993 further extended 
this provision through fiscal year 1994. The price per unit for 
the blood clotting factors was set at a predetermined rate, in 
consultation with the Prospective Payment Assessment Commission 
(ProPAC), and the cost of administering the blood clotting 
factors was determined by multiplying a predetermined price per 
unit of blood clotting factor by the number of units provided 
to the individual. BBA 1997 makes the payment for the costs of 
administering blood clotting factor permanent effective October 
1, 1997.

                  Bad Debts of Medicare Beneficiaries

    An additional payment is made to hospitals for bad debts 
attributable to unpaid deductible and copayment amounts related 
to covered services received by Medicare beneficiaries.
    The Secretary is prohibited from making any change in the 
policy in effect on August 1, 1987, including changes in 
hospital documentation requirements. OBRA 1989 prohibited the 
Secretary from requiring hospitals to change their bad debt 
collection policy if a fiscal intermediary accepted the policy 
in accordance with the rules in effect as of August 1, 1987, 
for indigency determination procedures, for recordkeeping, and 
for determining whether to refer a claim to an external 
collection agency. For such facilities, the Secretary also may 
not collect from the hospital on the basis of an expectation of 
a change in the hospital's collection policy. BBA 1997 reduces 
bad debt payments by 25 percent in fiscal year 1998; 40 percent 
in fiscal year 1999; and 45 percent in fiscal year 2000 and 
each subsequent fiscal year.

           SPECIAL TREATMENT OF CERTAIN FACILITIES UNDER PPS

                        Sole Community Hospitals

    Sole community hospitals (SCHs) are hospitals that, because 
of factors such as isolated location, weather conditions, 
travel conditions, or absence of other hospitals, are the sole 
source of inpatient services reasonably available in a 
geographic area, or are located more than 35 road miles from 
another hospital. In addition, the Secretary is authorized to 
designate a hospital as an SCH if, by reason of factors such as 
travel time to the nearest alternative source of appropriate 
inpatient care, location, weather conditions, travel 
conditions, or absence of other like hospitals, the Secretary 
determines that it is the sole source of inpatient hospital 
services reasonably available to individuals in a geographic 
area.
    OBRA 1989 established new payment provisions that apply to 
all SCHs for cost reporting periods beginning after April 1, 
1990. An SCH may receive the higher of the following rates as 
the basis of reimbursement: a target amount based on 100 
percent hospital-specific prospective rates based on fiscal 
year 1982 costs updated to the present; a target amount based 
on hospital-specific prospective rates based on fiscal year 
1987 costs updated to the present; or the Federal PPS rate. 
Current SCHs not meeting the criteria are allowed to continue 
to qualify for payments as an SCH.
    OBRA 1989 made permanent the provision by which an SCH may 
request additional payments if the hospital experiences a 
decrease of more than 5 percent in its total inpatient cases 
due to circumstances beyond its control. An SCH may receive 
such payments if it meets SCH criteria but is not being paid as 
an SCH. BBRA 1999 authorizes a SCH that was paid using a target 
amount based on its 1982 or 1987 hospital specific rates during 
cost reporting periods beginning during 1999 to rebase its 
target amount and use 1996 hospital specific rates. The rebased 
target amount for qualifying hospitals will be fully 
implemented for discharges during fiscal year 2004 and 
subsequently. BBRA 1999 also provided a full market basket 
index (MBI) update for SCH discharges in fiscal year 2001. As 
of January 1999, 785 hospitals were classified as SCHs.

                      Medicare Dependent Hospitals

    OBRA 1989 created a new classification of hospitals termed 
Medicare dependent hospitals (MDH). MDHs are hospitals that are 
located in a rural area, have 100 beds or less, are not 
classified as a sole community provider, and for which not less 
than 60 percent of inpatient days or discharges in the hospital 
cost reporting period that began during fiscal year 1987 were 
attributable to Medicare. These hospitals are reimbursed in the 
same fashion as sole community providers during cost reporting 
periods beginning on or after April 1, 1990, and ending on or 
before March 31, 1993. OBRA 1993 (Public Law 103-66) extended 
additional payments to MDHs through September 30, 1994, on a 
phase-down basis. BBA 1997 extends the MDH Program through 
October 1, 2001. BBRA 1999 extended the MDH Program through 
October 1, 2006. As of January 1999, 356 hospitals were 
classified as MDHs.

                            Referral Centers

    The Secretary is authorized to provide exceptions and 
adjustments as appropriate for rural referral centers (RRCs). 
These centers are defined as:
 1. Rural hospitals having 275 or more beds;
 2. Hospitals having at least 50 percent of their Medicare 
        patients referred from other hospitals or from 
        physicians not on the hospital's staff, at least 60 
        percent of their Medicare patients residing more than 
        25 miles from the hospital, and at least 60 percent of 
        the services furnished to Medicare beneficiaries are 
        furnished to those who live 25 miles or more from the 
        hospital; or
 3. Rural hospitals meeting the following criteria for hospital 
        cost reporting periods beginning on or after October 1, 
        1985:
    --A case-mix index equal to or greater than the median case 
            mix for all urban hospitals (the national 
            standard), or the median case mix for urban 
            hospitals located in the same census region, 
            excluding hospitals with approved teaching 
            programs. The case-mix index is a measure of the 
            relative costliness of the hospital's mixture of 
            cases among the DRGs compared to the national 
            average mixture of Medicare cases;
    --A minimum of 5,000 discharges, the national discharge 
            criterion (3,000 in the case of osteopathic 
            hospitals), or the median number of discharges in 
            urban hospitals for the region in which the 
            hospital is located; and
    --At least one of the following three criteria: more than 
            50 percent of the hospital's medical staff are 
            specialists, at least 60 percent of discharges are 
            for inpatients who reside more than 25 miles from 
            the hospital, or at least 40 percent of inpatients 
            treated at the hospital have been referred either 
            from physicians not on the hospital's staff or from 
            other hospitals.
    Referral centers are paid prospective payments based on the 
applicable urban payment amount rather than the rural payment 
amount, as adjusted by the hospital's area wage index. The 
applicable amount is the ``other urban'' rate (i.e., the rate 
for urban areas with 1 million or fewer people) for all 
referral centers except those (if any) located in metropolitan 
statistical areas (MSAs) greater than 1 million.
    OBRA 1993 extended the classification through fiscal year 
1994 for those referral centers classified as of September 30, 
1992. BBA 1997 provides that hospitals designated as RRCs since 
fiscal year 1991 are permanently classified as RRCs. BBA 1997 
also provides that any hospital ever classified as an RRC 
cannot be denied a request for geographic reclassification on 
the basis of any comparison of its average hourly wage with the 
average hourly wage of hospitals in the area where the RRC is 
located.
    Although referral centers have lost some of the benefit of 
their classification status because of the equalization of the 
other urban and rural payment rates in fiscal year 1995, 
referral centers continue to be entitled to preferential 
consideration before the Medicare Geographic Classification 
Review Board (see below). As of January 1999, 231 hospitals 
were classified as referral centers.

                       Critical Access Hospitals

     BBA 1997 provided for the Medicare Rural Hospital 
Flexibility Program which creates a new category of rural 
hospitals, critical access hospitals (CAHs) and authorizes a 
grant program of $25 million annually for 5 years to establish 
networks for improving access to health care services in rural 
communities. Based on earlier demonstration programs of rural 
primary care hospitals and medical assistance facilities, CAHs 
provide emergency, outpatient and limited inpatient services in 
rural areas. To qualify as a CAH, the rural, nonprofit or 
public hospital must be located more than 35 miles from another 
hospital or designated by the State as a necessary provider of 
health care; provide 24-hour emergency services; and operate a 
limited number of inpatient beds in which hospital stays can be 
no more than 96 hours except under certain circumstances. 
Generally, a rural hospital designated as a CAH receives 
reasonable, cost based reimbursement for care rendered to 
Medicare beneficiaries. Before a hospital can be designated as 
a CAH, the State must submit and have approved a rural health 
plan implementing the Medicare Rural Hospital Flexibility 
Program.
    The Balanced Budget Refinement Act of 1999 (BBRA 1999) 
modified the CAH Program and provided that: the 96-hour length-
of-stay limitation is applied on an average annual basis; for-
profit and, under certain circumstances, hospitals that have 
closed within the past 10 years may be designated as CAHs; and 
CAHs may elect either a cost-based hospital outpatient service 
payment plus a fee schedule payment for professional services 
or an all-inclusive rate.
     As of September 1999, 11 States were in the process of 
drafting rural health plans; 2 States, New Jersey and Rhode 
Island, are ineligible for program participation because they 
have no rural areas; and 35 States have HCFA approved rural 
health plans. Fifty-eight CAHs have been designated. Twelve 
medical assistance facility hospitals in Montana converted to 
CAHs on October 1, 1999; and 85 hospitals are in the process of 
applying for CAH designation.

                Geographic Reclassification of Hospitals

    OBRA 1989 (Public Law 101-239) established the Medicare 
Geographic Classification Review Board to consider appeals by 
hospitals for a change in classification from rural to urban, 
or from one urban area to another urban area. The Board was 
created to determine whether a hospital should be redesignated 
to an area with which it has close proximity for purposes of 
using the other area's standardized amount, wage index, or 
both. For geographic reclassifications effective for discharges 
in fiscal year 1994 and subsequent years, a hospital may seek 
reclassification to only one area. Urban hospitals must be no 
more than 15 miles from the area to which they seek 
reassignment, and rural hospitals must be no more than 35 miles 
from such an area.
    A hospital may qualify for the payment rate of another area 
if it proves that its incurred costs are comparable to those of 
hospitals in that area. To use an area's wage index, a hospital 
must demonstrate that: (1) its average hourly wage is equal to 
at least 84 percent of the average hourly wage of hospitals in 
the area to which it seeks redesignation; and (2) its average 
hourly wage weighted for occupational categories is at least 90 
percent of the average hourly wage of hospitals in the area to 
which its seeks redesignation. For geographic reclassifications 
effective for discharges in fiscal year 1994 and subsequent 
years, the wage index guidelines were revised to specify, in 
addition, that a hospital cannot be reclassified unless its 
average hourly wage is at least 108 percent of the average 
hourly wage of the area in which it is located.
    Effective for fiscal year 1996 and subsequent years, a 
hospital may not be reclassified for purposes of using another 
area's standardized amount if the area to which the hospital 
seeks reclassification does not have a higher standardized 
amount than that currently received by the hospital. In 
addition, a hospital that seeks reclassification for the 
purpose of using another area's wage index may apply for 
reclassification only to an area that has a higher pre-
reclassified average hourly wage than that of the hospital's 
original geographic area. BBA 1997 provides that hospitals can 
request geographic reclassification for the purposes of 
receiving additional disproportionate share hospital (DSH) 
payments for the period ending 30 months after enactment. Aside 
from reclassifications through the Medicare Geographic 
Classification Review Board, hospitals have also been 
reclassified by law (OBRA 1987, Public Law 100-203).
    Public Law 100-203 provided for the reclassification of 
rural hospitals as urban if the county in which the hospital 
was located was adjacent to two or more MSAs and met criteria 
regarding commuting patterns of its residents to the central 
counties of the adjacent MSAs. BBRA 1999 provided for an update 
of the standards used for the geographic reclassification of 
``rural deemed urban'' hospitals.
     BBRA 1999 also provided that certain urban hospitals could 
be reclassified as rural hospitals if the hospital is located 
in a rural census tract of an MSA (as determined under the most 
recent Goldsmith Modification); is located in an area 
designated by State law or regulation as a rural area; the 
hospital would qualify as a referral center or as an SCH if the 
hospital were located in a rural area or the hospital meets 
other criteria as specified by the Secretary. Finally, BBRA 
1999 reclassified certain counties to accommodate the 
circumstances of specific hospitals as well.

         HOSPITALS EXCLUDED FROM THE PROSPECTIVE PAYMENT SYSTEM

                          PPS-Exempt Hospitals

    The following hospitals are by law excluded from the PPS 
and are paid on the basis of reasonable costs, subject to the 
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) rate 
of increase limits: psychiatric hospitals, rehabilitation 
hospitals, psychiatric or rehabilitation units which are 
distinct parts of a hospital, alcohol and drug abuse hospitals 
and such distinct units of hospitals (for cost reporting 
periods beginning before October 1, 1987), children's hospitals 
(with patients averaging under 18 years of age), long-term 
hospitals (with an average inpatient length of stay greater 
than 25 days), and cancer hospitals (hospitals extensively 
involved in treatment for and research on cancer) classified as 
such before December 31, 1990. In addition, the act provides an 
exemption for any hospital classified as a cancer hospital 
before December 31, 1991, that is located in a State that has a 
PPS waiver under section 1814(b). In addition, there are 
special cases in which the PPS is not applied, such as 
emergency services provided to Medicare beneficiaries in 
hospitals not participating in Medicare.
    OBRA 1990 increased the cost limits imposed on hospitals 
exempt from PPS. Under prior law, hospitals with costs in 
excess of the cost limits imposed by the TEFRA would be 
reimbursed for their cost up to the TEFRA limit. Under OBRA 
1990, hospitals with costs exceeding the cost limits imposed by 
TEFRA receive 50 percent of the costs that exceed the limit, up 
to a maximum of 110 percent of the limit. In addition, the 
Secretary is directed to develop a new prospective payment 
methodology for exempt hospitals, or to substantially modify 
the current target-rate system.
    OBRA 1993 provided for an update factor to the cost limits 
of market basket minus 1.0 percentage point for fiscal years 
1994 through 1997. Hospitals with operating costs in fiscal 
year 1990 that exceeded the target amount by more than 10 
percent are exempt from the update reduction, with partial 
reductions applied to hospitals near the threshold. Hospitals 
reimbursed under approved State cost control systems are also 
excluded from the prospective rates.
     For PPS-exempt facilities, BBA 1997 sets the fiscal year 
1998 update at 0 percent, and for fiscal years 1999-2002, the 
update factor will vary depending on a hospital's target amount 
and costs. For hospitals with costs: (1) that equal or exceed 
their target amounts by 10 percent or more, the update will be 
equal to the market basket; (2) that exceed their target, but 
by less than 10 percent, the update factor will be equal to 
zero or, if greater, the market basket minus 0.25 percentage 
points for each percentage point by which costs are less than 
10 percent over the target; (3) that are either at their 
target, or below (but not below \2/3\ of the target amount for 
the hospital), the update factor will be equal to zero or, if 
greater, the market basket percentage minus 2.5 percentage 
points; or (4) that do not exceed \2/3\ of their target amount, 
the update factor will be equal to 0 percent.
     In addition, BBA 1997 includes several provisions 
affecting Medicare payments to PPS-exempt hospitals and units. 
BBA 1997 reduces the capital payment update amount for PPS-
exempt hospitals and units by 15 percent for fiscal years 1998-
2002. BBA 1997 establishes a cap on PPS-exempt TEFRA limits, 
also known as target amounts, for PPS-exempt hospitals or units 
for cost reporting periods beginning on or after October 1, 
1997 and before October 1, 2002. The Secretary is required to 
estimate the 75th percentile of the target amounts for 
hospitals for cost reporting periods ending during fiscal year 
1996, and then update the amount up to the first cost reporting 
period beginning on or after October 1, 1997, by a factor equal 
to the market basket percentage increase. For cost reporting 
periods beginning during each of fiscal years 1999-2002, the 
Secretary is required to update the amount by a factor equal to 
the market basket increase. BBRA 1999 adjusts the labor-related 
portion of the 75 percent cap to reflect differences between 
the wage-related costs in the area of the hospital and the 
national average of such costs within the same class of 
hospitals beginning for cost reporting periods on or after 
October 1, 1999.
     BBA 1997 provides for changing bonus payments to PPS-
exempt facilities to equal the lesser of: (1) 15 percent of the 
amount by which the target amount exceeds the amount of 
operating costs, or (2) 2 percent of the target amount. In 
addition, for cost reporting periods beginning on or after 
October 1, 1997, BBA 1997 provides for continuous improvement 
bonus payments for certain eligible hospitals. BBRA 1999 
increases the amount of bonus payments that may be made to 
eligible long-term care and psychiatric providers. Eligible 
providers may receive up to a 1.5 percent bonus payment for 
cost reporting periods beginning on or after October 1, 2000, 
and before September 30, 2001, and up to a 2 percent bonus 
payment for cost reporting periods beginning on or after 
October 1, 2001, and before September 30, 2002.
    BBA 1997 establishes different payment and target amount 
rules for new PPS-exempt hospitals or distinct-part units 
within hospitals that first received Medicare payments on or 
after October 1, 1997. BBA 1997 provides PPS-exempt hospitals 
and distinct units of hospitals that received Medicare payments 
for services furnished before January 1, 1990, with the option 
of rebasing the hospital's target amount for the 12-month cost 
reporting period beginning during fiscal year 1998.
    BBA 1997 also requires the Secretary to establish a case-
mix adjusted PPS for rehabilitation hospitals and distinct-part 
units, effective beginning in fiscal year 2001. The Secretary 
is required to establish: (1) classes of discharges of 
rehabilitation facilities by patient case-mix groups based on 
impairment, age, related prior hospitalization, comorbidities, 
and functional capability of the discharged individual and 
other appropriate factors; and (2) a method of classifying 
specific discharges from rehabilitation facilities within these 
groups. BBRA 1999 requires the Secretary to base the PPS for 
rehabilitation hospitals and distinct part units on discharges. 
The Secretary is also required to establish classes of patient 
discharges of rehabilitation facilities by functional related 
groups, based on impairment, age, comorbidities, and functional 
capability of the patient as well as other factors deemed 
appropriated to improve the explanatory power of functional 
independence measure-function related groups. BBRA 1999 also 
clarifies that payments to rehabilitation facilities may be 
adjusted to account for the early transfer of patients to 
another site of care. The Secretary is also required to submit 
a study to Congress not later than 3 years after the 
implementation of PPS on its impact on utilization and access 
to rehabilitation services.
     BBA 1997 requires the Secretary to collect data to 
develop, establish, administer and evaluate a case mix adjusted 
PPS for long term care hospitals. BBRA 1999 requires the 
Secretary to report to the appropriate congressional committees 
by October 1, 2001, on a discharge-based PPS for long term care 
hospitals which would be implemented in a budget-neutral 
fashion for cost reporting periods beginning on or after 
October 1, 2002. The Secretary may require long term care 
hospitals to submit information to develop the payment system. 
BBRA 1999 also requires the Secretary to report to the 
appropriate congressional committees by October 1, 2001, on a 
per diem-based PPS with an adequate patient classification 
system for psychiatric hospitals (and distinct part units) 
which would be implemented in a budget-neutral fashion for cost 
reporting periods beginning on or after October 1, 2002. The 
Secretary may require psychiatric hospitals and units to submit 
information to develop the payment system.

                             State Systems

    Section 1886(c) of the Social Security Act (as added by 
TEFRA) gave the Secretary of the U.S. Department of Health and 
Human Services (DHHS) discretion to reimburse hospitals in a 
State according to the State's hospital reimbursement control 
system rather than according to Medicare's reimbursement 
methods if the State requests this change and if DHHS 
determines that the State system meets certain requirements. 
Currently, only Maryland has a waiver to operate its own 
system.
    Public Laws 98-21 and 98-369 added several more 
requirements for State systems. According to final regulations 
published by DHHS on April 24, 1986 (51 F.R. 15481) 
implementing these legislative changes, DHHS has the discretion 
to allow Medicare hospital reimbursement to be made in 
accordance with a State reimbursement control system if the 
chief executive officer of the State requests approval of the 
State system, and provided that the State system:
 1. Applies to substantially all non-Federal acute care 
        hospitals in the State;
 2. Applies to at least 75 percent of all inpatient revenues or 
        expenses for the State;
 3. Provides assurances that payers, hospital employees and 
        patients in the State will be treated equitably under 
        its system;
 4. Provides assurances that its system will not result in 
        greater Medicare expenditures over 36-month periods;
 5. Does not preclude health maintenance organizations or 
        competitive medical plans from negotiating directly 
        with hospitals concerning payment for inpatient 
        services;
 6. Limits hospital charges to Medicare beneficiaries to 
        deductibles, coinsurance, and services for which the 
        beneficiary would not be entitled to have payment made 
        under Medicare part A; and prohibits payment under part 
        B of Medicare for nonphysician services provided to 
        hospital inpatients unless this prohibition is waived.
    Public Law 101-239 (OBRA 1989) required the Secretary's 
test of effectiveness of a State cost containment system to be 
based on the aggregate rate of increase from October 1, 1984, 
to the most recent date for which annual data are available. 
This provision also extended the waiver for the New York rural 
hospital payment demonstration.
    Special provisions apply to States that have existing 
demonstration projects approved by HCFA under section 402 of 
the Social Security Amendments of 1967 or section 222(a) of the 
Social Security Amendment of 1972 for the operation of State 
reimbursement control systems. DHHS approval of a State's 
application to continue the operation of a system upon 
expiration of the demonstration project is mandatory if, and 
for so long as, the system meets the minimum requirements 
described in the six items listed above.
    Public Law 101-508 revised the Secretary's test of 
effectiveness of a State cost containment system to be based on 
the rate of increase in costs per hospital inpatient admission 
as compared to the rate of increase in such costs with respect 
to all hospitals between January 1, 1981, and the present. In 
addition, OBRA 1990 provided that a State no longer qualifying 
for a prospective payment system (PPS) waiver be provided with 
a reasonable period, not to exceed 2 years, for transition from 
the State system to the national payment system, and required 
restoration of the waiver if the State returned to compliance 
during the transition period.

                             ADMINISTRATION

  Prospective Payment Assessment Commission/Medicare Payment Advisory 
                               Commission

    The Prospective Payment Assessment Commission (ProPAC) was 
a commission composed of 17 independent experts charged with 
advising the Congress on PPS and Medicare payment policies. BBA 
1997 replaced ProPAC and the Physician Payment Review 
Commission with a 15-member Medicare Payment Advisory 
Commission (MedPAC). MedPAC is required to submit annual 
reports to Congress on March 1 and June 1 concerning the 
Medicare Program.

                   Administrative and Judicial Review

    Administrative and judicial appeals are allowed under 
procedures and authorities already established under the 
Medicare Program. However, the law precludes administrative and 
judicial review of: (1) the ``budget neutrality'' adjustment 
(see above), and (2) the diagnosis-related group (DRG) payment 
amounts, including the establishment of DRGs, the methodology 
for classifying discharges within DRGs, and the DRG weighting 
factors.

                           Review Activities

    Public Law 97-248, known as TEFRA, replaced the existing 
Professional Standards Review Organization Program with the 
Utilization and Quality Control Peer Review Program. The 
Secretary of DHHS was required to enter into performance-based 
contracts with physician-sponsored or physician-access 
organizations known as peer review organizations (PROs). As a 
condition of receiving payments under the PPS, hospitals are 
required to enter into an agreement with a PRO under which the 
PRO reviews the validity of diagnostic and procedural 
information provided by the hospitals; the completeness, 
adequacy and quality of care provided; and the appropriateness 
of admissions patterns, discharges, lengths of stay, transfers, 
and services furnished in outlier cases.
    Since 1982, the statute governing the PRO Program has been 
amended numerous times, and as of October 1999 the PROs are 
operating under the sixth ``scope of work.''

         HISTORICAL TRENDS IN PPS PAYMENTS, COSTS, AND MARGINS

                     Medicare Payments to Hospitals

    In fiscal year 2000, hospitals will be paid an estimated 
$93.2 billion for Medicare-covered inpatient hospitalization as 
shown in table D-8. The largest share of this amount, $71.5 
billion, will be for PPS inpatient operating costs. The 
Medicare Program will provide more than 90 percent of these 
payments and the remaining amount will come from beneficiaries 
for deductibles and coinsurance. PPS hospitals will also 
receive some $6.1 billion in capital payments. Another $13.6 
billion will be paid for operating and capital costs related to 
services provided in PPS-excluded facilities, which include 
psychiatric and rehabilitation hospitals and distinct-part 
units as well as long-term and children's hospitals. Hospitals 
will also receive $2.0 billion for the direct costs of training 
programs, including those for interns and residents and for 
nursing and allied health personnel.

     TABLE D-8.--TOTAL MEDICARE PAYMENTS TO HOSPITALS FOR INPATIENT
            HOSPITALIZATION BY PAYMENT TYPE, FISCAL YEAR 2000
                        [In billions of dollars]
------------------------------------------------------------------------
                 Payment category                     Amount     Amount
------------------------------------------------------------------------
 Program..........................................       71.8
     Operating....................................       65.7
     Capital......................................        6.1
 Beneficiary copayments...........................        5.8
                                                   -----------
         Total PPS................................                 $77.6
                                                              ==========
 Program..........................................       12.6
     Operating....................................       11.9
     Capital......................................        0.8
 Beneficiary copayments...........................        1.0
                                                   -----------
         Total PPS-excluded.......................                  13.6
                                                              ==========
 Interns and residents............................        1.7
Nursing and allied health.........................        0.3
                                                   -----------
         Total direct medical education...........                   2.0
                                                              ----------
             Total................................                 93.2
------------------------------------------------------------------------
Source: Congressional Budget Office.

               Trends in PPS Operating Payments and Costs

    The increase in PPS operating payments per case has 
differed from the update factor in every year, as shown in 
table D-9. In the first 2 years of prospective payment, 
payments per discharge rose sharply, by 18.5 percent and 10.5 
percent, respectively. This is attributable to two factors: 
overestimation of the base year hospital costs upon which the 
initial PPS rates were set due to the use of unaudited Medicare 
Cost Reports, and a large increase in the aggregate case mix 
index in the early years because of more emphasis on accurate 
DRG coding and complete documentation of the medical record.
     After an increase of 3.2 percent in 1986, payments per 
case grew at an annual rate of 5.9 percent from 1987 through 
1992, as a result of large increases in both the PPS MBI and 
the aggregate Medicare case-mix index. From 1993 through 1998, 
the PPS update was lower with zero percent update in 1998. 
Lower updates coupled with a declining case mix index (table D-
13) has resulted in smaller increases in PPS payments per case.

 TABLE D-9.--COMPARISON OF INCREASES IN HOSPITAL MARKET BASKET, AVERAGE PPS UPDATES, PPS OPERATING PAYMENTS PER CASE, AND PPS OPERATING COSTS PER CASE,
                                                                  FISCAL YEARS 1984-98
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       PPS update                    Increase
                                                                Forecasted   Annual  ----------------------------------------------   in PPS    Increase
                                                                 increase   increase                                                operating    in PPS
                          Fiscal year                             in PPS     in PPS          ProPAC             HCFA        Actual   payments  operating
                                                                  market     market   recommendation \2\  recommendation   update    per case  costs per
                                                                basket \1\   basket                                                    \3\        case
--------------------------------------------------------------------------------------------------------------------------------------------------------
1984..........................................................        4.9        5.1             NA               4.7          4.7       18.5        1.8
1985..........................................................        4.0        4.0             NA               4.5          4.5       10.5       11.0
1986..........................................................        4.3        3.0            1.5               0.0          0.5        3.2        9.6
1987..........................................................        3.7        3.3            1.7               0.5          1.2        5.4        9.1
1988..........................................................        4.7        4.8            2.3               0.8          1.5        6.0        9.0
1989..........................................................        5.4        5.5            4.2               2.7          3.3        6.6        9.2
1990..........................................................        5.5        4.6            4.1               4.0      \4\ 4.7        6.5        8.9
1991..........................................................        5.2        4.4            4.7               3.7          3.4        5.9        7.0
1992..........................................................        4.4        3.2            3.0               3.0          3.0        5.2        4.7
1993..........................................................        4.1        3.1            2.8               2.7          2.7        3.8        1.2
1994..........................................................        4.3        2.6            3.6           \5\ 2.6          2.0        3.6       -1.1
1995..........................................................        3.6        3.1            2.6               2.0          2.0        4.0       -1.1
1996..........................................................        3.5        2.4            1.7               1.5          1.5        4.2       -0.6
1997..........................................................        2.5        2.0            1.0               1.0          2.0        2.5        0.1
1998..........................................................        2.9        2.9            0.0               0.0          0.0        1.7         NA
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Based on data available when final PPS rule was issued.
\2\ Based on ProPAC's annual Report and Recommendations to the Congress and market basket forecast when final PPS rule was issued.
\3\ Increases for 1984-95 based on data from Medicare Cost Reports, which correspond to hospital cost reporting periods, rather than Federal fiscal
  years. Increases for 1996-98 based on PPS update and estimated case-mix index increase.
\4\ Actual updates for fiscal year 1990 adjusted to reflect 1.22 percent across-the-board reduction in DRG weights.
\5\ Annual update based on HCFA's recommendation that rates be frozen at 1993 level through January 1, 1994.

 NA--Not available.

Source: Medicare Payment Advisory Commission.

    Following an increase of only 1.8 percent in the first year 
of PPS, PPS operating costs per discharge rose by about 11 
percent in the second year, and about 9 percent from 1986 
through 1990. However, the 7.0-percent growth in operating 
costs per case in 1991 was the smallest since the first year of 
PPS, and the rise of 1.2 percent in 1993 was below general 
inflation. Costs per case actually decreased from 1994 through 
1996, with a small increase (0.1 percent) in 1997.
    Cost growth experience has not been uniform across 
hospitals, as shown in table D-10. Through 1990, urban and 
rural hospitals had about the same rate of increase. In the 
first year, both groups reacted to prospective payment by 
holding their cost growth far below the rates prevailing before 
PPS, while annual cost increases in the following 6 years were 
much higher for both groups. From 1991 through 1995, however, 
urban hospitals held their cost growth to 1.9 percent annually, 
while rural hospital costs rose at a 3.4-percent rate. That 
pattern continued throughout 1996 and 1997 with costs per case 
increasing in rural hospitals at a higher rate than in urban 
hospitals.

    TABLE D-10.--ANNUAL RATE OF CHANGE IN PPS OPERATING COSTS PER CASE BY HOSPITAL GROUP AND PERIOD, 1984-97
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                     Period
                        Hospital group                         -------------------------------------------------
                                                                  1984     1985-90   1991-95    1996      1997
----------------------------------------------------------------------------------------------------------------
Urban.........................................................       1.6       9.4       1.9      -0.9       0.0
Rural.........................................................       1.5       9.2       3.4       1.3       1.5

Large urban...................................................       0.6       9.2       1.5      -0.9      -0.1
Other urban...................................................       3.2       9.8       2.4      -0.6       0.2
Rural referral................................................       1.5       9.7       3.4       0.0       1.0
Sole community................................................       1.3       8.6       3.6       2.3       1.4
Other rural...................................................       1.4       9.2       3.3       1.7       1.7

Major teaching................................................       1.3       9.1       1.7      -0.3      -0.4
Other teaching................................................       1.3       9.4       2.2      -0.7       0.1
Nonteaching...................................................       1.9       9.5       2.0      -0.7       0.6

Disproportionate share large urban............................       0.0       9.0       1.4      -1.0       0.1
Disproportionate share other urban............................       3.2       9.7       2.6      -0.5       0.2
Disproportionate share rural..................................       0.3       9.7       3.4       0.5       1.8
Nondisproportionate share.....................................       2.4       9.6       2.2      -0.3       0.0

Teaching and disproportionate share...........................       0.7       9.2       2.0      -0.4       0.0
Teaching only.................................................       2.6       9.7       2.4      -0.7      -0.7
Disproportionate share only...................................       1.8       9.5       1.8      -1.5       0.4
Nonteaching nondisproportionate share.........................       2.0       9.4       2.1      -0.2       0.8

Voluntary.....................................................       1.8       9.3       2.2      -0.3       0.0
Proprietary...................................................       0.7      10.0       0.3      -3.7       0.7
Urban government..............................................       2.4       9.6       2.1      -0.6       0.1
Rural government..............................................       1.5       9.3       3.9       2.0       1.7

All hospitals.................................................       1.8       9.5       2.1      -0.6       0.1
----------------------------------------------------------------------------------------------------------------
Note.--Data on PPS operating costs and payments are for hospital accounting years beginning during each Federal
  fiscal year. Changes based on cohorts of hospitals with Medicare Cost Reports in two consecutive years.
  Hospitals in Massachusetts and New York excluded from data in 1984 and 1985; hospitals in New Jersey excluded
  from data in 1984 through 1988; hospitals in Maryland excluded from data in all years.

 Source: Medicare Payment Advisory Commission analysis of Medicare Cost Report data from the Health Care
  Financing Administration.

    The recent low rate of cost growth among hospitals in large 
urban areas may reflect the fact that the most rapid changes in 
the health care system appear to be occurring in the largest 
cities. From 1991 through 1995, these hospitals' costs per 
discharge rose at a rate 0.9 percentage points below that for 
other urban hospitals and 1.9 percentage points below that for 
rural hospitals. Large urban hospitals continue to show greater 
success in controlling increases in cost per case in 1996 and 
1997 than those categories of hospitals.
    The pattern of cost increases also varies substantially by 
ownership. In the first year of PPS, when hospitals perceived 
potential pressure to control costs, proprietary facilities had 
by far the smallest increase of any group. Once this pressure 
lessened, costs increased sharply through 1990 for all groups, 
including the proprietaries. However, from 1991 on, proprietary 
hospitals reined in their costs to a far greater extent than 
the other groups. That pattern continued in 1996 but did not 
hold true in 1997. In 1997, voluntary and urban government 
hospitals displayed smaller increases in operating costs per 
case than proprietary hospitals.

                         PPS Inpatient Margins

    The PPS inpatient margin compares combined Medicare 
operating and capital payments with the corresponding costs. In 
1997, the aggregate PPS margin rose for the sixth consecutive 
year as shown in table D-11. This contrasts with a declining 
trend through the first 8-9 years of prospective payment, 
during which the margin fell to a low of -2.4 percent in 1991. 
The turnaround is attributable to the sharp slowdown in 
hospital cost growth with the continuation of current trends. 
The aggregate PPS inpatient margin for 1997 is 17.0 percent, 
the highest PPS inpatient margin in the 14 years of prospective 
payment.

                   Inpatient Margins by Hospital Type

    PPS inpatient margins vary by hospital group. The margin 
for urban hospitals was 14.5 percent in the first year--
exceeding that for rural hospitals by 6.8 percentage points. 
Beginning in fiscal year 1986, the Congress enacted a series of 
policy changes designed to increase payment for rural 
hospitals. By 1988, although the difference between the two 
groups had decreased to 4.5 percentage points, rural hospitals 
had negative margins while urban ones were still receiving 
payments that exceeded their costs. The disparity narrowed to 
0.5 percentage points by 1992, but has widened as urban 
hospitals have constrained their costs more than rural 
hospitals.

                     TABLE D-11.--PPS INPATIENT (OPERATING PLUS CAPITAL) MARGINS, BY HOSPITAL GROUP, FIRST 14 YEARS OF PPS, 1984-97
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Hospital group                1984    1985    1986    1987    1988    1989    1990    1991    1992    1993    1994    1995    1996    1997
--------------------------------------------------------------------------------------------------------------------------------------------------------
Urban...................................    14.5    13.9     9.8     6.8     3.3     0.8    -1.2    -2.2    -0.9     1.3     5.7    10.7    16.4    18.1
Rural...................................     7.7     7.4     2.2     0.2    -1.2    -2.9    -3.7    -3.7    -1.4    -0.7     0.2     5.1     9.8     9.5

Large urban.............................    15.0    13.9    10.0     6.8     3.1     0.7    -0.7    -1.4     0.4     2.8     7.8    12.7    18.7    20.5
Other urban.............................    13.8    14.0     9.4     6.8     3.7     0.9    -1.9    -3.4    -2.9    -1.0     2.5     7.8    12.8    14.4
Rural referral..........................     9.9    12.9     7.9     6.1     3.9     1.2     0.0    -0.6     2.9     2.6     2.8     6.1     9.9    10.3
Sole community..........................     8.0     6.4     2.1     0.3    -1.2    -2.6    -1.2    -0.8     2.5     3.8     4.4     7.3    11.3    10.1
Other rural.............................     7.0     6.0     0.3    -1.9    -3.2    -4.5    -6.0    -6.0    -4.8    -3.8    -2.5     3.7     8.9     8.3

Major teaching..........................    18.6    19.9    15.2    12.9    10.0     7.9     7.2     7.5     9.3    10.9    16.4    20.5    25.1    28.5
Other teaching..........................    14.9    14.5    10.5     7.2     3.9     1.4    -1.0    -2.2    -1.2     0.8     4.6     9.3    14.5    16.2
Nonteaching.............................    11.2    10.0     5.2     2.5    -0.7    -3.3    -5.2    -6.4    -5.0    -3.0     0.4     6.0    11.6    12.2

Disproportionate share large urban......    15.3    14.2    10.8     8.3     5.5     3.5     3.0     2.8     5.0     7.8    13.1    17.6    22.9    24.4
Disproportionate share other urban......    13.5    14.2    10.0     7.8     5.0     2.4     0.0    -1.3    -1.0     0.9     4.5    10.0    14.8    16.6
Disproportionate share rural............     8.5     8.2     2.8     0.4    -0.5    -2.1    -2.2    -1.8     0.2     0.5     2.2     7.6    12.3    11.7
Nondisproportionate share...............    12.6    11.9     7.0     3.6    -0.3    -2.9    -5.5    -6.7    -5.5    -4.0    -0.7     4.4    10.4    11.8

Teaching and disproportionate share.....    15.8    15.9    12.4    10.0     7.6     5.3     4.1     3.6     5.0     7.3    11.8    16.2    21.0    23.0
Teaching only...........................    16.1    16.3    11.3     7.0     2.2    -0.1    -3.2    -4.0    -2.9    -1.7     2.2     7.0    13.5    15.6
Disproportionate share only.............    11.6    10.7     6.1     3.6     0.6    -1.6    -3.0    -3.7    -2.3    -0.1     3.9    10.0    15.6    15.9
Nonteaching nondisproportionate share...    10.8     9.5     4.5     1.5    -1.8    -4.6    -6.9    -8.4    -7.2    -5.4    -2.5     2.7     8.2     9.2

Voluntary...............................    14.0    13.7     9.6     6.5     3.1     0.7    -1.3    -2.5    -1.1     0.6     4.3     9.0    14.6    16.4
Proprietary.............................    12.9    11.0     6.3     3.4     0.0    -3.9    -5.7    -4.4    -2.2     1.8     8.6    15.6    21.5    21.2
Urban government........................    13.5    14.1     9.1     7.6     4.8     3.6     2.7     1.4     2.2     4.9     9.7    14.5    18.8    20.8
Rural government........................     6.6     5.1    -0.6    -2.3    -2.3    -3.7    -4.0    -4.4    -2.6    -2.0    -2.6     2.5     6.9     6.2

All hospitals...........................    13.4    13.0     8.7     5.9     2.7     0.3    -1.5    -2.4    -1.0     1.0     5.0    10.0    15.5    17.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Data on PPS operating and capital costs and payments are for hospital accounting years beginning during each Federal fiscal year. Hospitals in
  Massachusetts and New York excluded from data in 1984 and 1985; hospitals in New Jersey excluded from data in 1984 through 1988; hospitals in Maryland
  excluded from data in all years.

 Source: Medicare Payment Advisory Commission analysis of Medicare Cost Report data from the Health Care Financing Administration.

    Major teaching hospitals consistently have had the highest 
aggregate inpatient margin of any hospital group. Moreover, the 
difference in the margins for major teaching and nonteaching 
hospitals has grown. For major teaching hospitals, the 
inpatient margin fell from 19.9 percent in the second year of 
PPS to a low of 7.2 percent in 1990, while the drop for other 
teaching and nonteaching hospitals was much sharper. By 1997, 
all three groups had higher margins than in the early years of 
the decade, with the largest increase seen in the major 
teaching group. Their margin was 28.5 percent--12.3 percentage 
points higher than for other teaching hospitals and 16.3 
percentage points higher than for the nonteaching group. These 
differences had been 3.7 percentage points and 7.4 percentage 
points, respectively, in the first PPS year.
    The trend in inpatient margins by ownership category also 
reflects changes in payment policy and degree of success in 
controlling costs. In the first year, voluntary, proprietary, 
and urban government hospitals all had inpatient margins around 
13-14 percent, while rural government hospitals lagged behind. 
In 1990, the inpatient margin for the proprietary group, which 
had fallen by more than 18 percentage points since the 
beginning of PPS to -5.7 percent, was the lowest of the four 
groups. However, as these hospitals held down their cost 
growth, their margin increased by more than 20 percentage 
points, to 21.2 percent in 1997.

                             Total Margins

    The PPS inpatient margin, however, does not represent the 
bottom line for the hospital industry. The total margin, which 
includes expenses and revenues related to Medicare and other 
inpatient and outpatient care as well as other facility 
activities, increased steadily from the early 1970s to the 
early 1980s, peaking in 1984. In subsequent years--as Medicare 
tightened its control over inpatient payment rate increases--
the total margin began to fall (table D-12). In the late 1980s, 
however, this decline leveled off at 3.5 percent, and by 1991 
the total margin had risen to 4.4 percent. It declined slightly 
in 1992, then started on an upward trend in 1994, standing at 
6.3 percent in 1997, the highest level since 1986 and above 
levels experienced before PPS began.

                        Additional Hospital Data

    Table D-13 provides historical trends in factors affecting 
PPS rates and average payments per case, based on data and 
estimates provided by HCFA's Office of the Actuary. Tables D-14 
through D-16 contain wage index information for PPS hospitals 
for fiscal year 2000. Table D-17 contains information on 
changes in DRG relative weights from fiscal year 1999 through 
2000.

                                                  TABLE D-12.--TOTAL MARGINS BY HOSPITAL GROUP, 1984-97
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Hospital group                       1984   1985   1986   1987   1988   1989   1990   1991   1992   1993   1994   1995   1996   1997
--------------------------------------------------------------------------------------------------------------------------------------------------------
Urban.................................................    7.7    6.9    4.5    3.7    3.6    3.5    3.5    4.3    4.2    4.4    4.9    5.7    5.9    6.2
Rural.................................................    5.0    4.7    3.0    2.9    3.3    4.2    4.7    5.1    5.3    5.1    5.5    6.6    7.0    6.8

Large urban...........................................    7.5    6.6    4.0    3.2    3.0    2.9    2.4    3.6    3.5    3.8    4.2    4.9    5.2    5.4
Other urban...........................................    8.1    7.2    5.4    4.6    4.5    4.7    5.2    5.6    5.3    5.2    6.1    6.9    7.2    7.5
Rural referral........................................    7.4    8.4    5.7    5.7    5.1    6.5    6.5    6.5    6.7    6.8    7.1    8.6    8.9    9.4
Sole community........................................    4.8    4.1    2.7    2.3    2.7    3.3    4.3    5.4    5.6    5.6    5.9    6.3    6.1    6.1
Other rural...........................................    4.4    3.7    2.2    2.1    3.0    3.7    4.2    4.5    4.6    4.3    4.7    5.9    5.9    4.9

Major teaching........................................    5.2    5.7    2.2    2.1    2.4    1.8    0.9    3.5    3.2    3.3    3.1    4.2    3.5    5.1
Other teaching........................................    8.4    7.3    5.6    4.4    4.3    4.5    4.4    4.7    4.4    4.7    5.3    6.2    6.9    6.6
Nonteaching...........................................    7.3    6.4    4.5    3.8    3.6    3.9    4.4    4.8    4.9    4.9    5.9    6.4    7.0    6.7

 Disproportionate share large urban...................    6.6    5.7    3.2    2.4    2.2    2.0    1.3    3.1    3.0    3.5    3.7    4.3    4.3    4.8
 Disproportionate share other urban...................    7.9    7.1    5.4    4.7    4.6    4.7    5.3    5.9    5.8    5.4    6.2    7.0    7.2    7.4
 Disproportionate share rural.........................    5.8    5.7    2.5    2.8    3.5    4.4    5.7    7.4    7.7    6.0    6.0    7.8    8.2    7.5
Nondisproportionate share.............................    7.7    7.0    4.9    4.2    4.2    4.4    4.5    4.6    4.4    4.6    5.4    8.2    6.8    6.8

Teaching and disproportionate share...................    6.7    6.1    3.6    3.0    2.9    3.0    2.4    4.0    3.9    4.0    4.1    4.9    4.7    5.4
Teaching only.........................................    9.0    8.5    5.9    4.7    5.0    4.6    4.5    4.7    3.9    4.4    5.1    6.5    7.3    7.3
Disproportionate share only...........................    7.7    6.5    4.6    3.7    3.5    3.4    4.2    5.1    5.2    5.1    6.3    6.8    7.5    6.9
No teaching or disproportionate share.................    7.0    6.2    4.4    4.0    3.7    4.3    4.5    4.5    4.7    4.7    5.5    6.1    6.6    6.5

Voluntary.............................................    7.7    7.0    4.9    3.8    3.8    3.9    3.9    4.3    4.0    4.1    4.8    5.7    5.8    6.5
Proprietary...........................................    8.8    7.5    5.6    4.6    3.6    2.9    3.9    5.2    6.6    7.2    9.6    9.3   10.1    6.9
Urban government......................................    4.4    4.4    0.9    2.3    2.2    2.5    1.7    4.4    4.2    4.4    3.4    4.4    3.9    5.2
Rural government......................................    4.6    2.9    2.0    1.5    2.4    3.3    4.0    4.8    5.2    4.5    4.7    5.7    6.1    5.3

All hospitals.........................................    7.3    6.6    4.3    3.6    3.5    3.6    3.6    4.4    4.3    4.5    5.0    5.8    6.1    6.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Data are percentages. Data on total revenues and expenses are for hospital accounting years beginning during each Federal fiscal year. Hospitals
  in Massachusetts and New York excluded from data in 1984 and 1985; hospitals in New Jersey excluded from data in 1984-88; hospitals in Maryland
  excluded from data in all years.

Source: Medicare Payment Advisory Commission analysis of Medicare Cost Report data from the Health Care Financing Administration.

                                            TABLE D-13.--TRENDS IN FACTORS AFFECTING PPS RATES AND AVERAGE PAYMENTS PER CASE, FISCAL YEARS 1983-2001
                                                                             [Percentage change from previous year]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Fiscal year
                   Rate impact factor                   ----------------------------------------------------------------------------------------------------------------------------------------
                                                          1983   1984   1985   1986   1987   1988   1989   1990   1991   1992   1993   1994   1995    1996    1997   1998    1999    2000   2001
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Market basket index....................................    5.5    4.9    4.1    2.9    3.2    4.7    5.4    5.5    5.2    4.4    4.1    4.3  \1\ 3.  \2\ 3.    2.5     2.7     2.4    2.9    3.2
                                                                                                                                                  6       5
Annual update factor...................................     NA     NA     NA     NA     NA    1.7   3.33   5.71   2.83    2.9   2.75   2.11    1.89    1.64      2       0     0.5   1.09   2.01
Case-mix index.........................................     NA     NA    3.1    2.5    2.1    3.2    2.5   0.85    2.5    1.5    0.8    0.7     1.5     1.4    0.3    -0.6    -0.5    0.5    0.5
Average payments per discharge.........................    9.7   10.4   14.2    7.0    5.0    1.6    9.5    5.6    2.6    8.8    3.6    2.5     4.4     4.1    2.4    -2.0     0.0    2.0    2.9
Average payments per beneficiary.......................   10.9    7.6    5.6    0.8    0.8    0.4    6.1    7.7      3    8.4      6    4.9     4.7     3.5    3.3    -3.2    -2.3    2.1    3.4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 3.7 for hospitals excluded from the prospective payment system.
\2\ 3.4 for hospitals excluded from the prospective payment system.

 NA--Not available.

Source: Health Care Financing Administration.

 TABLE D-14.--WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT FACTOR (GAF)
                    FOR URBAN AREAS, FISCAL YEAR 2000
------------------------------------------------------------------------
                                                          Wage
           Urban area (constituent counties)             index     GAF
------------------------------------------------------------------------
0040 Abilene, TX: Taylor, TX..........................   0.8179   0.8714
00602 Aguadilla,\2\ PR: Aguada, PR; Aguadilla, PR;       0.4249   0.5565
 Moca, PR.............................................
0080 Akron, OH; Portage, OH; Summit, OH...............   1.0163   1.0111
0120 Albany, GA: Dougherty, GA; Lee, GA...............   1.0372   1.0253
0160 Albany-Schenectady-Troy, NY: Albany, NY;            0.8754   0.9129
 Montgomery, NY; Rensselaer, NY; Saratoga, NY;
 Schenectady, NY; Schoharie, NY.......................
0200 Albuquerque, NM: Bernalillo, NM; Sandoval, NM;      0.8499   0.8946
 Valencia, NM.........................................
0220 Alexandria, LA: Rapides, LA......................   0.7910   0.8517
0240 Allentown-Bethlehem-Easton, PA: Carbon, PA;         0.9550   0.9690
 Lehigh, PA; Northampton, PA..........................
0280 Altoona, PA: Blair, PA...........................   0.9342   0.9545
0320 Amarillo, TX: Potter, TX; Randall, TX............   0.8435   0.8900
0380 Anchorage, AK: Anchorage, AK.....................   1.3009   1.1974
0440 Ann Arbor, MI: Lenawee, MI; Livingston, MI;         1.1483   1.0993
 Washtenaw, MI........................................
0450 Anniston, AL: Calhoun, AL........................   0.8462   0.8919
0460 Appleton-Oshkosh-Neenah, WI: Calumet, WI;           0.8913   0.9242
 Outagamie, WI; Winnebago, WI.........................
0470 Arecibo, PR: Arecibo, PR; Camuy, PR; Hatillo, PR.   0.4815   0.6062
0480 Asheville, NC: Buncombe, NC; Madison, NC.........   0.8884   0.9222
0500 Athens, GA: Clarke, GA; Madison, GA; Oconee, GA..   0.9800   0.9863
0520 Atlanta,\1\ GA: Barrow, GA; Bartow, GA; Carroll,    1.0050   1.0034
 GA; Cherokee, GA; Clayton, GA; Cobb, GA; Coweta, GA;
 DeKalb, GA; Douglas, GA; Fayette, GA; Forsyth, GA;
 Fulton, GA; Gwinnett, GA; Henry, GA; Newton, GA;
 Paulding, GA; Pickens, GA; Rockdale, GA; Spalding,
 GA; Walton, GA.......................................
0560 Atlantic-Cape May, NJ: Atlantic, NJ; Cape May, NJ   1.1050   1.0708
0580 Auburn-Opelika, AL: Lee, AL......................   0.7748   0.8397
0600 Augusta-Aiken, GA-SC: Columbia, GA; McDuffie, GA;   0.9013   0.9313
 Richmond, GA; Aiken, SC; Edgefield, SC...............
0640 Austin-San Marcos,\1\ TX: Bastrop, TX; Caldwell,    0.9081   0.9361
 TX; Hays, TX; Travis, TX; Williamson, TX.............
0680 Bakersfield,\2\ CA: Kern, CA.....................   0.9951   0.9966
0720 Baltimore,\1\ MD: Anne Arundel, MD; Baltimore,      0.9891   0.9925
 MD; Baltimore City, MD; Carroll, MD; Harford, MD;
 Howard, MD; Queen Anne's, MD.........................
0733 Bangor, ME: Penobscot, ME........................   0.9609   0.9731
0743 Barnstable-Yarmouth, MA: Barnstable, MA..........   1.3302   1.2158
0760 Baton Rouge, LA: Ascension, LA; East Baton Rouge,   0.8707   0.9095
 LA; Livingston, LA; West Baton Rouge, LA.............
0840 Beaumont-Port Arthur, TX: Hardin, TX; Jefferson,    0.8624   0.9036
 TX; Orange, TX.......................................
0860 Bellingham, WA: Whatcom, WA......................   1.1394   1.0935
0870 Benton Harbor,\2\ MI: Berrien, MI................   0.8831   0.9184
0875 Bergen-Passaic,\1\ NJ: Bergen, NJ; Passaic, NJ...   1.1833   1.1222
0880 Billings, MT: Yellowstone, MT....................   1.0038   1.0026
0920 Biloxi-Gulfport-Pascagoula, MS: Hancock, MS;        0.7949   0.8545
 Harrison, MS; Jackson, MS............................
0960 Binghamton, NY: Broome, NY; Tioga, NY............   0.8750   0.9126
1000 Birmingham, AL: Blount, AL; Jefferson, AL; St.      0.8994   0.9300
 Clair, AL; Shelby, AL................................
1010 Bismarck, ND: Burleigh, ND; Morton, ND...........   0.7893   0.8504
1020 Bloomington, IN: Monroe, IN......................   0.8593   0.9014
1040 Bloomington-Normal, IL: McLean, IL...............   0.8993   0.9299
1080 Boise City, ID: Ada, ID: Canyon, ID..............   0.9086   0.9365
1123 Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH    1.1369   1.0918
 (MA Hospitals)\1\ \2\ Bristol, MA; Essex, MA;
 Middlesex, MA; Norfolk, MA; Plymouth, MA; Suffolk,
 MA; Worcester, MA; Hillsborough, NH; Merrimack, NH;
 Rockingham, NH; Strafford, NH........................
1123 Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH    1.1358   1.0911
 (NH Hospitals)\1\ Bristol, MA; Essex, MA; Middlesex,
 MA; Norfolk, MA; Plymouth, MA; Suffolk, MA;
 Worcester, MA; Hillsborough, NH; Merrimack, NH;
 Rockingham, NH; Strafford, NH........................
1125 Boulder-Longmont, CO: Boulder, CO................   0.9944   0.9962
1145 Brazoria, TX: Brazoria, TX.......................   0.8516   0.8958
1150 Bremerton, WA: Kitsap, WA........................   1.1011   1.0682
1240 Brownsville-Harlingen-San Benito, TX: Cameron, TX   0.9212   0.9453
1260 Bryan-College Station, TX: Brazos, TX............   0.8501   0.8947
1280 Buffalo-Niagara Falls, NY: \1\ Erie, NY; Niagara,   0.9604   0.9727
 NY...................................................
1303 Burlington, VT: Chittenden, VT; Franklin, VT;       1.0558   1.0379
 Grand Isle, VT.......................................
1310 Caguas, PR: Caguas, PR; Cayey, PR; Cidra, PR;       0.4561   0.5842
 Gurabo, PR; San Lorenzo, PR..........................
1320 Canton-Massillon,\2\ OH: Carroll, OH; Stark, OH..   0.8649   0.9054
1350 Casper, WY: Natrona, WY..........................   0.9199   0.9444
1360 Cedar Rapids, IA: Linn, IA.......................   0.9018   0.9317
1400 Champaign-Urbana, IL: Champaign, IL..............   0.9163   0.9419
1440 Charleston-North Charleston, SC: Berkeley, SC;      0.8988   0.9295
 Charleston, SC; Dorchester, SC.......................
1480 Charleston, WV: Kanawha, WV; Putnam, WV..........   0.9095   0.9371
1520 Charlotte-Gastonia-Rock Hill, NC-SC: \1\            0.9433   0.9608
 Cabarrus, NC; Gaston, NC; Lincoln, NC; Mecklenburg,
 NC; Rowan, NC; Stanly, NC; Union, NC; York, SC.......
1540 Charlottesville, VA: Albemarle, VA;                 1.0573   1.0389
 Charlottesville City, VA; Fluvanna, VA; Greene, VA...
1560 Chattanooga, TN-GA: Catoosa, GA; Dade, GA;          0.9731   0.9815
 Walker, GA; Hamilton, TN; Marion, TN.................
1580 Cheyenne, WY: \2\ Laramie, WY....................   0.8859   0.9204
1600 Chicago, IL: \1\ Cook, IL; DeKalb, IL; DuPage,      1.0872   1.0589
 IL; Grundy, IL; Kane, IL; Kendall, IL; Lake, IL;
 McHenry, IL; Will, IL................................
1620 Chico-Paradise, CA: Butte, CA....................   1.0390   1.0265
1640 Cincinnati, OH-KY-IN: \1\ Dearborn, IN; Ohio, IN;   0.9434   0.9609
 Boone, KY; Campbell, KY; Gallatin, KY; Grant, KY;
 Kenton, KY; Pendleton, KY; Brown, OH; Clermont, OH;
 Hamilton, OH; Warren, OH.............................
1660 Clarksville-Hopkinsville, TN-KY: Christian, KY;     0.8283   0.8790
 Montgomery, TN.......................................
1680 Cleveland-Lorain-Elyria, OH: \1\ Ashtabula, OH;     0.9688   0.9785
 Cuyahoga, OH; Geauga, OH; Lake, OH; Lorain, OH;
 Medina, OH...........................................
1720 Colorado Springs, CO: El Paso, CO................   0.9218   0.9458
1740 Columbia, MO: Boone, MO..........................   0.8904   0.9236
1760 Columbia, SC: Lexington, SC; Richland, SC........   0.9357   0.9555
1800 Columbus, GA-AL: Russell, AL; Chattahoochee, GA;    0.8510   0.8954
 Harris, GA; Muscogee, GA.............................
1840 Columbus, OH: \1\ Delaware, OH; Fairfield, OH;      0.9907   0.9936
 Franklin, OH; Licking, OH; Madison, OH; Pickaway, OH.
1880 Corpus Christi, TX: Nueces, TX; San Patricio, TX.   0.8702   0.9092
1890 Corvallis, OR: Benton, OR........................   1.1087   1.0732
1900 Cumberland, MD-WV (Maryland Hospitals): Allegany,   0.8801   0.9163
 MD; Mineral, WV......................................
1920 Dallas, TX: \1\ Collin, TX; Dallas, TX; Denton,     0.9589   0.9717
 TX; Ellis, TX; Henderson, TX; Hunt, TX; Kaufman, TX;
 Rockwall, TX.........................................
1950 Danville, VA: Danville City, VA; Pittsylvania, VA   0.9061   0.9347
1960 Davenport-Moline-Rock Island, IA-IL: Scott, IA;     0.8706   0.9095
 Henry, IL; Rock Island, IL...........................
2000 Dayton-Springfield, OH: Clark, OH; Greene, OH;      0.9336   0.9540
 Miami, OH; Montgomery, OH............................
2020 Daytona Beach, FL: \2\ Flagler, FL; Volusia, FL..   0.8986   0.9294
2030 Decatur, AL: Lawrence, AL; Morgan, AL............   0.8679   0.9075
2040 Decatur, IL: Macon, IL...........................   0.8321   0.8817
2080 Denver, CO: \1\ Adams, CO; Arapahoe, CO; Denver,    1.0197   1.0134
 CO; Douglas, CO; Jefferson, CO.......................
2120 Des Moines, IA: Dallas, IA; Polk, IA; Warren, IA.   0.8754   0.9129
2160 Detroit, MI: \1\ Lapeer, MI; Macomb, MI; Monroe,    1.0421   1.0286
 MI; Oakland, MI; St. Clair, MI; Wayne, MI............
2180 Dothan, AL: Dale, AL; Houston, AL................   0.7836   0.8462
2190 Dover, DE: Kent, DE..............................   0.9335   0.9540
2200 Dubuque, IA: Dubuque, IA.........................   0.8520   0.8961
2240 Duluth-Superior, MN-WI: St. Louis, MN; Douglas,     1.0165   1.0113
 WI...................................................
2281 Dutchess County, NY: Dutchess, NY................   0.9872   0.9912
2290 Eau Claire, WI: Chippewa, WI; Eau Claire, WI.....   0.8957   0.9273
2320 El Paso, TX: El Paso, TX.........................   0.8947   0.9266
2330 Elkhart-Goshen, IN: Elkhart, IN..................   0.9379   0.9570
2335 Elmira, NY: \2\ Chemung, NY......................   0.8636   0.9045
2340 Enid, OK: Garfield, OK...........................   0.7953   0.8548
2360 Erie, PA: Erie, PA...............................   0.9023   0.9320
2400 Eugene-Springfield, OR: Lane, OR.................   1.0765   1.0518
2440 Evansville-Henderson, IN-KY (IN Hospitals): \2\     0.8396   0.8872
 Posey, IN; Vanderburgh, IN; Warrick, IN; Henderson,
 KY...................................................
2440 Evansville-Henderson, IN-KY (KY Hospitals):         0.8303   0.8804
 Posey, IN; Vanderburgh, IN; Warrick, IN; Henderson,
 KY...................................................
2520 Fargo-Moorhead, ND-MN: Clay, MN; Cass, ND........   0.8620   0.9033
2560 Fayetteville, NC: Cumberland, NC.................   0.8494   0.8942
2580 Fayetteville-Springdale-Rogers, AR: Benton, AR;     0.7773   0.8415
 Washington, AR.......................................
2620 Flagstaff, AZ-UT: Coconino, AZ; Kane, UT.........   1.0348   1.0237
2640 Flint, MI: Genesee, MI...........................   1.1020   1.0688
2650 Florence, AL: Colbert, AL; Lauderdale, AL........   0.7927   0.8529
2655 Florence, SC: Florence, SC.......................   0.8618   0.9032
2670 Fort Collins-Loveland, CO: Larimer, CO...........   1.0302   1.0206
2680 Ft. Lauderdale, FL: \1\ Broward, FL..............   1.0172   1.0117
2700 Fort Myers-Cape Coral, FL: \2\ Lee, FL...........   0.8986   0.9294
2710 Fort Pierce-Port St. Lucie, FL: Martin, FL; St.     1.0109   1.0075
 Lucie, FL............................................
2720 Fort Smith, AR-OK: Crawford, AR; Sebastian, AR;     0.7844   0.8468
 Sequoyah, OK.........................................
2750 Fort Walton Beach, FL: \2\ Okaloosa, FL..........   0.8986   0.9294
2760 Fort Wayne, IN: Adams, IN; Allen, IN; De Kalb,      0.9096   0.9372
 IN; Huntington, IN; Wells, IN; Whitley, IN...........
2800 Forth Worth-Arlington, TX: \1\ Hood, TX; Johnson,   0.9835   0.9887
 TX; Parker, TX; Tarrant, TX..........................
2840 Fresno, CA: Fresno, CA; Madera, CA...............   1.0262   1.0179
2880 Gadsden, AL: Etowah, AL..........................   0.8754   0.9129
2900 Gainesville, FL: Alachua, FL.....................   1.0102   1.0070
2920 Galveston-Texas City, TX: Galveston, TX..........   0.9732   0.9816
2960 Gary, IN: Lake, IN; Porter, IN...................   0.9369   0.9563
2975 Glens Falls, NY: \2\ Warren, NY; Washington, NY..   0.8636   0.9045
2980 Goldsboro, NC: Wayne, NC.........................   0.8333   0.8826
2985 Grand Forks, ND-MN: Polk, MN; Grand Forks, ND....   0.9097   0.9372
2995 Grand Junction, CO: Mesa, CO.....................   0.9188   0.9437
3000 Grand Rapids-Muskegon-Holland, MI: \1\ Allegan,     1.0135   1.0092
 MI; Kent, MI; Muskegon, MI; Ottawa, MI...............
3040 Great Falls, MT: Cascade, MT.....................   1.0459   1.0312
3060 Greeley, CO: Weld, CO............................   0.9722   0.9809
3080 Green Bay, WI: Brown, WI.........................   0.9215   0.9456
3120 Greensboro-Winston-Salem-High Point, NC: \1\        0.9037   0.9330
 Alamance, NC; Davidson, NC; Davie, NC; Forsyth, NC;
 Guilford, NC; Randolph, NC; Stokes, NC; Yadkin, NC...
3150 Greenville, NC; Pitt, NC.........................   0.9500   0.9655
3160 Greenville-Spartanburg-Anderson, SC: Anderson,      0.9188   0.9437
 SC; Cherokee, SC; Greenville, SC; Pickens, SC;
 Spartanburg, SC......................................
3180 Hagerstown, MD: Washington, MD...................   0.8853   0.9200
3200 Hamilton-Middletown, OH: Butler, OH..............   0.8989   0.9296
3240 Harrisburg-Lebanon-Carlisle, PA: Cumberland, PA;    0.9917   0.9943
 Dauphin, PA; Lebanon, PA; Perry, PA..................
3283 Hartford, CT: \1\ \2\ Hartford, CT; Litchfield,     1.2413   1.1595
 CT; Middlesex, CT; Tolland, CT.......................
3285 Hattiesburg, MS: \2\ Forrest, MS; Lamar, MS......   0.7306   0.8066
3290 Hickory-Morganton-Lenoir, NC: Alexander, NC;        0.9148   0.9408
 Burke, NC; Caldwell, NC; Catawba, NC.................
3320 Honolulu, HI: Honolulu, HI.......................   1.1479   1.0991
3350 Houma, LA: Lafourche, LA; Terrebonne, LA.........   0.7837   0.8463
3360 Houston, TX: \1\ Chambers, TX; Fort Bend, TX;       0.9387   0.9576
 Harris, TX; Liberty, TX; Montgomery, TX; Waller, TX..
3400 Huntington-Ashland, WV-KY-OH: Boyd, KY; Carter,     0.9757   0.9833
 KY; Greenup, KY; Lawrence, OH; Cabell, WV; Wayne, WV.
3440 Huntsville, AL: Limestone, AL; Madison, AL.......   0.8822   0.9178
3480 Indianapolis, IN: \1\ Boone, IN; Hamilton, IN;      0.9792   0.9857
 Hancock, IN; Hendricks, IN; Johnson, IN; Madison, IN;
 Marion, IN; Morgan, IN; Shelby, IN...................
3500 Iowa City, IA: Johnson, IA.......................   0.9607   0.9729
3520 Jackson, MI: Jackson, MI.........................   0.8840   0.9190
3560 Jackson, MS: Hinds, MS; Madison, MS; Rankin, MS..   0.8387   0.8865
3580 Jackson, TN: Madison, TN; Chester, TN............   0.8600   0.9019
3600 Jacksonville, FL: \1\ \2\ Clay, FL; Duval, FL;      0.8986   0.9294
 Nassau, FL; St. Johns, FL............................
3605 Jacksonville, NC: \2\ Onslow, NC.................   0.8290   0.8795
3610 Jamestown, NY: \2\ Chautauqua, NY................   0.8636   0.9045
3620 Janesville-Beloit, WI: Rock, WI..................   0.9656   0.9763
3640 Jersey City, NJ: Hudson, NJ......................   1.1674   1.1118
3660 Johnson City-Kingsport-Bristol, TN-VA: Carter,      0.8894   0.9229
 TN; Hawkins, TN; Sullivan, TN; Unicoi, TN;
 Washington, TN; Bristol City, VA; Scott, VA
 Washington, VA.......................................
3680 Johnstown, PA: \2\ Cambria, PA; Somerset, PA.....   0.8524   0.8964
3700 Jonesboro, AR: Craighead, AR.....................   0.7251   0.8024
3710 Joplin, MO: \2\ Jasper, MO; Newton, MO...........   0.7723   0.8378
3720 Kalamazoo-Battlecreek, MI: Calhoun, MI;             0.9981   0.9987
 Kalamazoo, MI; Van Buren, MI.........................
3740 Kankakee, IL: Kankakee, IL.......................   0.8598   0.9017
3760 Kansas City, KS-MO: \1\ Johnson, KS; Leavenworth,   0.9322   0.9531
 KS; Miami, KS; Wyandotte, KS; Cass, MO; Clay, MO;
 Clinton, MO; Jackson, MO; Lafayette, MO; Platte, MO;
 Ray, MO..............................................
3800 Kenosha, WI: Kenosha, WI.........................   0.9033   0.9327
3810 Killeen-Temple, TX: Bell, TX; Coryell, TX........   0.9932   0.9953
3840 Knoxville, TN: Anderson, TN; Blount, TN; Knox,      0.9199   0.9444
 TN; Loudon, TN; Sevier, TN; Union, TN................
3850 Kokomo, IN: Howard, IN; Tipton, IN...............   0.8984   0.9293
3870 La Crosse, WI-MN: Houston, MN; La Crosse, WI.....   0.8933   0.9256
3880 Lafayette, LA: Acadia, LA; Lafayette, LA; St.       0.8397   0.8872
 Landry, LA; St. Martin, LA...........................
3920 Lafayette, IN: Clinton, IN; Tippecanoe, IN.......   0.8809   0.9168
3960 Lake Charles, LA: Calcasieu, LA..................   0.7966   0.8558
3980 Lakeland-Winter Haven, FL: \2\ Polk, FL..........   0.8986   0.9294
4000 Lancaster, PA: Lancaster, PA.....................   0.9255   0.9484
4040 Lansing-East Lansing, MI: Clinton, MI; Eaton, MI;   0.9977   0.9984
 Ingham, MI...........................................
4080 Laredo, TX: Webb, TX.............................   0.8323   0.8819
4100 Las Cruces, NM: Dona Ana, NM.....................   0.8590   0.9012
4120 Las Vegas, NV-AZ: \1\ Mohave, AZ; Clark, NV; Nye,   1.1258   1.0845
 NV...................................................
4150 Lawrence, KS: Douglas, KS........................   0.8222   0.8745
4200 Lawton, OK: Comanche, OK.........................   0.9532   0.9677
4243 Lewiston-Auburn, ME: Androscoggin, ME............   0.8899   0.9232
4280 Lexington, KY: Bourbon, KY; Clark, KY; Fayette,     0.8552   0.8984
 KY; Jessamine, KY; Madison, KY; Scott, KY; Woodford,
 KY...................................................
4320 Lima, OH: Allen, OH; Auglaize, OH................   0.9108   0.9380
4360 Lincoln, NE: Lancaster, NE.......................   0.9670   0.9773
4400 Little Rock-North Little Rock, AR: Faulkner, AR;    0.8614   0.9029
 Lonoke, AR; Pulaski, AR; Saline, AR..................
4420 Longview-Marshall, TX: Gregg, TX; Harrison, TX;     0.8738   0.9118
 Upshur, TX...........................................
4480 Los Angeles-Long Beach, CA: \1\ Los Angeles, CA..   1.2085   1.1385
4520 Louisville, KY-IN: Clark, IN; Floyd, IN;            0.9381   0.9572
 Harrison, IN; Scott, IN; Bullitt, KY; Jefferson, KY;
 Oldham, KY...........................................
4600 Lubbock, TX: Lubbock, TX.........................   0.8411   0.8883
4640 Lynchburg, VA: Amherst, VA; Bedford, VA; Bedford    0.8814   0.9172
 City, VA; Campbell, VA; Lynchburg City, VA...........
4680 Macon, GA: Bibb, GA; Houston, GA; Jones, GA;        0.8530   0.8968
 Peach, GA; Twiggs, GA................................
4720 Madison, WI: Dane, WI............................   0.9729   0.9814
4800 Mansfield, OH: \2\ Crawford, OH; Richland, OH....   0.8649   0.9054
4840 Mayaguez, PR: Anasco, PR; Cabo Rojo, PR;            0.4674   0.5940
 Hormigueros, PR; Mayaguez, PR; Sabana Grande, PR; San
 German, PR...........................................
4880 McAllen-Edinburg-Mission, TX: Hidalgo, TX........   0.8120   0.8671
4890 Medford-Ashland, OR: Jackson, OR.................   1.0492   1.0334
4900 Melbourne-Titusville-Palm Bay, FL: Brevard, Fl...   0.9296   0.9512
4920 Memphis, TN-AR-MS :\1\ Crittenden, AR; DeSoto,      0.8244   0.8761
 MS; Fayette, TN; Shelby, TN; Tipton, TN..............
4940 Merced, CA: Merced, CA...........................   1.0509   1.0346
5000 Miami, FL: \1\ Dade, FL..........................   1.0233   1.0159
5015 Middlesex-Somerset-Hunterdon, NJ: \1\ Hunterdon,    1.0876   1.0592
 NJ; Middlesex, NJ; Somerset, NJ......................
5080 Milwaukee-Waukesha, WI: \1\ Milwaukee, WI;          0.9845   0.9894
 Ozaukee, WI; Washington, WI; Waukesha, WI............
5120 Minneapolis-St. Paul, MN-WI: \1\ Anoka, MN;         1.0929   1.0627
 Carver, MN; Chisago, MN; Dakota, MN; Hennepin, MN;
 Isanti, MN; Ramsey, MN; Scott, MN; Sherburne, MN;
 Washington, MN; Wright, MN; Pierce, WI; St. Croix, WI
5140 Missoula, MT: Missoula, MT.......................   0.9085   0.9364
5160 Mobile, AL: Baldwin, AL; Mobile, AL..............   0.8267   0.8778
5170 Modesto, CA: Stanislaus, CA......................   1.0111   1.0076
5190 Monmouth-Ocean, NJ: \1\ Monmouth, NJ; Ocean, NJ..   1.1258   1.0845
5200 Monroe, LA: Ouachita, LA.........................   0.8221   0.8745
5240 Montgomery, AL: Autauga, AL; Elmore, AL;            0.7724   0.8379
 Montgomery, AL.......................................
5280 Muncie, IN: Delaware, IN.........................   1.0834   1.0564
5330 Myrtle Beach, SC: Horry, SC......................   0.8529   0.8968
5345 Naples, FL: Collier, FL..........................   0.9839   0.9889
5360 Nashville, TN: \1\ Cheatham, TN; Davidson, TN;      0.9449   0.9619
 Dickson, TN; Robertson, TN; Rutherford, TN; Sumner,
 TN; Williamson, TN; Wilson, TN.......................
5380 Nassau-Suffolk, NY: \1\ Nassau, NY; Suffolk, NY..   1.4074   1.2637
5483 New Haven-Bridgeport-Stamford-Waterbury-Danbury,    1.2417   1.1598
 CT: \1\ Fairfield, CT; New Haven, CT.................
5523 New London-Norwich, CT: New London, CT...........   1.2428   1.1605
5560 New Orleans, LA: \1\ Jefferson, LA; Orleans, LA;    0.9089   0.9367
 Plaquemines, LA; St. Bernard, LA; St. Charles, LA;
 St. James, LA; St. John The Baptist, LA; St. Tammany,
 LA...................................................
5600 New York, NY: \1\ Bronx, NY; Kings, NY; New York,   1.4517   1.2908
 NY; Putnam, NY; Queens, NY; Richmond, NY; Rockland,
 NY; Westchester, NY..................................
5640 Newark, NJ: \1\ Essex, NJ; Morris, NJ; Sussex,      1.0772   1.0522
 NJ; Union, NJ; Warren, NJ............................
5660 Newburgh, NY-PA: Orange, NY; Pike, PA............   1.0908   1.0613
5720 Norfolk-Virginia Beach-Newport News, VA-NC: \1\     0.8442   0.8905
 Currituck, NC; Chesapeake City, VA; Gloucester, VA;
 Hampton City, VA; Isle of Wight, VA; James City, VA;
 Mathews, VA; Newport News City, VA; Norfolk City, VA;
 Poquoson City, VA; Portsmouth City, VA; Suffolk City,
 VA; Virginia Beach City VA; Williamsburg City, VA;
 York, VA.............................................
5775 Oakland, CA: \1\ Alameda, CA; Contra Costa, CA...   1.5095   1.3258
5790 Ocala, FL: Marion, FL............................   0.9615   0.9735
5800 Odessa-Midland, TX: Ector, TX; Midland, TX.......   0.8873   0.9214
5880 Oklahoma City, OK: \1\ Canadian, OK; Cleveland,     0.8589   0.9011
 OK; Logan, OK; McClain, OK; Oklahoma, OK;
 Pottawatomie, OK.....................................
5910 Olympia, WA: Thurston, WA........................   1.0932   1.0629
5920 Omaha, NE-IA: Pottawattamie, IA; Cass, NE;          1.0455   1.0309
 Douglas, NE; Sarpy, NE; Washington, NE...............
5945 Orange County, CA: \1\ Orange, CA................   1.1592   1.1065
5960 Orlando, FL: \1\ Lake, FL; Orange, FL; Osceola,     0.9806   0.9867
 FL; Seminole, FL.....................................
5990 Owensboro, KY: Daviess, KY.......................   0.8104   0.8659
6015 Panama City, FL: Bay, FL.........................   0.9169   0.9423
6020 Parkersburg-Marietta, WV-OH (WV Hospitals):         0.8414   0.8885
 Washington, OH; Wood, WV.............................
6020 Parkersburg-Marietta, WV-OH (OH Hospitals): \2\     0.8649   0.9054
 Washington, OH; Wood, WV.............................
6080 Pensacola, FL: \2\ Escambia, FL; Santa Rosa, FL..   0.8986   0.9294
6120 Peoria-Pekin, IL: Peoria, IL; Tazewell, IL;         0.8399   0.8874
 Woodford, IL.........................................
6160 Philadelphia, PA-NJ: \1\ Burlington, NJ; Camden,    1.1186   1.0798
 NJ; Gloucester, NJ; Salem, NJ; Bucks, PA; Chester,
 PA; Delaware, PA; Montgomery, PA; Philadelphia, PA...
6200 Phoenix-Mesa, AZ: \1\ Maricopa, AZ; Pinal, AZ....   0.9464   0.9630
6240 Pine Bluff, AR: Jefferson, AR....................   0.7697   0.8359
6280 Pittsburgh, PA: \1\ Allegheny, PA; Beaver, PA;      0.9634   0.9748
 Butler, PA; Fayette, PA; Washington, PA;
 Westmoreland, PA.....................................
6323 Pittsfield, MA: \2\ Berkshire, MA................   1.1369   1.0918
6340 Pocatello, ID: Bannock, ID.......................   0.8973   0.9285
6360 Ponce, PR: Guayanilla, PR; Juana Diaz, PR;          0.4971   0.6196
 Penuelas, PR; Ponce, PR; Villalba, PR; Yauco, PR.....
6403 Portland, ME: Cumberland, ME; Sagadahoc, ME;        0.9487   0.9646
 York, ME.............................................
6440 Portland-Vancouver, OR-WA: \1\ Clackamas, OR;       1.0996   1.0672
 Columbia, OR; Multnomah, OR; Washington, OR; Yamhill,
 OR; Clark, WA........................................
6483 Providence-Warwick-Pawtucket, RI: \1\ Bristol,      1.0690   1.0468
 RI; Kent, RI; Newport, RI; Providence, RI;
 Washington, RI.......................................
6520 Provo-Orem, UT: Utah, UT.........................   0.9818   0.9875
6560 Pueblo, CO: Pueblo, CO...........................   0.8853   0.9200
6580 Punta Gorda, FL: Charlotte, FL...................   0.9508   0.9660
6600 Racine, WI: Racine, WI...........................   0.9216   0.9456
6640 Raleigh-Durham-Chapel Hill, NC: \1\ Chatham, NC;    0.9544   0.9685
 Durham, NC; Franklin, NC; Johnston, NC; Orange, NC;
 Wake, NC.............................................
6660 Rapid City, SD: Pennington, SD...................   0.8363   0.8848
6680 Reading, PA: Berks, PA...........................   0.9436   0.9610
6690 Redding, CA: Shasta, CA..........................   1.1263   1.0849
6720 Reno, NV: Washoe, NV.............................   1.0655   1.0444
6740 Richland-Kennewick-Pasco, WA: Benton, WA;           1.1224   1.0823
 Franklin, WA.........................................
6760 Richmond-Petersburg, VA: Charles City County, VA;   0.9545   0.9686
 Chesterfield, VA; Colonial Heights City, VA;
 Dinwiddie, VA; Goochland, VA; Hanover, VA; Henrico,
 VA; Hopewell City, VA; New Kent, VA; Petersburg City,
 VA; Powhatan, VA; Prince George, VA; Richmond City,
 VA...................................................
6780 Riverside-San Bernardino, CA: \1\ Riverside, CA;    1.1061   1.0715
 San Bernardino, CA...................................
6800 Roanoke, VA: Botetourt, VA; Roanoke, VA; Roanoke    0.8142   0.8687
 City, VA; Salem City, VA.............................
6820 Rochester, MN: Olmsted, MN.......................   1.1429   1.0958
6840 Rochester, NY: \1\ Genesee, NY; Livingston, NY;     0.9184   0.9434
 Monroe, NY; Ontario, NY; Orleans, NY; Wayne, NY......
6880 Rockford, IL: Boone, IL; Ogle, IL; Winnebago, IL.   0.8783   0.9150
6895 Rocky Mount, NC: Edgecombe, NC; Nash, NC.........   0.8735   0.9115
6920 Sacramento, CA: \1\ El Dorado, CA; Placer, CA;      1.2284   1.1513
 Sacramento, CA.......................................
6960 Saginaw-Bay City-Midland, MI: Bay, MI; Midland,     0.9294   0.9511
 MI; Saginaw, MI......................................
6980 St. Cloud, MN: Benton, MN; Stearns, MN...........   0.9608   0.9730
7000 St. Joseph, MO: Andrew, MO; Buchanan, MO.........   0.8943   0.9264
7040 St. Louis, MO-IL: \1\ Clinton, IL; Jersey, IL;      0.9052   0.9341
 Madison, IL; Monroe, IL; St. Clair, IL; Franklin, MO;
 Jefferson, MO; Lincoln, MO; St. Charles, MO; St.
 Louis, MO; St. Louis City, MO; Warren, MO............
7080 Salem, OR: Marion, OR; Polk, OR..................   0.9949   0.9965
7120 Salinas, CA: Monterey, CA........................   1.4710   1.3025
7160 Salt Lake City-Ogden, UT: \1\ Davis, UT; Salt       0.9854   0.9900
 Lake, UT; Weber, UT..................................
7200 San Angelo, TX: Tom Green, TX....................   0.7845   0.8469
7240 San Antonio, TX: \1\ Bexar, TX; Comal, TX;          0.8318   0.8815
 Guadalupe, TX; Wilson, TX............................
7320 San Diego, CA: \1\ San Diego, CA.................   1.1955   1.1301
7360 San Francisco, CA: \1\ Marin, CA; San Francisco,    1.3784   1.2458
 CA; San Mateo, CA....................................
7400 San Jose, CA: \1\ Santa Clara, CA................   1.3492   1.2277
7440 San Juan-Bayamon, PR: \1\ Aguas Buenas, PR;         0.4657   0.5925
 Barceloneta, PR; Bayamon, PR; Canovanas, PR;
 Carolina, PR; Catano, PR; Ceiba, PR; Comerio, PR;
 Corozal, PR; Dorado, PR; Fajardo, PR; Florida, PR;
 Guaynabo, PR; Humacao, PR; Juncos, PR; Los Piedras,
 PR; Loiza, PR; Luguillo, PR; Manati, PR; Morovis, PR;
 Naguabo, PR; Naranjito, PR; Rio Grande, PR; San Juan,
 PR; Toa Alta, PR; Toa Baja, PR; Trujillo Alto, PR;
 Vega Alta, PR; Vega Baja, PR; Yabucoa, PR............
7460 San Luis Obispo-Atascadero-Paso Robles, CA: San     1.0470   1.0320
 Luis Obispo, CA......................................
7480 Santa Barbara-Santa Maria-Lompoc, CA: Santa         1.0819   1.0554
 Barbara, CA..........................................
7485 Santa Cruz-Watsonville, CA: Santa Cruz, CA.......   1.3927   1.2546
7490 Santa Fe, NM: Los Alamos, NM; Santa Fe, NM.......   1.0437   1.0297
7500 Santa Rosa, CA: Sonoma, CA.......................   1.3000   1.1968
7510 Sarasota-Bradenton, FL: Manatee, FL; Sarasota, FL   0.9905   0.9935
7520 Savannah, GA: Bryan, GA; Chatham, GA; Effingham,    0.9953   0.9968
 GA...................................................
7560 Scranton--Wilkes-Barre--Hazleton, PA: \2\           0.8524   0.8964
 Columbia, PA; Lackawanna, PA; Luzerne, PA; Wyoming,
 PA...................................................
7600 Seattle-Bellevue-Everett, WA: \1\ Island, WA;       1.1289   1.0866
 King, WA; Snohomish, WA..............................
7610 Sharon, PA\2\: Mercer, PA........................   0.8524   0.8964
7620 Sheboygan, WI: \2\ Sheboygan, WI.................   0.8759   0.9133
7640 Sherman-Denison, TX: Grayson, TX.................   0.9329   0.9535
7680 Shreveport-Bossier City, LA: Bossier, LA; Caddo,    0.9049   0.9339
 LA; Webster, LA......................................
7720 Sioux City, IA-NE: Woodbury, IA; Dakota, NE......   0.8549   0.8982
7760 Sioux Falls, SD: Lincoln, SD; Minnehaha, SD......   0.8776   0.9145
7800 South Bend, IN: St. Joseph, IN...................   0.9793   0.9858
7840 Spokane, WA: Spokane, WA;........................   1.0799   1.0541
7880 Springfield, IL: Menard, IL; Sangamon, IL........   0.8684   0.9079
7920 Springfield, MO: Christian, MO; Greene, MO;         0.7991   0.8576
 Webster, MO..........................................
8003 Springfield, MA: \2\ Hampden, MA; Hampshire, MA..   1.1369   1.0918
8050 State College, PA: Centre, PA....................   0.9138   0.9401
8080 Steubenville-Weirton, OH-WV (OH Hospitals):         0.8649   0.9054
 Jefferson, OH; Brooke, WV; Hancock, WV...............
8080 Steubenville-Weirton, OH-WV (WV Hospitals):         0.8614   0.9029
 Jefferson, OH; Brooke, WV; Hancock, WV...............
8120 Stockton-Lodi, CA: San Joaquin, CA...............   1.0518   1.0352
8140 Sumter, SC: \2\ Sumter, SC.......................   0.8264   0.8776
8160 Syracuse, NY: Cayuga, NY; Madison, NY; Onondaga,    0.9441   0.9614
 NY; Oswego, NY.......................................
8200 Tacoma, WA: Pierce, WA...........................   1.1631   1.1090
8240 Tallahassee, FL: \2\ Gadsden, FL; Leon, FL.......   0.8986   0.9294
8280 Tampa-St. Petersburg-Clearwater, FL: \1\            0.9119   0.9388
 Hernando, FL; Hillsborough, FL; Pasco, FL; Pinellas,
 FL...................................................
8320 Terre Haute, IN: Clay, IN; Vermillion, IN; Vigo,    0.8570   0.8997
 IN...................................................
8360 Texarkana, AR-Texarkana, TX: Miller, AR; Bowie,     0.8174   0.8710
 TX...................................................
8400 Toledo, OH: Fulton, OH; Lucas, OH; Wood, OH......   0.9593   0.9719
8440 Topeka, KS: Shawnee, KS..........................   0.9326   0.9533
8480 Trenton, NJ: Mercer, NJ..........................   0.9955   0.9969
8520 Tucson, AZ: Pima, AZ.............................   0.8742   0.9120
8560 Tulsa, OK: Creek, OK; Osage, OK; Rogers, OK;        0.8086   0.8646
 Tulsa, OK; Wagoner, OK...............................
8600 Tuscaloosa, AL: Tuscaloosa, AL...................   0.8064   0.8630
8640 Tyler, TX: Smith, TX.............................   0.9369   0.9563
8680 Utica-Rome, NY: \2\ Herkimer, NY; Oneida, NY.....   0.8636   0.9045
8720 Vallejo-Fairfield-Napa, CA: Napa, CA; Solano, CA.   1.2655   1.1750
8735 Ventura, CA: Ventura, CA.........................   1.0952   1.0643
8750 Victoria, TX: Victoria, TX.......................   0.8378   0.8859
8760 Vineland-Millville-Bridgeton, NJ: Cumberland, NJ.   1.0517   1.0351
8780 Visalia-Tulare-Porterville, CA: Tulare, CA.......   1.0411   1.0280
8800 Waco, TX: McLennan, TX...........................   0.8075   0.8638
8840 Washington, DC-MD-VA-WV: \1\ District of            1.1053   1.0710
 Columbia, DC; Calvert, MD; Charles, MD; Frederick,
 MD; Montgomery, MD; Prince Georges, MD; Alexandria
 City, VA; Arlington, VA; Clarke, VA; Culpeper, VA;
 Fairfax, VA; Fairfax City, VA; Falls Church City, VA;
 Fauquier, VA; Fredericksburg City, VA; King George,
 VA; Loudoun, VA; Manassas City, VA; Manassas Park
 City, VA; Prince William, VA; Spotsylvania, VA;
 Stafford, VA; Warren, VA; Berkeley, WV; Jefferson, WV
8920 Waterloo-Cedar Falls, IA: Black Hawk, IA.........   0.8841   0.9191
8940 Wausau, WI: Marathon, WI.........................   0.9445   0.9617
8960 West Palm Beach-Boca Raton, FL: \1\ Palm Beach,     0.9909   0.9938
 FL...................................................
9000 Wheeling, WV-OH (WV Hospitals): \2\ Belmont, OH;    0.8068   0.8633
 Marshall, WV; Ohio, WV...............................
9000 Wheeling, WV-OH (OH Hospitals): \2\ Belmont, OH;    0.8649   0.9054
 Marshall, WV; Ohio, WV...............................
9040 Wichita, KS: Butler, KS; Harvey, KS; Sedgwick, KS   0.9421   0.9600
9080 Wichita Falls, TX: Archer, TX; Wichita, TX.......   0.7652   0.8325
9140 Williamsport, PA: \2\ Lycoming, PA...............   0.8524   0.8964
9160 Wilmington-Newark, DE-MD: New Castle, DE; Cecil,    1.1274   1.0856
 MD...................................................
9200 Wilmington, NC: New Hanover, NC; Brunswick, NC...   0.9707   0.9798
9260 Yakima, WA: \2\ Yakima, WA.......................   1.0446   1.0303
9270 Yolo, CA: Yolo, CA...............................   1.0485   1.0330
9280 York, PA: York, PA...............................   0.9309   0.9521
9320 Youngstown-Warren, OH: Columbiana, OH; Mahoning,    0.9996   0.9997
 OH; Trumbull, OH.....................................
9340 Yuba City, CA: Sutter, CA; Yuba, CA..............   1.0662   1.0449
9360 Yuma, AZ: Yuma, AZ...............................   0.9924  0.9948
------------------------------------------------------------------------
\1\ Large urban area.
\2\ Hospitals geographically located in the area are assigned the
  statewide rural wage index for fiscal year 2000.

Source: Federal Register, (1999a).

 TABLE D-15.--WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT FACTOR (GAF)
                             FOR RURAL AREAS
------------------------------------------------------------------------
                 Nonurban area                   Wage index      GAF
------------------------------------------------------------------------
Alabama.......................................       0.7390       0.8129
Alaska........................................       1.2057       1.1367
Arizona.......................................       0.8544       0.8978
Arkansas......................................       0.7236       0.8013
California....................................       0.9951       0.9966
Colorado......................................       0.8813       0.9171
Connecticut...................................       1.2413       1.1595
Delaware......................................       0.9166       0.9421
Florida.......................................       0.8986       0.9294
Georgia.......................................       0.8094       0.8652
Hawaii........................................       1.0726       1.0492
Idaho.........................................       0.8651       0.9055
Illinois......................................       0.8047       0.8617
Indiana.......................................       0.8396       0.8872
Iowa..........................................       0.7926       0.8528
Kansas........................................       0.7460       0.8182
Kentucky......................................       0.8043       0.8615
Louisiana.....................................       0.7486       0.8201
Maine.........................................       0.8639       0.9047
Maryland......................................       0.8631       0.9041
Massachusetts.................................       1.1369       1.0918
Michigan......................................       0.8831       0.9184
Minnesota.....................................       0.8669       0.9068
Mississippi...................................       0.7306       0.8066
Missouri......................................       0.7723       0.8378
Montana.......................................       0.8398       0.8873
Nebraska......................................       0.8007       0.8588
Nevada........................................       0.9097       0.9372
New Hampshire.................................       0.9905       0.9935
New Jersey....................................        (\1\)        (\1\)
New Mexico....................................       0.8378       0.8859
New York......................................       0.8636       0.9045
North Carolina................................       0.8290       0.8795
North Dakota..................................       0.7647       0.8322
Ohio..........................................       0.8649       0.9054
Oklahoma......................................       0.7255       0.8027
Oregon........................................       0.9873       0.9913
Pennsylvania..................................       0.8524       0.8964
Puerto Rico...................................       0.4249       0.5565
Rhode Island..................................        (\1\)        (\1\)
South Carolina................................       0.8264       0.8776
South Dakota..................................       0.7576       0.8269
Tennessee.....................................       0.7650       0.8324
Texas.........................................       0.7471       0.8190
Utah..........................................       0.8906       0.9237
Vermont.......................................       0.9427       0.9604
Virginia......................................       0.7916       0.8521
Washington....................................       1.0446       1.0303
West Virginia.................................       0.8068       0.8633
Wisconsin.....................................       0.8759       0.9133
Wyoming.......................................       0.8859       0.9204
------------------------------------------------------------------------
\1\ All counties within the State are classified as urban.

Source: Federal Register (1999a).

 TABLE D-16.--WAGE INDEX AND CAPITAL GEOGRAPHIC ADJUSTMENT FACTOR (GAF)
          FOR HOSPITALS THAT ARE RECLASSIFIED, FISCAL YEAR 2000
------------------------------------------------------------------------
                     Area                        Wage index      GAF
------------------------------------------------------------------------
Abilene, TX...................................       0.8179       0.8714
Akron, OH.....................................       0.9981       0.9987
Albany, GA....................................       0.9544       0.9685
Alexandria, LA................................       0.7910       0.8517
Amarillo, TX..................................       0.8435       0.8900
Anchorage, AK.................................       1.3009       1.1974
Ann Arbor, MI.................................       1.1343       1.0901
Atlanta, GA...................................       1.0050       1.0034
Austin-San Marcos, TX.........................       0.9081       0.9361
Baltimore, MD.................................       0.9891       0.9925
Baton Rouge, LA...............................       0.8707       0.9095
Beaumont-Port Arthur, TX......................       0.8624       0.9036
Benton Harbor, MI.............................       0.8831       0.9184
Bergen-Passaic, NJ............................       1.1833       1.1222
Billings, MT..................................       1.0038       1.0026
Biloxi-Gulfport-Pascagoula, MS................       0.7949       0.8545
Binghamton, NY................................       0.8750       0.9126
Birmingham, AL................................       0.8994       0.9300
Bismarck, ND..................................       0.7893       0.8504
Boise City, ID................................       0.9086       0.9365
Boston-Worcester-Lawrence-Lowell-Brockton, MA-       1.1358       1.0911
 NH...........................................
Burlington, VT................................       1.0122       1.0083
Caguas, PR....................................       0.4561       0.5842
Champaign-Urbana, IL..........................       0.9163       0.9419
Charleston-North Charleston, SC...............       0.8988       0.9295
Charleston, WV................................       0.8861       0.9205
Charlotte-Gastonia-Rock Hill, NC-SC...........       0.9433       0.9608
Chattanooga, TN-GA............................       0.9453       0.9622
Chicago, IL...................................       1.0872       1.0589
Cincinnati, OH-KY-IN..........................       0.9434       0.9609
Clarksville-Hopkinsville, TN-KY...............       0.8283       0.8790
Cleveland-Lorain-Elyria, OH...................       0.9688       0.9785
Columbia, MO..................................       0.8736       0.9116
Columbia, SC..................................       0.9215       0.9456
Columbus, GA-AL...............................       0.8318       0.8815
Columbus, OH..................................       0.9728       0.9813
Corpus Christi, TX............................       0.8599       0.9018
Dallas, TX....................................       0.9589       0.9717
Danville, VA..................................       0.8706       0.9095
Davenport-Moline-Rock Island, IA-IL...........       0.8606       0.9023
Dayton-Springfield, OH........................       0.9231       0.9467
Denver, CO....................................       1.0197       1.0134
Des Moines, IA................................       0.8754       0.9129
Dothan, AL....................................       0.7836       0.8462
Dover, DE.....................................       1.0511       1.0347
Duluth-Superior, MN-WI........................       1.0165       1.0113
Elkhart-Goshen, IN............................       0.9379       0.9570
Eugene-Springfield, OR........................       1.0765       1.0518
Evansville-Henderson, IN-KY...................       0.8396       0.8872
Fargo-Moorhead, ND-MN (ND and SD Hospitals)...       0.8620       0.9033
Fargo-Moorhead, ND-MN (MN Hospital)...........       0.8669       0.9068
Fayetteville, NC..............................       0.8494       0.8942
Flagstaff, AZ-UT..............................       0.9860       0.9904
Flint, MI.....................................       1.0918       1.0620
Fort Collins-Loveland, CO.....................       1.0197       1.0134
Fort Pierce-Port St. Lucie, FL................       1.0109       1.0075
Fort Smith, AR-OK.............................       0.7696       0.8358
Fort Walton Beach, FL.........................       0.8713       0.9100
Fort Worth-Arlington, TX......................       0.9835       0.9887
Fresno, CA....................................       1.0262       1.0179
Gadsden, AL...................................       0.8754       0.9129
Gainesville, FL...............................       0.9963       0.9975
Goldsboro, NC.................................       0.8333       0.8826
Grand Forks, ND-MN............................       0.9097       0.9372
Grand Rapids-Muskegon-Holland, MI.............       1.0017       1.0012
Great Falls, MT...............................       1.0459       1.0312
Greeley, CO...................................       0.9449       0.9619
Green Bay, WI.................................       0.9215       0.9456
Greensboro-Winston-Salem-High Point, NC.......       0.9037       0.9330
Greenville, NC................................       0.9237       0.9471
Greenville-Spartanburg-Anderson, SC...........       0.9188       0.9437
Hagerstown, MD................................       0.8853       0.9200
Harrisburg-Lebanon-Carlisle, PA...............       0.9793       0.9858
Hartford, CT..................................       1.1715       1.1145
Hickory-Morganton-Lenoir, NC..................       0.9148       0.9408
Honolulu, HI..................................       1.1479       1.0991
Houston, TX...................................       0.9387       0.9576
Huntington-Ashland, WV-KY-OH..................       0.9436       0.9610
Huntsville, AL................................       0.8608       0.9024
Indianapolis, IN..............................       0.9792       0.9857
Iowa City, IA.................................       0.9460       0.9627
Jackson, MS...................................       0.8268       0.8779
Jackson, TN...................................       0.8447       0.8909
Jacksonville, FL..............................       0.8957       0.9273
Johnson City-Kingsport-Bristol, TN-VA.........       0.8894       0.9229
Jonesboro, AR.................................       0.7251       0.8024
Joplin, MO....................................       0.7678       0.8345
Kalamazoo-Battlecreek, MI.....................       0.9981       0.9987
Kansas City, KS-MO............................       0.9322       0.9531
Knoxville, TN.................................       0.9199       0.9444
Kokomo, IN....................................       0.8984       0.9293
Lafayette, LA.................................       0.8397       0.8872
Lansing-East Lansing, MI......................       0.9834       0.9886
Las Vegas, NV-AZ..............................       1.1258       1.0845
Lexington, KY.................................       0.8552       0.8984
Lima, OH......................................       0.9108       0.9380
Lincoln, NE...................................       0.9451       0.9621
Little Rock-North Little Rock, AR.............       0.8432       0.8898
Longview-Marshall, TX.........................       0.8541       0.8976
Los Angeles-Long Beach, CA....................       1.2085       1.1385
Louisville, KY-IN.............................       0.9381       0.9572
Macon, GA.....................................       0.8530       0.8968
Madison, WI...................................       0.9729       0.9814
Mansfield, OH.................................       0.8649       0.9054
Memphis, TN-AR-MS.............................       0.8244       0.8761
Merced, CA....................................       1.0509       1.0346
Milwaukee-Waukesha, WI........................       0.9845       0.9894
Minneapolis-St. Paul, MN-WI...................       1.0929       1.0627
Missoula, MT..................................       0.9085       0.9364
Monmouth-Ocean, NJ............................       1.1258       1.0845
Monroe, LA....................................       0.8062       0.8628
Montgomery, AL................................       0.7724       0.8379
Myrtle Beach, SC..............................       0.8357       0.8843
Nashville, TN.................................       0.9254       0.9483
New Haven-Bridgeport-Stamford-Waterbury-             1.2417       1.1598
 Danbury, CT..................................
New London-Norwich, CT........................       1.2328       1.1541
New Orleans, LA...............................       0.9089       0.9367
New York, NY..................................       1.4399       1.2836
Newark, NJ....................................       1.0772       1.0522
Newburgh, NY-PA...............................       1.0837       1.0566
Norfolk-Virginia Beach-Newport News, VA-NC....       0.8442       0.8905
Oakland, CA...................................       1.5095       1.3258
Oklahoma City, OK.............................       0.8589       0.9011
Omaha, NE-IA..................................       1.0455       1.0309
Orange County, CA.............................       1.1592       1.1065
Orlando, FL...................................       0.9806       0.9867
Peoria-Pekin, IL..............................       0.8399       0.8874
Philadelphia, PA-NJ...........................       1.1186       1.0798
Phoenix-Mesa, AZ..............................       0.9464       0.9630
Pittsburgh, PA................................       0.9496       0.9652
Pocatello, ID.................................       0.8651       0.9055
Portland, ME..................................       0.9487       0.9646
Portland-Vancouver, OR-WA.....................       1.0996       1.0672
Provo-Orem, UT................................       0.9818       0.9875
Raleigh-Durham-Chapel Hill, NC................       0.9544       0.9685
Roanoke, VA...................................       0.8142       0.8687
Rockford, IL..................................       0.8783       0.9150
Sacramento, CA................................       1.2284       1.1513
Saginaw-Bay City-Midland, MI..................       0.9294       0.9511
St. Cloud, MN.................................       0.9608       0.9730
St. Louis, MO-IL..............................       0.9052       0.9341
Salt Lake City-Ogden, UT......................       0.9854       0.9900
San Diego, CA.................................       1.1955       1.1301
Santa Fe, NM..................................       0.9911       0.9939
Santa Rosa, CA................................       1.3000       1.1968
Seattle-Bellevue-Everett, WA..................       1.1289       1.0866
Sharon, PA....................................       0.8524       0.8964
Sherman-Denison, TX...........................       0.8833       0.9185
Sioux City, IA-NE.............................       0.8549       0.8982
South Bend, IN................................       0.9692       0.9788
Springfield, IL...............................       0.8684       0.9079
Springfield, MO...............................       0.7991       0.8576
Syracuse, NY..................................       0.9441       0.9614
Tallahassee, FL...............................       0.8274       0.8783
Tampa-St. Petersburg-Clearwater, FL...........       0.9119       0.9388
Texarkana, AR-Texarkana, TX...................       0.8174       0.8710
Toledo, OH....................................       0.9593       0.9719
Topeka, KS....................................       0.9326       0.9533
Tulsa, OK.....................................       0.7931       0.8532
Tuscaloosa, AL................................       0.8064       0.8630
Tyler, TX.....................................       0.9199       0.9444
Vallejo-Fairfield-Napa, CA....................       1.2167       1.1438
Victoria, TX..................................       0.8378       0.8859
Waco, TX......................................       0.8075       0.8638
Washington, DC-MD-VA-WV.......................       1.1053       1.0710
Waterloo-Cedar Falls, IA......................       0.8841       0.9191
Wausau, WI....................................       0.9445       0.9617
Wichita, KS...................................       0.9082       0.9362
Rural Colorado................................       0.8813       0.9171
Rural Florida.................................       0.8986       0.9294
Rural Illinois................................       0.8047       0.8617
Rural Louisiana...............................       0.7486       0.8201
Rural Michigan................................       0.8831       0.9184
Rural Minnesota...............................       0.8669       0.9068
Rural Missouri................................       0.7723       0.8378
Rural Montana.................................       0.8398       0.8873
Rural Oregon..................................       0.9873       0.9913
Rural Tennessee...............................       0.7650       0.8324
Rural Texas...................................       0.7471       0.8190
Rural Virginia (KY Hospital)..................       0.8043       0.8615
Rural Washington..............................       1.0333       1.0227
Rural Wyoming.................................       0.8859       0.9204
------------------------------------------------------------------------
Source: Federal Register (1999a).

 TABLE D-17.--LIST OF DIAGNOSIS-RELATED GROUPS (DRGS), RELATIVE WEIGHTS,
             AND PERCENT CHANGE, FISCAL YEARS 1999 AND 2000
------------------------------------------------------------------------
                                              Fiscal    Fiscal
                                               year      year
   DRG     MDC    Type          Title          1999      2000    Percent
  number                                     relative  relative   change
                                              weights   weights
------------------------------------------------------------------------
  1          1  Surg     Craniotomy age >17    3.0694    3.0957      0.9
                          except for trauma.
  2          1  Surg     Craniotomy for        3.1113    3.1047     -0.2
                          trauma age >17.
  3          1  Surg \1  Craniotomy age 0-     1.9493    1.9619      0.6
                 \        17.
  4          1  Surg     Spinal procedures.    2.3278    2.3205     -0.3
  5          1  Surg     Extracranial          1.4851    1.4466     -2.6
                          vascular
                          procedures.
  6          1  Surg     Carpal tunnel         0.7712    0.8119      5.3
                          release.
  7          1  Surg     Peripheral and        2.3938    2.4986      4.4
                          cranial nerve and
                          other nervous
                          system proc with
                          CC.
  8          1  Surg     Peripheral and        1.2901    1.3426      4.1
                          cranial nerve and
                          other nervous
                          system proc
                          without CC.
  9          1  Med      Spinal disorders      1.2873    1.1917     -7.4
                          and injuries.
 10          1  Med      Nervous system        1.2107    1.2036     -0.6
                          neoplasms with CC.
 11          1  Med      Nervous system        0.8245    0.8283      0.5
                          neoplasms without
                          CC.
 12          1  Med      Degenerative          0.9030    0.8904     -1.4
                          nervous system
                          disorders.
 13          1  Med      Multiple sclerosis    0.7810    0.7599     -2.7
                          and cerebellar
                          ataxia.
 14          1  Med      Specific              1.1955    1.1914     -0.3
                          cerebrovascular
                          disorders except
                          TIA.
 15          1  Med      Transient ischemic    0.7314    0.7397      1.1
                          attack and
                          precerebral
                          occlusions.
 16          1  Med      Nonspecific           1.0693    1.0985      2.7
                          cerebrovascular
                          disorders with CC.
 17          1  Med      Nonspecific           0.6178    0.6399      3.6
                          cerebrovascular
                          disorders without
                          CC.
 18          1  Med      Cranial and           0.9269    0.9353      0.9
                          peripheral nerve
                          disorders with CC.
 19          1  Med      Cranial and           0.6455    0.6503      0.7
                          peripheral nerve
                          disorders without
                          CC.
 20          1  Med      Nervous system        2.6102    2.6125      0.1
                          infection except
                          viral meningitis.
 21          1  Med      Viral meningitis..    1.4753    1.5032      1.9
 22          1  Med      Hypertensive          0.8985    0.9621      7.1
                          encephalopathy.
 23          1  Med      Nontraumatic          0.7764    0.7746     -0.2
                          stupor and coma.
 24          1  Med      Seizure and           0.9577    0.9770      2.0
                          headache age >17
                          with CC.
 25          1  Med      Seizure and           0.5893    0.5911      0.3
                          headache age >17
                          without CC.
 26          1  Med      Seizure and           0.7277    0.6337    -12.9
                          headache age 0-17.
 27          1  Med      Traumatic stupor      1.3130    1.3581      3.4
                          and coma, coma >1
                          hr.
 28          1  Med      Traumatic stupor      1.1700    1.2690      8.5
                          and coma, coma 17 with
                          CC.
 29          1  Med      Traumatic stupor      0.6377    0.6859      7.6
                          and coma, coma 17
                          without CC.
 30          1  Med \1\  Traumatic stupor      0.3297    0.3318      0.6
                          and coma, coma 17    0.8105    0.8497      4.8
                          with CC.
 32          1  Med      Concussion age >17    0.5158    0.5295      2.7
                          without CC.
 33          1  Med \1\  Concussion age 0-     0.2072    0.2085      0.6
                          17.
 34          1  Med      Other disorders of    1.0091    1.0275      1.8
                          nervous system
                          with CC.
 35          1  Med      Other disorders of    0.5907    0.5937      0.5
                          nervous system
                          without CC.
 36          2  Surg     Retinal procedures    0.6891    0.6834     -0.8
 37          2  Surg     Orbital procedures    0.9637    1.0318      7.1
 38          2  Surg     Primary iris          0.4841    0.4875      0.7
                          procedures.
 39          2  Surg     Lens procedures       0.5697    0.5704      0.1
                          with or without
                          vitrectomy.
 40          2  Surg     Extraocular           0.7895    0.8170      3.5
                          procedures except
                          orbit age >17.
 41          2  Surg \1  Extraocular           0.3356    0.3378      0.7
                 \        procedures except
                          orbit age 0-17.
 42          2  Surg     Intraocular           0.6030    0.6236      3.4
                          procedures except
                          retina, iris and
                          lens.
 43          2  Med      Hyphema...........    0.4371    0.4515      3.3
 44          2  Med      Acute major eye       0.6090    0.6496      6.7
                          infections.
 45          2  Med      Neurological eye      0.6814    0.6941      1.9
                          disorders.
 46          2  Med      Other disorders of    0.7521    0.7525      0.1
                          the eye age >17
                          with CC.
 47          2  Med      Other disorders of    0.4617    0.4784      3.6
                          the eye age >17
                          without CC.
 48          2  Med \1\  Other disorders of    0.2956    0.2975      0.6
                          the eye age 0-17.
 49          3  Surg     Major head and        1.7567    1.8557      5.6
                          neck procedures.
 50          3  Surg     Sialoadenectomy...    0.8283    0.8401      1.4
 51          3  Surg     Salivary gland        0.8601    0.8504     -1.1
                          procedures except
                          sialoadenectomy.
 52          3  Surg     Cleft lip and         0.8614    0.7696    -10.7
                          palate repair.
 53          3  Surg     Sinus and mastoid     1.1432    1.1784      3.1
                          procedures age
                          >17.
 54          3  Surg \1  Sinus and mastoid     0.4792    0.4823      0.6
                 \        procedures age 0-
                          17.
 55          3  Surg     Miscellaneous ear,    0.8952    0.8686     -3.0
                          nose, mouth and
                          throat procedures.
 56          3  Surg     Rhinoplasty.......    0.9008    0.8893     -1.3
 57          3  Surg     T&A proc, except      0.8876    1.1589     30.6
                          tonsillectomy and/
                          or adenoidectomy
                          only, age >17.
 58          3  Surg \1  T&A proc, except      0.2721    0.2739      0.7
                 \        tonsillectomy and/
                          or adenoidectomy
                          only, age 0-17.
 59          3  Surg     Tonsillectomy and/    0.6700    0.6720      0.3
                          or adenoidectomy
                          only, age >17.
 60          3  Surg \1  Tonsillectomy and/    0.2073    0.2086      0.6
                 \        or adenoidectomy
                          only, age 0-17.
 61          3  Surg     Myringotomy with      1.1586    1.2597      8.7
                          tube insertion
                          age >17.
 62          3  Surg \1  Myringotomy with      0.2934    0.2953      0.6
                 \        tube insertion
                          age 0-17.
 63          3  Surg     Other ear, nose,      1.3283    1.3136     -1.1
                          mouth and throat
                          O.R. procedures.
 64          3  Med      Ear, nose, mouth      1.2177    1.2464      2.4
                          and throat
                          malignancy.
 65          3  Med      Dysequilibrium....    0.5162    0.5261      1.9
 66          3  Med      Epistaxis.........    0.5402    0.5548      2.7
 67          3  Med      Epiglottitis......    0.8230    0.8031     -2.4
 68          3  Med      Otitis media and      0.6699    0.6758      0.9
                          uri age >17 with
                          CC.
 69          3  Med      Otitis media and      0.5053    0.5191      2.7
                          uri age >17
                          without CC.
 70          3  Med      Otitis media and      0.3841    0.3985      3.7
                          uri age 0-17.
 71          3  Med      Laryngotracheitis.    0.7630    0.6136    -19.6
 72          3  Med      Nasal trauma and      0.6524    0.6462     -1.0
                          deformity.
 73          3  Med      Other ear, nose,      0.7504    0.7667      2.2
                          mouth and throat
                          diagnoses age >17.
 74          3  Med \1\  Other ear, nose,      0.3334    0.3356      0.7
                          mouth and throat
                          diagnoses age 0-
                          17.
 75          4  Surg     Major chest           3.1811    3.1107     -2.2
                          procedures.
 76          4  Surg     Other respiratory     2.6876    2.7208      1.2
                          system O.R.
                          procedures with
                          CC.
 77          4  Surg     Other respiratory     1.1565    1.2113      4.7
                          system O.R.
                          procedures
                          without CC.
 78          4  Med      Pulmonary embolism    1.4047    1.3861     -1.3
 79          4  Med      Respiratory           1.6309    1.6439      0.8
                          infections and
                          inflammations age
                          >17 with CC.
 80          4  Med      Respiratory           0.9147    0.8980     -1.8
                          infections and
                          inflammations age
                          >17 without CC.
 81          4  Med \1\  Respiratory           1.5098    1.5196      0.6
                          infections and
                          inflammations age
                          0-17.
 82          4  Med      Respiratory           1.3606    1.3656      0.4
                          neoplasms.
 83          4  Med      Major chest trauma    0.9544    0.9796      2.6
                          with CC.
 84          4  Med      Major chest trauma    0.5068    0.5278      4.1
                          without CC.
 85          4  Med      Pleural effusion      1.2351    1.2421      0.6
                          with CC.
 86          4  Med      Pleural effusion      0.6835    0.6724     -1.6
                          without CC.
 87          4  Med      Pulmonary edema       1.3650    1.3694      0.3
                          and respiratory
                          failure.
 88          4  Med      Chronic               0.9530    0.9406     -1.3
                          obstructive
                          pulmonary disease.
 89          4  Med      Simple pneumonia      1.0838    1.0855      0.2
                          and pleurisy age
                          >17 with CC.
 90          4  Med      Simple pneumonia      0.6644    0.6734      1.4
                          and pleurisy age
                          >17 without CC.
 91          4  Med      Simple pneumonia      0.7209    0.6334    -12.1
                          and pleurisy age
                          0-17.
 92          4  Med      Interstitial lung     1.2042    1.1786     -2.1
                          disease with CC.
 93          4  Med      Interstitial lung     0.7711    0.7644     -0.9
                          disease without
                          CC.
 94          4  Med      Pneumothorax with     1.1879    1.1910      0.3
                          CC.
 95          4  Med      Pneumothorax          0.6042    0.5944     -1.6
                          without CC.
 96          4  Med      Bronchitis and        0.7891    0.7943      0.7
                          asthma age >17
                          with CC.
 97          4  Med      Bronchitis and        0.5919    0.5954      0.6
                          asthma age >17
                          without CC.
 98          4  Med      Bronchitis and        0.6953    0.6859     -1.4
                          asthma age 0-17.
 99          4  Med      Respiratory signs     0.6738    0.6817      1.2
                          and symptoms with
                          CC.
100          4  Med      Respiratory signs     0.5150    0.5268      2.3
                          and symptoms
                          without CC.
101          4  Med      Other respiratory     0.8292    0.8490      2.4
                          system diagnoses
                          with CC.
102          4  Med      Other respiratory     0.5395    0.5349     -0.9
                          system diagnoses
                          without CC.
103          5  Surg     Heart transplant..   17.7902   19.5100      9.7
104          5  Surg     Cardiac valve and     7.2824    7.2361     -0.6
                          other major
                          cardiothoracic
                          proc with cardiac
                          cath.
105          5  Surg     Cardiac valve and     5.7099    5.6607     -0.9
                          other major
                          cardiothoracic
                          proc without
                          cardiac cath.
106          5  Surg     Coronary bypass       7.3690    7.3334     -0.5
                          with PTCA.
107          5  Surg     Coronary bypass       5.5030    5.4639     -0.7
                          with cardiac cath.
108          5  Surg     Other                 5.9764    5.7715     -3.4
                          cardiothoracic
                          procedures.
109          5  Surg     Coronary bypass       4.0718    4.0403     -0.8
                          without PTCA or
                          cardiac cath.
110          5  Surg     Major                 4.1500    4.1600      0.2
                          cardiovascular
                          procedures with
                          CC.
111          5  Surg     Major                 2.2199    2.2267      0.3
                          cardiovascular
                          procedures
                          without CC.
112          5  Surg     Percutaneous          1.9893    1.9222     -3.4
                          cardiovascular
                          procedures.
113          5  Surg     Amputation for        2.7389    2.7283     -0.4
                          circulatory
                          system disorders
                          except upper limb
                          and toe.
114          5  Surg     Upper limb and toe    1.5077    1.5555      3.2
                          amputation for
                          circulatory
                          system disorders.
115          5  Surg     Permanent cardiac     3.5558    3.4727     -2.3
                          pacemaker implant
                          with ami, heart
                          failure or shock,
                          or AICD lead or
                          generator proc.
116          5  Surg     Other permanent       2.4833    2.4651     -0.7
                          cardiac pacemaker
                          implant or PTCA
                          with coronary
                          artery stent
                          implant.
117          5  Surg     Cardiac pacemaker     1.2372    1.2931      4.5
                          revision except
                          device
                          replacement.
118          5  Surg     Cardiac pacemaker     1.5716    1.5480     -1.5
                          device
                          replacement.
119          5  Surg     Vein ligation and     1.3076    1.2297     -6.0
                          stripping.
120          5  Surg     Other circulatory     1.9630    2.0136      2.6
                          system O.R.
                          procedures.
121          5  Med      Circulatory           1.6334    1.6295     -0.2
                          disorders with
                          AMI and major
                          comp, discharged
                          alive.
122          5  Med      Circulatory           1.1286    1.1063     -2.0
                          disorders with
                          AMI without major
                          comp, discharged
                          alive.
123          5  Med      Circulatory           1.4848    1.5108      1.8
                          disorders with
                          AMI, expired.
124          5  Med      Circulatory           1.3793    1.4020      1.6
                          disorders except
                          AMI, with cardiac
                          cath and complex
                          diag.
125          5  Med      Circulatory           1.0134    1.0436      3.0
                          disorders except
                          AMI, with cardiac
                          cath without
                          complex diag.
126          5  Med      Acute and subacute    2.5837    2.5170     -2.6
                          endocarditis.
127          5  Med      Heart failure and     1.0131    1.0144      0.1
                          shock.
128          5  Med      Deep vein             0.7641    0.7645      0.1
                          thrombophlebitis.
129          5  Med      Cardiac arrest,       1.0898    1.0770     -1.2
                          unexplained.
130          5  Med      Peripheral            0.9427    0.9469      0.4
                          vascular
                          disorders with CC.
131          5  Med      Peripheral            0.6067    0.6050     -0.3
                          vascular
                          disorders without
                          CC.
132          5  Med      Atherosclerosis       0.6698    0.6713      0.2
                          with CC.
133          5  Med      Atherosclerosis       0.5556    0.5675      2.1
                          without CC.
134          5  Med      Hypertension......    0.5823    0.5846      0.4
135          5  Med      Cardiac congenital    0.8543    0.8704      1.9
                          and valvular
                          disorders age >17
                          with CC.
136          5  Med      Cardiac congenital    0.5735    0.6004      4.7
                          and valvular
                          disorders age >17
                          without CC.
137          5  Med \1\  Cardiac congenital    0.8135    0.8188      0.7
                          and valvular
                          disorders age 0-
                          17.
138          5  Med      Cardiac arrhythmia    0.7999    0.8154      1.9
                          and conduction
                          disorders with CC.
139          5  Med      Cardiac arrhythmia    0.4977    0.5079      2.0
                          and conduction
                          disorders without
                          CC.
140          5  Med      Angina pectoris...    0.5957    0.5829     -2.1
141          5  Med      Syncope and           0.7022    0.7091      1.0
                          collapse with CC.
142          5  Med      Syncope and           0.5312    0.5419      2.0
                          collapse without
                          CC.
143          5  Med      Chest pain........    0.5263    0.5342      1.5
144          5  Med      Other circulatory     1.1122    1.1526      3.6
                          system diagnoses
                          with CC.
145          5  Med      Other circulatory     0.6316    0.6497      2.9
                          system diagnoses
                          without CC.
146          6  Surg     Rectal resection      2.2175    2.7862     25.6
                          with CC.
147          6  Surg     Rectal resection      1.5890    1.6382      3.1
                          without CC.
148          6  Surg     Major small and       3.4231    3.4289      0.2
                          large bowel
                          procedures with
                          CC.
149          6  Surg     Major small and       1.5692    1.5723      0.2
                          large bowel
                          procedures
                          without CC.
150          6  Surg     Peritoneal            2.7419    2.8098      2.5
                          adhesiolysis with
                          CC.
151          6  Surg     Peritoneal            1.2808    1.3437      4.9
                          adhesiolysis
                          without CC.
152          6  Surg     Minor small and       1.9406    1.9606      1.0
                          large bowel
                          procedures with
                          CC.
153          6  Surg     Minor small and       1.1925    1.2170      2.1
                          large bowel
                          procedures
                          without CC.
154          6  Surg     Stomach,              4.1847    4.1335     -1.2
                          esophageal and
                          duodenal
                          procedures age
                          >17 with CC.
155          6  Surg     Stomach,              1.3541    1.3781      1.8
                          esophageal and
                          duodenal
                          procedures age
                          >17 without CC.
156          6  Surg \1  Stomach,              0.8378    0.8432      0.6
                 \        esophageal and
                          duodenal
                          procedures age 0-
                          17.
157          6  Surg     Anal and stomal       1.2082    1.2392      2.6
                          procedures with
                          CC.
158          6  Surg     Anal and stomal       0.6416    0.6561      2.3
                          procedures
                          without CC.
159          6  Surg     Hernia procedures     1.2878    1.3097      1.7
                          except inguinal
                          and femoral age
                          >17 with CC.
160          6  Surg     Hernia procedures     0.7411    0.7801      5.3
                          except inguinal
                          and femoral age
                          >17 without CC.
161          6  Surg     Inguinal and          1.0710    1.0976      2.5
                          femoral hernia
                          procedures age
                          >17 with CC.
162          6  Surg     Inguinal and          0.6108    0.6283      2.9
                          femoral hernia
                          procedures age
                          >17 without CC.
163          6  Surg \1  Hernia procedures     0.8664    0.8720      0.6
                 \        age 0-17.
164          6  Surg     Appendectomy with     2.3212    2.3463      1.1
                          complicated
                          principal diag
                          with CC.
165          6  Surg     Appendectomy with     1.2269    1.2655      3.1
                          complicated
                          principal diag
                          without CC.
166          6  Surg     Appendectomy          1.4446    1.4788      2.4
                          without
                          complicated
                          principal diag
                          with CC.
167          6  Surg     Appendectomy          0.8522    0.8995      5.6
                          without
                          complicated
                          principal diag
                          without CC.
168          3  Surg     Mouth procedures      1.1642    1.2039      3.4
                          with CC.
169          3  Surg     Mouth procedures      0.7219    0.7492      3.8
                          without CC.
170          6  Surg     Other digestive       2.8030    2.8435      1.4
                          system O.R.
                          procedures with
                          CC.
171          6  Surg     Other digestive       1.1658    1.2556      7.7
                          system O.R.
                          procedures
                          without CC.
172          6  Med      Digestive             1.3143    1.3144      0.0
                          malignancy with
                          CC.
173          6  Med      Digestive             0.7320    0.7123     -2.7
                          malignancy
                          without CC.
174          6  Med      Gastrointestinal      0.9933    0.9981      0.5
                          hemorrhage with
                          CC.
175          6  Med      Gastrointestinal      0.5298    0.5456      3.0
                          hemorrhage
                          without CC.
176          6  Med      Complicated peptic    1.1053    1.0968     -0.8
                          ulcer.
177          6  Med      Uncomplicated         0.8614    0.8802      2.2
                          peptic ulcer with
                          CC.
178          6  Med      Uncomplicated         0.6317    0.6502      2.9
                          peptic ulcer
                          without CC.
179          6  Med      Inflammatory bowel    1.1054    1.0869     -1.7
                          disease.
180          6  Med      Gastrointestinal      0.9174    0.9206      0.3
                          obstruction with
                          CC.
181          6  Med      Gastrointestinal      0.5259    0.5277      0.3
                          obstruction
                          without CC.
182          6  Med      Esophagitis,          0.7690    0.7821      1.7
                          gastroent and
                          misc digestive
                          disorders age >17
                          with CC.
183          6  Med      Esophagitis,          0.5577    0.5710      2.4
                          gastroent and
                          misc digestive
                          disorders age >17
                          without CC.
184          6  Med      Esophagitis,          0.5457    0.5286     -3.1
                          gastroent and
                          misc digestive
                          disorders age 0-
                          17.
185          3  Med      Dental and oral       0.8292    0.8593      3.6
                          dis except
                          extractions and
                          restorations, age
                          >17.
186          3  Med \1\  Dental and oral       0.3193    0.3214      0.7
                          dis except
                          extractions and
                          restorations, age
                          0-17.
187          3  Med      Dental extractions    0.7385    0.7790      5.5
                          and restorations.
188          6  Med      Other digestive       1.0758    1.0942      1.7
                          system diagnoses
                          age >17 with CC.
189          6  Med      Other digestive       0.5593    0.5831      4.3
                          system diagnoses
                          age >17 without
                          CC.
190          6  Med      Other digestive       0.7519    1.0011     33.1
                          system diagnoses
                          age 0-17.
191          7  Surg     Pancreas, liver       4.4345    4.3837     -1.1
                          and shunt
                          procedures with
                          CC.
192          7  Surg     Pancreas, liver       1.7253    1.8454      7.0
                          and shunt
                          procedures
                          without CC.
193          7  Surg     Biliary tract proc    3.3276    3.4161      2.7
                          except only
                          cholecystectomy
                          with or without
                          C.D.E. with CC.
194          7  Surg     Biliary tract proc    1.6646    1.6401     -1.5
                          except only
                          cholecystectomy
                          with or without
                          C.D.E. without CC.
195          7  Surg     Cholecystectomy       2.7888    2.9359      5.3
                          with C.D.E. with
                          CC.
196          7  Surg     Cholecystectomy       1.6357    1.6554      1.2
                          with C.D.E.
                          without CC.
197          7  Surg     Cholecystectomy       2.3845    2.4183      1.4
                          except by
                          laparoscope
                          without C.D.E.
                          with CC.
198          7  Surg     Cholecystectomy       1.1996    1.2324      2.7
                          except by
                          laparoscope
                          without C.D.E.
                          without CC.
199          7  Surg     Hepatobiliary         2.3865    2.3317     -2.3
                          diagnostic
                          procedure for
                          malignancy.
200          7  Surg     Hepatobiliary         3.2800    3.0708     -6.4
                          diagnostic
                          procedure for
                          nonmalignancy.
201          7  Surg     Other                 3.6053    3.5838     -0.6
                          hepatobiliary or
                          pancreas O.R.
                          procedures.
202          7  Med      Cirrhosis and         1.3158    1.3188      0.2
                          alcoholic
                          hepatitis.
203          7  Med      Malignancy of         1.3000    1.3046      0.4
                          hepatobiliary
                          system or
                          pancreas.
204          7  Med      Disorders of          1.2122    1.2161      0.3
                          pancreas except
                          malignancy.
205          7  Med      Disorders of liver    1.2127    1.1816     -2.6
                          except malig,
                          cirr, alc hepa
                          with CC.
206          7  Med      Disorders of liver    0.6947    0.7163      3.1
                          except malig,
                          cirr, alc hepa
                          without CC.
207          7  Med      Disorders of the      1.0695    1.1013      3.0
                          biliary tract
                          with CC.
208          7  Med      Disorders of the      0.6169    0.6455      4.6
                          biliary tract
                          without CC.
209          8  Surg     Major joint and       2.1803    2.1175     -2.9
                          limb reattachment
                          procedures of
                          lower extremity.
210          8  Surg     Hip and femur         1.8128    1.8028     -0.6
                          procedures except
                          major joint age
                          >17 with CC.
211          8  Surg     Hip and femur         1.2505    1.2609      0.8
                          procedures except
                          major joint age
                          >17 without CC.
212          8  Surg \1  Hip and femur         0.8413    0.8468      0.7
                 \        procedures except
                          major joint age 0-
                          17.
213          8  Surg     Amputation for        1.6383    1.7130      4.6
                          musculoskeletal
                          system and
                          connective tissue
                          disorders.
214          8  Surg     No longer valid...
215          8  Surg     No longer valid...
216          8  Surg     Biopsies of           2.1275    2.1400      0.6
                          musculoskeletal
                          system and
                          connective tissue.
217          8  Surg     Wound debrid and      2.7944    2.8006      0.2
                          skin graft except
                          hand, for
                          musculoskeletal
                          and connective
                          tissue disorders.
218          8  Surg     Lower extrem and      1.4641    1.4900      1.8
                          humer proc except
                          hip, foot, femur
                          age >17 with CC.
219          8  Surg     Lower extrem and      0.9924    1.0117      1.9
                          humer proc except
                          hip, foot, femur
                          age >17 without
                          CC.
220          8  Surg \1  Lower extrem and      0.5803    0.5841      0.7
                 \        humer proc except
                          hip, foot, femur
                          age 0-17.
221          8  Surg     No longer valid...
222          8  Surg     No longer valid...
223          8  Surg     Major shoulder/       0.9255    0.9378      1.3
                          elbow proc, or
                          other upper
                          extremity proc
                          with CC.
224          8  Surg     Shoulder, elbow or    0.7871    0.8042      2.2
                          forearm proc,
                          except major
                          joint proc,
                          without CC.
225          8  Surg     Foot procedures...    1.0122    1.0518      3.9
226          8  Surg     Soft tissue           1.4081    1.4383      2.1
                          procedures with
                          CC.
227          8  Surg     Soft tissue           0.7922    0.8181      3.3
                          procedures
                          without CC.
228          8  Surg     Major thumb or        1.0038    1.0516      4.8
                          joint proc, or
                          other hand or
                          wrist proc with
                          CC.
229          8  Surg     Hand or wrist         0.7058    0.7348      4.1
                          proc, except
                          major joint proc,
                          without CC.
230          8  Surg     Local excision and    1.1072    1.1722      5.9
                          removal of int
                          fix devices of
                          hip and femur.
231          8  Surg     Local excision and    1.2923    1.3623      5.4
                          removal of int
                          fix devices
                          except hip and
                          femur.
232          8  Surg     Arthroscopy.......    1.0892    1.1567      6.2
233          8  Surg     Other                 2.0628    2.0424     -1.0
                          musculoskeletal
                          system and
                          connective tissue
                          O.R. proc with CC.
234          8  Surg     Other                 1.1731    1.2450      6.1
                          musculoskeletal
                          system and
                          connective tissue
                          O.R. proc without
                          CC.
235          8  Med      Fractures of femur    0.7524    0.7479     -0.6
236          8  Med      Fractures of hip      0.7243    0.7157     -1.2
                          and pelvis.
237          8  Med      Sprains, strains,     0.5384    0.5451      1.2
                          and dislocations
                          of hip, pelvis
                          and thigh.
238          8  Med      Osteomyelitis.....    1.3409    1.2831     -4.3
239          8  Med      Pathological          0.9653    0.9660      0.1
                          fractures and
                          musculoskeletal
                          and connective
                          tissue malignancy.
240          8  Med      Connective tissue     1.2252    1.2328      0.6
                          disorders with CC.
241          8  Med      Connective tissue     0.5903    0.6089      3.2
                          disorders without
                          CC.
242          8  Med      Septic arthritis..    1.0371    1.0168     -2.0
243          8  Med      Medical back          0.7142    0.7164      0.3
                          problems.
244          8  Med      Bone diseases and     0.7048    0.7024     -0.3
                          specific
                          arthropathies
                          with CC.
245          8  Med      Bone diseases and     0.4939    0.4801     -2.8
                          specific
                          arthropathies
                          without CC.
246          8  Med      Nonspecific           0.5647    0.5545     -1.8
                          arthropathies.
247          8  Med      Signs and symptoms    0.5534    0.5563      0.5
                          of
                          musculoskeletal
                          system and
                          connective tissue.
248          8  Med      Tendonitis,           0.7445    0.7554      1.5
                          myositis and
                          bursitis.
249          8  Med      Aftercare,            0.6520    0.6504     -0.2
                          musculoskeletal
                          system and
                          connective tissue.
250          8  Med      FX, sprn, strn and    0.6752    0.6700     -0.8
                          disl of forearm,
                          hand, foot age
                          >17 with CC.
251          8  Med      FX, sprn, strn and    0.4621    0.4608     -0.3
                          disl of forearm,
                          hand, foot age
                          >17 without CC.
252          8  Med \1\  FX, sprn, strn and    0.2521    0.2537      0.6
                          disl of forearm,
                          hand, foot age 0-
                          17.
253          8  Med      FX, sprn, strn and    0.7181    0.7261      1.1
                          disl of uparm,
                          lowleg ex foot
                          age >17 with CC.
254          8  Med      FX, sprn, strn and    0.4309    0.4339      0.7
                          disl of uparm,
                          lowleg ex foot
                          age >17 without
                          CC.
255          8  Med \1\  FX, sprn, strn and    0.2935    0.2954      0.6
                          disl of uparm,
                          lowleg ex foot
                          age 0-17.
256          8  Med      Other                 0.7583    0.7687      1.4
                          musculoskeletal
                          system and
                          connective tissue
                          diagnoses.
257          9  Surg     Total mastectomy      0.9198    0.9134     -0.7
                          for malignancy
                          with CC.
258          9  Surg     Total mastectomy      0.7228    0.7227      0.0
                          for malignancy
                          without CC.
259          9  Surg     Subtotal              0.8837    0.8673     -1.9
                          mastectomy for
                          malignancy with
                          CC.
260          9  Surg     Subtotal              0.6241    0.6444      3.3
                          mastectomy for
                          malignancy
                          without CC.
261          9  Surg     Breast proc for       0.9131    0.9188      0.6
                          nonmalignancy
                          except biopsy and
                          local excision.
262          9  Surg     Breast biopsy and     0.8729    0.8392     -3.9
                          local excision
                          for nonmalignancy.
263          9  Surg     Skin graft and/or     2.0064    2.0609      2.7
                          debrid for skin
                          ulcer or
                          cellulitis with
                          CC.
264          9  Surg     Skin graft and/or     1.1090    1.1216      1.1
                          debrid for skin
                          ulcer or
                          cellulitis
                          without CC.
265          9  Surg     Skin graft and/or     1.4796    1.5650      5.8
                          debrid except for
                          skin ulcer or
                          cellulitis with
                          CC.
266          9  Surg     Skin graft and/or     0.8262    0.8495      2.8
                          debrid except for
                          skin ulcer or
                          cellulitis
                          without CC.
267          9  Surg     Perianal and          0.9293    0.9815      5.6
                          pilonidal
                          procedures.
268          9  Surg     Skin, subcutaneous    1.0669    1.1979     12.3
                          tissue and breast
                          plastic
                          procedures.
269          9  Surg     Other skin, subcut    1.5798    1.6147      2.2
                          tissue and breast
                          proc with CC.
270          9  Surg     Other skin, subcut    0.7206    0.7447      3.3
                          tissue and breast
                          proc without CC.
271          9  Med      Skin ulcers.......    1.0007    0.9905     -1.0
272          9  Med      Major skin            1.0421    1.0003     -4.0
                          disorders with CC.
273          9  Med      Major skin            0.6260    0.6275      0.2
                          disorders without
                          CC.
274          9  Med      Malignant breast      1.1119    1.1335      1.9
                          disorders with CC.
275          9  Med      Malignant breast      0.5305    0.6322     19.2
                          disorders without
                          CC.
276          9  Med      Nonmalignant          0.6407    0.6529      1.9
                          breast disorders.
277          9  Med      Cellulitis age >17    0.8342    0.8312     -0.4
                          with CC.
278          9  Med      Cellulitis age >17    0.5548    0.5621      1.3
                          without CC.
279          9  Med      Cellulitis age 0-     0.6657    0.6641     -0.2
                          17.
280          9  Med      Trauma to the         0.6628    0.6736      1.6
                          skin, subcut
                          tissue and breast
                          age >17 with CC.
281          9  Med      Trauma to the         0.4535    0.4596      1.3
                          skin, subcut
                          tissue and breast
                          age >17 without
                          CC.
282          9  Med \1\  Trauma to the         0.2552    0.2569      0.7
                          skin, subcut
                          tissue and breast
                          age 0-17.
283          9  Med      Minor skin            0.6938    0.7129      2.8
                          disorders with CC.
284          9  Med      Minor skin            0.4399    0.4373     -0.6
                          disorders without
                          CC.
285         10  Surg     Amputation of         2.0425    2.0217     -1.0
                          lower limb for
                          endocrine,
                          nutrit, and
                          metabolic
                          disorders.
286         10  Surg     Adrenal and           2.2199    2.2287      0.4
                          pituitary
                          procedures.
287         10  Surg     Skin grafts and       1.8591    1.8045     -2.9
                          wound debrid for
                          endocrine, nutrit
                          and metabolic
                          disorders.
288         10  Surg     O.R. procedures       2.0227    2.0665      2.2
                          for obesity.
289         10  Surg     Parathyroid           1.0117    0.9756     -3.6
                          procedures.
290         10  Surg     Thyroid procedures    0.9166    0.9174      0.1
291         10  Surg     Thyroglossal          0.5772    0.6732     16.6
                          procedures.
292         10  Surg     Other endocrine,      2.5980    2.4719     -4.9
                          nutrit and
                          metabolic O.R.
                          proc with CC.
293         10  Surg     Other endocrine,      1.2794    1.1942     -6.7
                          nutrit and
                          metabolic O.R.
                          proc without CC.
294         10  Med      Diabetes age >35..    0.7478    0.7518      0.5
295         10  Med      Diabetes age 0-35.    0.7242    0.7464      3.1
296         10  Med      Nutritional and       0.8497    0.8556      0.7
                          misc metabolic
                          disorders age >17
                          with CC.
297         10  Med      Nutritional and       0.5202    0.5204      0.0
                          misc metabolic
                          disorders age >17
                          without CC.
298         10  Med      Nutritional and       0.5262    0.4954     -5.9
                          misc metabolic
                          disorders age 0-
                          17.
299         10  Med      Inborn errors of      0.8800    0.9475      7.7
                          metabolism.
300         10  Med      Endocrine             1.0801    1.0779     -0.2
                          disorders with CC.
301         10  Med      Endocrine             0.6020    0.5889     -2.2
                          disorders without
                          CC.
302         11  Surg     Kidney transplant.    3.6406    3.5669     -2.0
303         11  Surg     Kidney, ureter and    2.6597    2.5401     -4.5
                          major bladder
                          procedures for
                          neoplasm.
304         11  Surg     Kidney, ureter and    2.3361    2.3458      0.4
                          major bladder
                          proc for
                          nonneoplasm with
                          CC.
305         11  Surg     Kidney, ureter and    1.1341    1.1857      4.5
                          major bladder
                          proc for
                          nonneoplasm
                          without CC.
306         11  Surg     Prostatectomy with    1.2401    1.2448      0.4
                          CC.
307         11  Surg     Prostatectomy         0.6410    0.6588      2.8
                          without CC.
308         11  Surg     Minor bladder         1.5166    1.5907      4.9
                          procedures with
                          CC.
309         11  Surg     Minor bladder         0.9076    0.9442      4.0
                          procedures
                          without CC.
310         11  Surg     Transurethral         1.0629    1.0869      2.3
                          procedures with
                          CC.
311         11  Surg     Transurethral         0.6073    0.6126      0.9
                          procedures
                          without CC.
312         11  Surg     Urethral              0.9877    1.0270      4.0
                          procedures, age
                          >17 with CC.
313         11  Surg     Urethral              0.6286    0.6640      5.6
                          procedures, age
                          >17 without CC.
314         11  Surg \1  Urethral              0.4918    0.4950      0.7
                 \        procedures, age 0-
                          17.
315         11  Surg     Other kidney and      2.0703    2.0660     -0.2
                          urinary tract
                          O.R. procedures.
316         11  Med      Renal failure.....    1.3315    1.3380      0.5
317         11  Med      Admit for renal       0.6140    0.6965     13.4
                          dialysis.
318         11  Med      Kidney and urinary    1.0921    1.1413      4.5
                          tract neoplasms
                          with CC.
319         11  Med      Kidney and urinary    0.6150    0.6187      0.6
                          tract neoplasms
                          without CC.
320         11  Med      Kidney and urinary    0.8665    0.8647     -0.2
                          tract infections
                          age >17 with CC.
321         11  Med      Kidney and urinary    0.5808    0.5785     -0.4
                          tract infections
                          age >17 without
                          CC.
322         11  Med      Kidney and urinary    0.5406    0.5606      3.7
                          tract infections
                          age 0-17.
323         11  Med      Urinary stones        0.7658    0.7816      2.1
                          with CC, and/or
                          ESW lithotripsy.
324         11  Med      Urinary stones        0.4346    0.4475      3.0
                          without CC.
325         11  Med      Kidney and urinary    0.6236    0.6287      0.8
                          tract signs and
                          symptoms age >17
                          with CC.
326         11  Med      Kidney and urinary    0.4200    0.4203      0.1
                          tract signs and
                          symptoms age >17
                          without CC.
327         11  Med \1\  Kidney and urinary    0.3518    0.3541      0.7
                          tract signs and
                          symptoms age 0-17.
328         11  Med      Urethral stricture    0.7176    0.7024     -2.1
                          age >17 with CC.
329         11  Med      Urethral stricture    0.4918    0.5172      5.2
                          age >17 without
                          CC.
330         11  Med \1\  Urethral stricture    0.3168    0.3189      0.7
                          age 0-17.
331         11  Med      Other kidney and      0.9952    1.0157      2.1
                          urinary tract
                          diagnoses age >17
                          with CC.
332         11  Med      Other kidney and      0.6235    0.6104     -2.1
                          urinary tract
                          diagnoses age >17
                          without CC.
333         11  Med      Other kidney and      0.7757    0.7642     -1.5
                          urinary tract
                          diagnoses age 0-
                          17.
334         12  Surg     Major male pelvic     1.5975    1.5864     -0.7
                          procedures with
                          CC.
335         12  Surg     Major male pelvic     1.2056    1.1911     -1.2
                          procedures
                          without CC.
336         12  Surg     Transurethral         0.8856    0.8965      1.2
                          prostatectomy
                          with CC.
337         12  Surg     Transurethral         0.6176    0.6229      0.9
                          prostatectomy
                          without CC.
338         12  Surg     Testes procedures,    1.0867    1.1552      6.3
                          for malignancy.
339         12  Surg     Testes procedures,    0.9822    1.0600      7.9
                          nonmalignancy age
                          >17.
340         12  Surg \1  Testes procedures,    0.2816    0.2834      0.6
                 \        nonmalignancy age
                          0-17.
341         12  Surg     Penis procedures..    1.1194    1.1141     -0.5
342         12  Surg     Circumcision age      0.8555    0.8601      0.5
                          >17.
343         12  Surg \1  Circumcision age 0-   0.1530    0.1540      0.7
                 \        17.
344         12  Surg     Other male            1.0414    1.1025      5.9
                          reproductive
                          system O.R.
                          procedures for
                          malignancy.
345         12  Surg     Other male            0.8646    0.8816      2.0
                          reproductive
                          system O.R. proc
                          except for
                          malignancy.
346         12  Med      Malignancy, male      0.9494    0.9645      1.6
                          reproductive
                          system, with CC.
347         12  Med      Malignancy, male      0.5620    0.5828      3.7
                          reproductive
                          system, without
                          CC.
348         12  Med      Benign prostatic      0.6892    0.6983      1.3
                          hypertrophy with
                          CC.
349         12  Med      Benign prostatic      0.4090    0.4345      6.2
                          hypertrophy
                          without CC.
350         12  Med      Inflammation of       0.6918    0.6957      0.6
                          the male
                          reproductive
                          system.
351         12  Med \1\  Sterilization,        0.2348    0.2363      0.6
                          male.
352         12  Med      Other male            0.6251    0.6769      8.3
                          reproductive
                          system diagnoses.
353         13  Surg     Pelvic                1.9235    1.9721      2.5
                          evisceration,
                          radical
                          hysterectomy and
                          radical
                          vulvectomy.
354         13  Surg     Uterine, adnexa       1.4953    1.5134      1.2
                          proc for
                          nonovarian/
                          adnexal malig
                          with CC.
355         13  Surg     Uterine, adnexa       0.9322    0.9477      1.7
                          proc for
                          nonovarian/
                          adnexal malig
                          without CC.
356         13  Surg     Female                0.7863    0.7916      0.7
                          reproductive
                          system
                          reconstructive
                          procedures.
357         13  Surg     Uterine and adnexa    2.4429    2.3699     -3.0
                          proc for ovarian
                          or adnexal
                          malignancy.
358         13  Surg     Uterine and adnexa    1.2111    1.2357      2.0
                          proc for
                          nonmalignancy
                          with CC.
359         13  Surg     Uterine and adnexa    0.8663    0.8699      0.4
                          proc for
                          nonmalignancy
                          without CC.
360         13  Surg     Vagina, cervix and    0.8902    0.8823     -0.9
                          vulva procedures.
361         13  Surg     Laparoscopy and       1.2051    1.1894     -1.3
                          incisional tubal
                          interruption.
362         13  Surg \1  Endoscopic tubal      0.3001    0.3020      0.6
                 \        interruption.
363         13  Surg     D&C, conization       0.7498    0.7807      4.1
                          and radio-
                          implant, for
                          malignancy.
364         13  Surg     D&C, conization       0.7280    0.7601      4.4
                          except for
                          malignancy.
365         13  Surg     Other female          1.7421    1.8299      5.0
                          reproductive
                          system O.R.
                          procedures.
366         13  Med      Malignancy, female    1.1912    1.2474      4.7
                          reproductive
                          system with CC.
367         13  Med      Malignancy, female    0.5640    0.5509     -2.3
                          reproductive
                          system without CC.
368         13  Med      Infections, female    1.0544    1.0499     -0.4
                          reproductive
                          system.
369         13  Med      Menstrual and         0.5257    0.5526      5.1
                          other female
                          reproductive
                          system disorders.
370         14  Surg     Cesarean section      1.0501    1.0974      4.5
                          with CC.
371         14  Surg     Cesarean section      0.7161    0.7212      0.7
                          without CC.
372         14  Med      Vaginal delivery      0.5716    0.5920      3.6
                          with complicating
                          diagnoses.
373         14  Med      Vaginal delivery      0.4000    0.4020      0.5
                          without
                          complicating
                          diagnoses.
374         14  Surg     Vaginal delivery      0.7120    0.7081     -0.5
                          with
                          sterilization and/
                          or D&C.
375         14  Surg \1  Vaginal delivery      0.6812    0.6856      0.6
                 \        with O.R. proc
                          except
                          sterilization and/
                          or D&C.
376         14  Med      Postpartum and        0.4877    0.5342      9.5
                          postabortion
                          diagnoses without
                          O.R. procedure.
377         14  Surg     Postpartum and        1.4263    1.3506     -5.3
                          postabortion
                          diagnoses with
                          O.R. procedure.
378         14  Med      Ectopic pregnancy.    0.8441    0.9394     11.3
379         14  Med      Threatened            0.4390    0.4424      0.8
                          abortion.
380         14  Med      Abortion without      0.4168    0.3404    -18.3
                          D&C.
381         14  Surg     Abortion with D&C,    0.5540    0.6002      8.3
                          aspiration
                          curettage or
                          hysterotomy.
382         14  Med      False labor.......    0.1965    0.2045      4.1
383         14  Med      Other antepartum      0.4718    0.5334     13.1
                          diagnoses with
                          medical
                          complications.
384         14  Med      Other antepartum      0.3578    0.3437     -3.9
                          diagnoses without
                          medical
                          complications.
385         15  (\1\)    Neonates, died or     1.3671    1.3760      0.7
                          transferred to
                          another acute
                          care facility.
386         15  (\1\)    Extreme immaturity    4.5084    4.5376      0.6
                          or respiratory
                          distress
                          syndrome, neonate.
387         15  (\1\)    Prematurity with      3.0791    3.0991      0.6
                          major problems.
388         15  (\1\)    Prematurity           1.8578    1.8699      0.7
                          without major
                          problems.
389         15  (\1\)    Full term neonate     1.8279    1.8398      0.7
                          with major
                          problems.
390         15  (\1\)    Neonate with other    1.5908    1.6011      0.6
                          significant
                          problems.
391         15  (\1\)    Normal newborn....    0.1516    0.1526      0.7
392         16  Surg     Splenectomy age       3.2927    3.1411     -4.6
                          >17.
393         16  Surg \1  Splenectomy age 0-    1.3392    1.3479      0.6
                 \        17.
394         16  Surg     Other O.R.            1.6195    1.6806      3.8
                          procedures of the
                          blood and blood
                          forming organs.
395         16  Med      Red blood cell        0.8196    0.8168     -0.3
                          disorders age >17.
396         16  Med      Red blood cell        2.1978    1.0917    -50.3
                          disorders age 0-
                          17.
397         16  Med      Coagulation           1.2536    1.2154     -3.0
                          disorders.
398         16  Med      Reticuloendothelia    1.2463    1.2507      0.4
                          l and immunity
                          disorders with CC.
399         16  Med      Reticuloendothelia    0.6908    0.7085      2.6
                          l and immunity
                          disorders without
                          CC.
400         17  Surg     Lymphoma and          2.6546    2.6610      0.2
                          leukemia with
                          major O.R.
                          procedure.
401         17  Surg     Lymphoma and          2.5749    2.6191      1.7
                          nonacute leukemia
                          with other O.R.
                          proc with CC.
402         17  Surg     Lymphoma and          1.0114    1.0641      5.2
                          nonacute leukemia
                          with other O.R.
                          proc without CC.
403         17  Med      Lymphoma and          1.6843    1.7181      2.0
                          nonacute leukemia
                          with CC.
404         17  Med      Lymphoma and          0.8302    0.8549      3.0
                          nonacute leukemia
                          without CC.
405         17  (\1\)    Acute leukemia        1.8987    1.9110      0.6
                          without major
                          O.R. procedure
                          age 0-17.
406         17  Surg     Myeloprolif           2.5688    2.7833      8.4
                          disorders or
                          poorly diff neopl
                          with major O.R.
                          proc with CC.
407         17  Surg     Myeloprolif           1.1788    1.2463      5.7
                          disorders or
                          poorly diff neopl
                          with major O.R.
                          proc without CC.
408         17  Surg     Myeloprolif           1.8204    1.9990      9.8
                          disorders or
                          poorly diff neopl
                          with other O.R.
                          proc.
409         17  Med      Radiotherapy......    1.0117    1.0631      5.1
410         17  Med      Chemotherapy          0.8402    0.9015      7.3
                          without acute
                          leukemia as
                          secondary
                          diagnosis.
411         17  Med      History of            0.3897    0.4335     11.2
                          malignancy
                          without endoscopy.
412         17  Med      History of            0.5042    0.4070    -19.3
                          malignancy with
                          endoscopy.
413         17  Med      Other myeloprolif     1.3473    1.3925      3.4
                          dis or poorly
                          diff neopl diag
                          with CC.
414         17  Med      Other myeloprolif     0.7146    0.7824      9.5
                          dis or poorly
                          diff neopl diag
                          without CC.
415         18  Surg     O.R. procedure for    3.5747    3.5541     -0.6
                          infectious and
                          parasitic
                          diseases.
416         18  Med      Septicemia age >17    1.4883    1.4988      0.7
417         18  Med      Septicemia age 0-     1.3276    0.8695    -34.5
                          17.
418         18  Med      Postoperative and     0.9894    0.9931      0.4
                          post-traumatic
                          infections.
419         18  Med      Fever of unknown      0.8764    0.8885      1.4
                          origin age >17
                          with CC.
420         18  Med      Fever of unknown      0.6331    0.6136     -3.1
                          origin age >17
                          without CC.
421         18  Med      Viral illness age     0.6748    0.6663     -1.3
                          >17.
422         18  Med      Viral illness and     0.5668    0.4792    -15.5
                          fever of unknown
                          origin age 0-17.
423         18  Med      Other infectious      1.6028    1.6019     -0.1
                          and parasitic
                          diseases
                          diagnoses.
424         19  Surg     O.R. procedure        2.3483    2.3706      0.9
                          with principal
                          diagnoses of
                          mental illness.
425         19  Med      Acute adjustment      0.6782    0.6805      0.3
                          reaction and
                          psychological
                          dysfunction.
426         19  Med      Depressive            0.5525    0.5363     -2.9
                          neuroses.
427         19  Med      Neuroses except       0.5588    0.5714      2.3
                          depressive.
428         19  Med      Disorders of          0.7114    0.6982     -1.9
                          personality and
                          impulse control.
429         19  Med      Organic               0.8710    0.8448     -3.0
                          disturbances and
                          mental
                          retardation.
430         19  Med      Psychoses.........    0.8079    0.7881     -2.5
431         19  Med      Childhood mental      0.7468    0.7532      0.9
                          disorders.
432         19  Med      Other mental          0.7085    0.7083      0.0
                          disorder
                          diagnoses.
433         20  NA       Alcohol/drug abuse    0.3025    0.2961     -2.1
                          or dependence,
                          left AMA.
434         20  NA       Alcohol/drug abuse    0.7007    0.7296      4.1
                          or dependence,
                          detox or other
                          symptoms,
                          treatment with CC.
435         20  NA       Alcohol/drug abuse    0.4151    0.4275      3.0
                          or dependence,
                          detox or other
                          symptoms,
                          treatment without
                          CC.
436         20  NA       Alcohol/drug          0.8145    0.7850     -3.6
                          dependence with
                          rehabilitation
                          therapy.
437         20  NA       Alcohol/drug          0.7023    0.6864     -2.3
                          dependence,
                          combined
                          rehabilitation
                          and detox therapy.
438         NA  NA       No longer valid...
439         21  Surg     Skin grafts for       1.5800    1.6571      4.9
                          injuries.
440         21  Surg     Wound debridements    1.7993    1.9354      7.6
                          for injuries.
441         21  Surg     Hand procedures       1.0106    0.9179     -9.2
                          for injuries.
442         21  Surg     Other O.R.            2.2652    2.2454     -0.9
                          procedures for
                          injuries with CC.
443         21  Surg     Other O.R.            0.9292    0.9614      3.5
                          procedures for
                          injuries without
                          CC.
444         21  Med      Traumatic injury      0.7115    0.7087     -0.4
                          age >17 with CC.
445         21  Med      Traumatic injury      0.4812    0.4800     -0.2
                          age >17 without
                          CC.
446         21  Med \1\  Traumatic injury      0.2943    0.2962      0.6
                          age 0-17.
447         21  Med      Allergic reactions    0.4938    0.5220      5.7
                          age >17.
448         21  Med \1\  Allergic reactions    0.0968    0.0974      0.6
                          age 0-17.
449         21  Med      Poisoning and         0.7850    0.8149      3.8
                          toxic effects of
                          drugs age >17
                          with CC.
450         21  Med      Poisoning and         0.4321    0.4352      0.7
                          toxic effects of
                          drugs age >17
                          without CC.
451         21  Med \1\  Poisoning and         0.2614    0.2631      0.7
                          toxic effects of
                          drugs age 0-17.
452         21  Med      Complications of      0.9799    0.9920      1.2
                          treatment with CC.
453         21  Med      Complications of      0.4859    0.5060      4.1
                          treatment without
                          CC.
454         21  Med      Other injury,         0.8448    0.8152     -3.5
                          poisoning and
                          toxic effect diag
                          with CC.
455         21  Med      Other injury,         0.4675    0.4663     -0.3
                          poisoning and
                          toxic effect diag
                          without CC.
456         NA  NA       No longer valid...
457         NA  NA       No longer valid...
458         NA  NA       No longer valid...
459         NA  NA       No longer valid...
460         NA  NA       No longer valid...
461         23  Surg     O.R. proc with        1.0684    1.1309      5.8
                          diagnoses of
                          other contact
                          with health
                          services.
462         23  Med      Rehabilitation....    1.4071    1.3599     -3.4
463         23  Med      Signs and symptoms    0.6738    0.6811      1.1
                          with CC.
464         23  Med      Signs and symptoms    0.4996    0.4942     -1.1
                          without CC.
465         23  Med      Aftercare with        0.5247    0.6720     28.1
                          history of
                          malignancy as
                          secondary
                          diagnosis.
466         23  Med      Aftercare without     0.6121    0.7129     16.5
                          history of
                          malignancy as
                          secondary
                          diagnosis.
467         23  Med      Other factors         0.4941    0.4986      0.9
                          influencing
                          health status.
468         NA  NA       Extensive O.R.        3.6582    3.6400     -0.5
                          procedure
                          unrelated to
                          principal
                          diagnosis.
469         NA  (\2\)    Principal             0.0000    0.0000      0.0
                          diagnosis invalid
                          as discharge
                          diagnosis.
470         NA  (\2\)    Ungroupable.......    0.0000    0.0000      0.0
471          8  Surg     Bilateral or          3.3246    3.2205     -3.1
                          multiple major
                          joint proc of
                          lower extremity.
472         NA  NA       No longer valid...    0.0000    0.0000      0.0
473         17  NA       Acute leukemia        3.4741    3.7200      7.1
                          without major
                          O.R. procedure
                          age >17.
474         NA  NA       No longer valid...    0.0000    0.0000      0.0
475          4  Med      Respiratory system    3.7429    3.7065     -1.0
                          diagnosis with
                          ventilator
                          support.
476         NA  Surg     Prostatic O.R.        2.2182    2.2633      2.0
                          procedure
                          unrelated to
                          principal
                          diagnosis.
477         NA  Surg     Nonextensive O.R.     1.7545    1.7696      0.9
                          procedure
                          unrelated to
                          principal
                          diagnosis.
478          5  Surg     Other vascular        2.3355    2.3515      0.7
                          procedures with
                          CC.
479          5  Surg     Other vascular        1.4230    1.4618      2.7
                          procedures
                          without CC.
480         NA  Surg     Liver transplant..   10.6455   10.7834      1.3
481         NA  Surg     Bone marrow          10.2138    8.7285    -14.5
                          transplant.
482         NA  Surg     Tracheostomy for      3.6031    3.6454      1.2
                          face, mouth and
                          neck diagnoses.
483         NA  Surg     Tracheostomy         16.3395   16.1211     -1.3
                          except for face,
                          mouth and neck
                          diagnoses.
484         24  Surg     Craniotomy for        5.3380    5.5421      3.8
                          multiple
                          significant
                          trauma.
485         24  Surg     Limb reattachment,    3.0788    3.0757     -0.1
                          hip and femur
                          proc for multiple
                          significant
                          trauma.
486         24  Surg     Other O.R.            4.9966    4.8962     -2.0
                          procedures for
                          multiple
                          significant
                          trauma.
487         24  Med      Other multiple        1.9183    1.9536      1.8
                          significant
                          trauma.
488         25  Surg     HIV with extensive    4.5766    4.7891      4.6
                          O.R. procedure.
489         25  Med      HIV with major        1.7690    1.7913      1.3
                          related condition.
490         25  Med      HIV with or           0.9705    0.9651     -0.6
                          without other
                          related condition.
491          8  Surg     Major joint and       1.6655    1.6673      0.1
                          limb reattachment
                          procedures of
                          upper extremity.
492         17  Med      Chemotherapy with     4.5427    4.4470     -2.1
                          acute leukemia as
                          secondary
                          diagnosis.
493          7  Surg     Laparoscopic          1.7914    1.8290      2.1
                          cholecystectomy
                          without C.D.E.
                          with CC.
494          7  Surg     Laparoscopic          0.9973    1.0246      2.7
                          cholecystectomy
                          without C.D.E.
                          without CC.
495         NA  Surg     Lung transplant...    8.9500    8.8332     -1.3
496          8  Surg     Combined anterior/    5.4275    5.6871      4.8
                          posterior spinal
                          fusion.
497          8  Surg     Spinal fusion with    2.7594    2.8441      3.1
                          CC.
498          8  Surg     Spinal fusion         1.6863    1.7952      6.5
                          without CC.
499          8  Surg     Back and neck         1.4677    1.4487     -1.3
                          procedures except
                          spinal fusion
                          with CC.
500          8  Surg     Back and neck         0.9714    0.9836      1.3
                          procedures except
                          spinal fusion
                          without CC.
501          8  Surg     Knee procedures       2.5544    2.5305     -0.9
                          with pdx of
                          infection with CC.
502          8  Surg     Knee procedures       1.5539    1.5559      0.1
                          with pdx of
                          infection without
                          CC.
503          8  Surg     Knee procedures       1.2297    1.2029     -2.2
                          without pdx of
                          infection.
504         22  Surg     Extensive third      14.1153   13.2930     -5.8
                          degree burns with
                          skin graft.
505         22  NA       Extensive third       1.7875    2.2593     26.4
                          degree burns
                          without skin
                          graft.
506         22  NA       Full thickness        4.2478    4.2007     -1.1
                          burn with skin
                          graft or
                          inhalation injury
                          with CC or sig
                          trauma.
507         22  NA       Full thickness        1.7078    1.8942     10.9
                          burn with skin
                          graft or
                          inhalation injury
                          without CC or sig
                          trauma.
508         22  NA       Full thickness        1.4178    1.5971     12.6
                          burn without skin
                          graft or
                          inhalation injury
                          with CC or sig
                          trauma.
509         22  NA       Full thickness        0.7824    0.8554      9.3
                          burn without skin
                          graft or
                          inhalation injury
                          without CC or sig
                          trauma.
510         22  NA       Nonextensive burns    1.1630    1.3335     14.7
                          with CC or
                          significant
                          trauma.
511         22  NA       Nonextensive burns    0.6042    0.8312     37.6
                          without CC or
                          significant
                          trauma.
------------------------------------------------------------------------
\1\ Medicare data have been supplemented by data from 19 States for low-
  volume diagnosis-related groups (DRGs).
\2\ DRGs 469 and 470 contain cases that could not be assigned to valid
  DRGs.

NA--Not available.

 Note.--Relative weights are based on Medicare patient data and may not
  be appropriate for other patients. Abbreviations are as follows:

AICD = automatic   debrid =           hr = hour         proc =
 implantable        debridement       humer = humerus    procedures
 cardioverter      detox =            int = internal    PTCA =
 defibrillator      detoxification    lowleg = lower     percutaneous
alc hepa =         diag = diagnosis    leg               transluminal
 alcoholic         diff =             malig =            coronary
 hepatitis          differentiated     malignancy        angioplasty
AMA = against      dis = diseases     MDC = major       sig =
 medical advice    disl =              diagnostic        significant
AMI = acute         dislocation        category         sprn = sprain
 myocardial        ESW =              med = medical     strn = strain
 infarction         extracorporeal    myeloprolif =     subcut =
cath =              shock wave         myeloproliferat   subcutaneous
 catheterization   ex = except         ive              surg = surgical
CC = complication  extrem =           misc =            T&A =
 or comorbidity     extremity          miscellaneous     tonsillectomy
C.D.E. = common    fix = fixation     neopl = neoplasm   and/or
 duct exploration  FX = fracture      nutrit =           adenoidectomy
cirr = cirrhosis   gastroent =         nutritional      TIA = transient
D&C = dilation &    gastroenteritis   O.R. = operating   ischemic attack
 curettage         HIV = human         room             uparm = upper
                    immunodeficiency  pdx = principal    arm
                    virus              diagnosis        uri = upper
                                                         respiratory
                                                         infection

Source: Health Care Financing Administration.

                          PART II: PHYSICIANS

                        PHYSICIAN PAYMENT REFORM

    The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) 
provided for the implementation, beginning January 1, 1992, of 
a new payment system for physicians' services paid for by 
Medicare. This fee schedule payment system replaced the 
previous reasonable charge payment system. The new system was 
enacted in response to two principal concerns. The first was 
the rapid escalation in program payments. The second was that 
the use of the reasonable charge payment method had led, in 
many cases, to payments which were not directly related to the 
resources used. The Balanced Budget Act of 1997 (BBA 1997) made 
several modifications to the fee schedule payment system. The 
Balanced Budget Refinement Act (BBRA) of 1999 made technical 
modifications to the BBA 1997 provisions.
    Medicare payments for physicians' services are made under a 
fee schedule which is based on a resource-based relative value 
scale. Annual updates to the payment amounts are based, in 
part, on a comparison of actual physician spending in a base 
period compared to an expenditure goal. The expenditure goal in 
place prior to fiscal year 1998 was known as the Medicare 
volume performance standard (MVPS). Beginning in fiscal year 
1998 the MVPS was replaced by the sustainable growth rate 
(SGR). Use of an expenditure goal was intended to moderate the 
rate of growth in physician expenditures. The law also places 
limits on amounts that physicians can bill in excess of 
Medicare's approved payment amount.

                         MEDICARE FEE SCHEDULE

    The Secretary of the U.S. Department of Health and Human 
Services (DHHS) is required to establish a fee schedule before 
January 1 of each year that sets payment amounts for all 
physicians' services furnished in all fee schedule areas for 
the year. The fee schedule amount for a service is equal to the 
product of:
  --The relative value for the service;
  --The geographic adjustment factor (GAF) for the service for 
        the fee schedule area; and
  --The national dollar conversion factor for the year.

                          Relative Value Unit

    The relative value unit (RVU) for each service, the first 
factor used to calculate the fee schedule, has three 
components:
  --The physician work component reflects physician time and 
        intensity, including activities before and after 
        patient contact;
  --The practice expense or overhead component includes all 
        categories of practice expenses (exclusive of 
        malpractice liability insurance costs). Included are 
        office rents, employee wages, physician compensation, 
        and physician fringe benefits; and
  --The malpractice expense component reflects costs of 
        obtaining malpractice insurance.
    The proportion that each component represents of the total 
RVU varies by service.
     The work RVUs incorporated in the initial fee schedule 
were based on resource costs. They were developed after 
extensive input from the physician community. Refinements in 
existing values and establishment of values for new services 
have been included in the annual fee schedule update. In 
addition, HCFA is required to conduct a review of all values at 
least every 5 years. The results of the first review were 
incorporated in the values used in 1997.
     The practice expense and malpractice expense RVUs included 
in the initial fee schedule were based on historical charges. 
An analysis by the Physician Payment Review Commission 
suggested that practice expense RVUs for a service were most 
likely to be overvalued when they exceeded the work RVUs by a 
substantial amount. OBRA 1993 provided for reductions in 1994, 
1995, and 1996 in cases where the number of practice expense 
RVUs was substantially more than the number of work RVUs for 
the service. The Social Security Act Amendments of 1994 
required the Secretary to develop a methodology for a resource-
based system to be implemented in 1998.
     BBA 1997 provided for a phase-in of the resource-based 
methodology for practice expenses. In 1998, there was a 
reallocation of no more than $390 million in practice expense 
RVUs from services whose number of practice expense RVUs exceed 
110 percent of the number of work RVUs. Not included were 
services provided 75 percent of the time in an office setting 
or services which were slated to receive an increase under 
HCFA's proposed regulations issued June 18, 1997. The amount 
reduced was added to the practice expense RVUs of physician 
office procedure codes. A new practice expense methodology is 
being phased in over the 1999-2002 period. In 1999, 25 percent 
of the practice payment was based on the new methodology. This 
percentage increased to 50 percent in 2000. It will increase to 
75 percent in 2001 and 100 percent in 2002. The Secretary was 
also required to develop new resource-based methodology for 
practice expenses. In developing the units, the Secretary was 
required, to the maximum extent practicable, to utilize 
generally accepted accounting principles. The Secretary was 
also required to use actual data on equipment and other key 
factors. BBRA 1999 requires the Secretary to establish by 
regulation a process for determining practice expense relative 
values. Under this process, the Secretary will accept for use, 
and will use to the maximum extent practicable, data collected 
or developed outside DHHS.
     BBA 1997 also directed HCFA to develop and implement a 
resource-based methodology for malpractice expenses. It was 
implemented beginning January 2000.

                      Geographic Adjustment Factor

    The second factor used in calculation of the fee schedule 
is the GAF for the fee schedule area. There are currently 99 
fee schedule areas nationwide.
    The GAF is designed to account for geographic variations in 
the costs of practicing medicine and obtaining malpractice 
insurance as well as a portion of the difference in physicians' 
incomes that is not attributable to these factors.
    The GAF is the sum of three indices. Separate geographic 
practice cost indices (GPCIs) have been developed for each of 
the three components of the RVU, namely a work GPCI, a practice 
expense or overhead GPCI, and a malpractice GPCI. In effect, a 
separate geographic adjustment is made for each component. 
However, as required by law, only one-quarter of the geographic 
variation in physician work resource costs is taken into 
account in the formula. (Table D-37 at the end of this chapter 
shows the GAF values for each of the 99 fee schedule areas 
nationwide.)
    The three GPCI-adjusted RVU values are summed to produce an 
indexed RVU for each locality.

                           Conversion Factor

    The conversion factor, which is the third fee schedule 
factor, is a dollar multiplier which converts the 
geographically adjusted relative value for a service to an 
actual payment amount for the service. The law initially 
required the establishment of a single conversion factor. 
Beginning in 1993, two conversion factors applied--one for 
surgical services and one for nonsurgical services. Beginning 
in 1994, there were three conversion factors--one for surgical, 
one for primary care, and one for nonsurgical services. BBA 
1997 established a single conversion factor beginning in 1998. 
The 2000 conversion factor is $36.6137. Thus, payment for a 
service with an adjusted relative value of 2.0 is $73.23. 
Anesthesiologists are paid under a separate fee schedule which 
uses base and time units. A separate conversion factor ($17.77 
in 2000) applies.

                            Payment Formula

    The payment for each service is calculated as follows:

        Payment = CF  x  [(RVUwork  x  
GPCIwork)

                   + (RVUpractice expense  x  
GPCIpractice expense)

                   + (RVUmalpractice  x  
GPCImalpractice)]

    Where:
    CF = conversion factor;
    RVUwork = physician work relative value units 
for the service;
    GPCIwork = geographic practice cost index value 
for physician work in the locality (the value reflects only 
one-quarter of the variation in physician work as required by 
law);
    RVUpractice expense = practice expense or 
overhead relative value units for the service;
     GPCIpractice expense = geographic practice cost 
index value for practice expense or overhead applicable in the 
locality;
    RVUmalpractice = malpractice relative value 
units for the service; and
    GPCImalpractice = geographic practice cost index 
value for malpractice applicable in the locality.

         SUSTAINABLE GROWTH RATE AND CONVERSION FACTOR UPDATES

    A key element of the fee schedule is the conversion factor. 
One consideration in establishing the annual update in the 
conversion factor is whether efforts to stem the annual rate of 
growth in physician payments have succeeded. Initially, this 
growth was measured by the MVPS. Beginning in fiscal year 1998, 
the MVPS was replaced by the sustainable growth rate (SGR). The 
SGR for a year is based on estimates of four factors: (1) 
changes in spending due to fee increases; (2) fee-for-service 
enrollment; (3) gross domestic product growth per capita; and 
(4) laws and regulations.
     Beginning in 1999, the annual percentage update to the 
conversion factor equals the Medicare economic index (MEI) 
subject to an adjustment (``update adjustment factor'') to 
match spending for physicians services under the SGR system. 
This adjustment sets the conversion factor at a level so that 
projected spending for a year will meet allowed spending by the 
end of the year. Allowed spending for a year is calculated 
using the SGR. However, in no case can the conversion factor 
update be more than 3 percentage points above the MEI nor more 
than 7 percentage points below the MEI.
     Currently the update adjustment factor is calculated as 
follows. The adjustment is determined by estimating the 
difference between: (1) cumulative allowed spending for April 
1, 1997 through March 31 of the year involved; and (2) the 
cumulative sum of actual spending for April 1, 1997 through 
March 31 of the previous year. This amount is divided by actual 
expenditures for the 12-month period ending March 31 of the 
preceding year, increased by the SGR for the fiscal year which 
begins during such 12-month period. For the 12-month period 
ending March 31, 1997, allowed expenditures are defined as 
actual expenditures for the period. For subsequent 12-month 
periods, allowed expenditures equal the previous year's amount, 
increased by the SGR for the fiscal year beginning during such 
12-month period.
     BBRA 1999 specifies that the calculation of the update 
adjustment factor is to be made on a calendar year basis, 
beginning in 2001. The formula for determining the update is 
modified to add a new component to measure variances from the 
allowed growth rate in the past year. Further, the impact of 
year-to-year changes is mitigated by the addition of dampening 
multipliers. Specifically, beginning for 2001, the update 
adjustment factor is the sum of a prior year adjustment 
component and a cumulative adjustment component. The prior year 
adjustment component is determined by: (1) computing the 
difference between allowed expenditures for the prior year and 
actual expenditures for that year; (2) dividing that amount by 
allowed expenditures for the year; and (3) multiplying the 
quotient by 0.75. The cumulative adjustment component is 
determined by: (1) computing the difference between allowed 
expenditures over the period April 1, 1996 through the end of 
the prior year and the amount of actual expenditures for such 
period; (2) dividing that amount by actual expenditures for the 
prior year increased by the SGR for the year for which the 
adjustment factor is to be determined; and (3) multiplying the 
quotient by 0.33. In addition, a transitional adjustment to the 
update is provided over the 2001-5 period to provide for budget 
neutrality.
     By March 1 of each year (beginning in 2000), the Secretary 
is required to make available to the Medicare Payment Advisory 
Commission (MedPAC) and the public an estimate of the SGR and 
the conversion factor that will apply in the following year and 
the data used in making such estimate. MedPAC is required to 
include a review of the estimate in its June report. The 
Secretary is required to publish the conversion factor by 
November 1 (beginning in 2000) for the following year. The 
Secretary is required to publish, by November 1, 2000, the SGR 
for 2000 and 2001. Beginning in 2001, the Secretary is required 
to publish the SGR for the following year and each of the 2 
preceding years.
     Calculation of the SGR is to be made on a calendar year 
basis. The 2001 update to the conversion factor is to be based 
on the fiscal year 2000 SGR as well as the 2000 and 2001 SGRs 
(using the best data available to the Secretary as of September 
1, 2000). The 2002 update to the conversion factor will use the 
fiscal year 2000 SGR as well as the 2000, 2001, and 2002 SGRs 
(using the best data available to the Secretary as of September 
1, 2001). For 2003 and succeeding years, the SGR for that year 
and the 2 preceding years would be determined on the basis of 
the best data available to the Secretary as of September 1 of 
the preceding year.
     The revisions made by BBRA 1999 apply to calculations made 
to determine the conversion factor for years beginning with 
2001. The changes do not apply to or affect any update (or any 
update adjustment factor) for any year before 2001.
     Table D-18 shows the conversion factors that have applied 
since implementation of the fee schedule in 1992. In 1992, 
there was one conversion factor. In 1993, there were two 
conversion factors--one for surgical services and one for 
nonsurgical services. In 1994-97, there were three conversion 
factors--one for surgical services, one for primary care 
services, and one for nonsurgical (nonprimary care) services. 
BBA 1997 provided for the use of a single conversion factor 
beginning in 1998.
     The SGR system was used for the calculation of the 
conversion factor update beginning in 1999. This 1999 
conversion factor amount was lower than the dollar figure for 
1998. However, HCFA explained that this number actually 
reflected an overall increase because of adjustments made in 
other parts of the fee schedule calculation. The increase in 
the MEI for 1999 was 2.3 percent and the adjustment to assure 
that projected spending would match the SGR was 0.0 percent; 
this translated into a 1999 update of 2.3 percent. However, the 
law requires that any changes in the RVUs be budget neutral; 
HCFA implemented this budget neutrality adjustment through the 
conversion factor. This and other factors yielded a 1999 
adjustment of -7.45944 percent. Thus, the 1999 conversion 
factor was a 5.3 percent reduction from the 1998 factor.
     The 2000 conversion factor is $36.6137. The increase in 
the MEI for 2000 is 2.4 percent and the adjustment to assure 
that projected spending would match the SGR was 3.0 percent. 
Other adjustments including a budget neutrality adjustment 
translated into a 2000 update of 5.5 percent.

        TABLE D-18.--CONVERSION FACTORS: CALENDAR YEARS 1992-2000
------------------------------------------------------------------------
                                                              Conversion
                        Calendar year                           factor
------------------------------------------------------------------------
 1992:
    All services............................................      $31.00
 1993:
    Surgical................................................       31.96
    Nonsurgical.............................................       31.25
 1994:
    Surgical................................................       35.16
    Primary care............................................       33.72
    Other nonsurgical.......................................       32.90
 1995:
    Surgical................................................       39.45
    Primary care............................................       36.38
    Other nonsurgical.......................................       34.62
 1996:
    Surgical................................................       40.80
    Primary care............................................       35.42
    Other nonsurgical.......................................       34.63
 1997:
    Surgical................................................       40.96
    Primary care............................................       35.77
    Other nonsurgical.......................................       33.85
 1998:
    All services............................................       36.69
 1999:
    All services............................................       34.73
 2000:
    All services............................................      36.61
------------------------------------------------------------------------
Source: Federal Register, 1999b.

                    LIMITS ON BENEFICIARY LIABILITY

    Medicare pays 80 percent of the fee schedule amount after 
the beneficiary has met the $100 deductible for the year. The 
beneficiary is responsible for the remaining 20 percent, known 
as coinsurance. If a physician does not accept assignment on a 
claim, the beneficiary may be liable for additional charges 
known as balance billing charges. However, the law places 
certain limits on these balance billing charges.
Assignment/participation
    A physician is able to choose whether to accept assignment 
on a claim paid under the fee schedule. In the case of an 
assigned claim, the physician bills the program directly and is 
paid an amount equal to 80 percent of the fee schedule amount 
(less any unmet deductible). The physician may not charge the 
beneficiary more than the applicable deductible and coinsurance 
amounts. In the case of nonassigned claims, the physician still 
bills the program directly; however, Medicare payment is made 
to the beneficiary. In addition to the deductible and 
coinsurance amounts, the beneficiary is liable for the 
difference between the fee schedule amount and the physician's 
actual charge, subject to certain limits. This is known as the 
balance billed amount.
    A physician may become a ``participating physician'' by 
voluntarily entering into an agreement with the Secretary of 
DHHS to accept assignment on all claims for the forthcoming 
year. Medicare patients of these physicians never face balance 
billing charges.
    The law includes a number of incentives for physicians to 
become participating physicians, chief of which is higher 
recognized fee schedule amounts. The fee schedule amount for a 
nonparticipating physician is only 95 percent of the recognized 
amount for a participating physician.
    The law specifies that physicians are required to accept 
assignment on all claims for persons who are dually eligible 
for Medicare and Medicaid. This includes ``qualified Medicare 
beneficiaries''; these are persons with incomes below poverty 
for whom Medicaid is required to pay Medicare premiums and 
cost-sharing charges.
Balance billing limits
    Nonparticipating physicians may charge beneficiaries more 
than the fee schedule amount on nonassigned claims; these 
balance billing charges are subject to certain limits. The 
limit is 115 percent of the fee schedule amount for 
nonparticipating physicians. The nonparticipating physicians 
fee schedule payment level is 95 percent of the participating 
physicians level. Thus, the balance billing limit is only 9.25 
percent higher than the level recognized for participating 
physicians (95 percent  115 percent).
Private contracting
     Private contracting is the term used to describe 
situations where a physician and a patient agree not to submit 
a claim for a service which would otherwise be covered and paid 
for by Medicare. Under private contracting, physicians can bill 
patients at their discretion without being subject to upper 
limits specified by Medicare. HCFA had interpreted Medicare law 
to preclude such private contracts. BBA 1997 included language 
permitting a limited opportunity for private contracting, 
effective January 1, 1998. However, if and when a physician 
decides to enter a private contract with a Medicare patient, 
that physician must agree to forgo any reimbursement by 
Medicare (including services provided by Medicare+Choice 
organizations) for all Medicare beneficiaries for 2 years. The 
patient is not subject to the 2-year limit; the patient would 
continue to be able to see other physicians who were not 
private contracting physicians and have Medicare pay for the 
services.
     Private contracts apply only to covered services. A 
private contract is unnecessary and private contracting rules 
do not apply for noncovered services. Examples of noncovered 
services include cosmetic surgery and routine physical exams.
     A physician or practitioner may furnish a service that 
Medicare may cover under some circumstances but which the 
physician or practitioner anticipates would not be considered 
``reasonable and necessary'' in the particular case (for 
example, multiple nursing home visits). If the beneficiary 
receives an ``advance beneficiary notice'' that the service may 
not be covered, a private contract is not necessary to bill the 
patient if the claim is subsequently denied by Medicare. There 
are no limits on what may be charged for the noncovered 
service.

   Initial Impact of the Balanced Budget Act on Medicare Payments to 
                               Physicians

     Several important changes to Medicare's payments to 
physicians occurred almost immediately after enactment of BBA 
1997. A single conversion factor for the physician fee 
schedule, replacing separate conversion factors for surgical 
services, primary care, and other nonsurgical services, was 
implemented on January 1, 1998. On that same date, adjustments 
in practice expense RVUs for some services were implemented. 
Both of these policy changes were required by the BBA. 
Simultaneous with these changes, the Health Care Financing 
Administration (HCFA) increased the physician work RVUs for 
many surgical services to make them consistent with previous 
changes in the RVUs for evaluation and management services. 
These changes were made on a budget-neutral basis.
     MedPAC analyzed the effects of these payment policy 
changes on payment rates for selected, high volume services. 
The analysis showed that the net effects of the policy changes 
were generally greatest for surgical services, with payment 
rates for some of those services decreasing by 13 percent or 
more (table D-19). Payment rates for office visits and other 
nonsurgical services generally increased by 7 percent or more, 
however.
     The shift to a single conversion factor affected payment 
rates for all services in 1998. In 1997, three separate 
conversion factors were used: $40.96 for surgical services, 
$35.77 for primary care, and $33.85 for other nonsurgical 
services. HCFA calculated the single conversion factor, 
required by the BBA, to be $36.69.
     In 1998, changes in payment rates for different types of 
services varied depending on the conversion factor used in 1997 
(table D-19). The conversion factor for primary care services, 
such as office visits, increased by 2.6 percent (table D-18). 
The conversion factor for other nonsurgical services, such as 
consultations, grew by 8.4 percent. The decrease in the 
conversion factor for surgical services was 10.4 percent.
     The second policy change affecting payments in 1998 was 
the adjustment of practice expense RVUs called for by the BBA. 
The law limited practice expense values to 110 percent of each 
service's work value. Two groups of services were excluded from 
this limit: (1) those provided in an office setting at least 75 
percent of the time; and (2) those slated to receive an 
increase in practice expense values under a HCFA proposed rule 
released on June 18, 1997.
    To implement the 110 percent limit in a budget-neutral 
manner, the savings generated were reallocated to increase the 
practice expense values of office visits. This reallocation was 
intended to be a ``downpayment'' toward changes in office visit 
values expected as resource-based practice expense values are 
phased in through 2002. The BBA specified that up to $390 
million could be reallocated to office visits in 1998.
    These adjustments led to decreases in practice expense RVUs 
for both surgical services and nonsurgical services other than 
primary care (table D-19). The surgical service affected the 
most by the practice expense adjustments was cataract lens 
replacement. The effect of the adjustments on that service was 
a decrease of 5.8 percent. Upper gastrointestinal endoscopy was 
affected the most by the practice expense adjustments--a 
decrease of 6.5 percent. The increase for office visits was 4.3 
percent.

                 TABLE D-19.--CHANGES IN PHYSICIAN PAYMENT RATES FOR SELECTED SERVICES, 1997-98
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                   Policy change
                                                       ------------------------------------           Percentage
                                                                                              Total     of 1996
                    Type of service                        Single     Practice      Work     change    physician
                                                        conversion    expense    increases             services
                                                          factor    adjustments                         outlays
----------------------------------------------------------------------------------------------------------------
Primary care:
    Office and other outpatient visit.................        2.6          4.3         0.0       6.9       16.8
    Emergency department visits.......................        2.6          0.0         0.0       2.6        2.7
Surgical:
    Cataract lens replacement.........................      -10.4         -5.8         1.3     -14.9        4.8
    Joint prosthesis..................................      -10.4         -2.9         3.2     -10.1        1.5
    Coronary artery bypass graft......................      -10.4         -3.8         2.7     -11.5        1.6
    Transurethral prostate surgery....................      -10.4         -0.1         3.2      -7.3        0.3
    Arthroscopy.......................................      -10.4         -5.0         1.7     -13.7        0.3
    Open prostate surgery.............................      -10.4          0.0         3.4      -7.0        0.1
Other nonsurgical:
    Consultations.....................................        8.4          0.0         0.0       8.4        5.7
    Routine diagnostic radiology......................        8.4          0.0         0.0       8.4        3.2
    Electrocardiograms................................        8.4         -0.9         0.0       7.5        2.1
    Echocardiograms...................................        8.4         -2.4         0.0       6.0        1.9
    CAT scans.........................................        8.4          0.0         0.0       8.4        1.7
    Colorectal endoscopy..............................        8.1         -3.9         0.0       4.2        1.6
    Magnetic resonance imaging........................        8.4          0.0         0.0       8.4        1.3
    Upper gastrointestinal endoscopy..................        8.3         -6.5         0.0       1.8        1.2
    Angioplasty.......................................        8.4         -4.7         0.0       3.7        0.6
----------------------------------------------------------------------------------------------------------------
Note.--Within MedPAC's type of service classification scheme, some ``other nonsurgical services'' show an
  increase of slightly less than 8.4 percent. The difference is due to inclusion of surgical services in some
  categories that are otherwise made up mainly of other nonsurgical services.

 Source: Medicare Payment Advisory Commission analysis of 1996 Medicare claims, 100 percent of beneficiaries;
  1997 and 1998 physician fee schedule relative value units.

     The third policy change for 1998 was increases in work 
RVUs for global surgical services. This change addressed an 
issue that arose in the 5-year review of work RVUs. Global 
surgical services include a surgical service as well as pre- 
and postoperative evaluation and management (EM) services. EM 
work values increased as a result of the 5-year review, but the 
EM component of global surgical services did not. The increases 
in work RVUs for 1998 corrected that inconsistency. Among those 
surgical services responsible for the largest shares of 
Medicare physician payments, increases due to the change in 
work RVUs ranged from 1.3 to 3.4 percent (table D-19).
     The total change in payment rates for 1998 reflected the 
combined effects of the single conversion factor, the 
adjustments in practice expense RVUs for some services, and the 
increase in work RVUs for global surgical services. By type of 
service, total changes ranged from an increase of 8.4 percent 
for some nonsurgical services, other than primary care, to a 
decrease of 14.9 percent for cataract lens replacements. In 
general, surgical services saw decreases in payment rates 
primarily because of the move to a single conversion factor. 
Payment rates for other services increased.
     In addition to the payment policy changes implemented in 
1998, the BBA required a phase in of new resource-based 
practice expense RVUs, starting in 1999. These new RVUs replace 
values based on historical charges. From 1999 through 2001, 
payments will be a blend of resource-based and charge-based 
RVUs. The resource-based values will be fully implemented in 
2002. The BBA also required implementation of resource-based 
professional liability insurance, or malpractice expense, RVUs 
in 2000.

                            HISTORICAL DATA

                       Assignment Rate Experience

    The total number of assigned claims as a percentage of 
total claims received by Medicare carriers for physicians and 
other medical services is known as the assignment rate. 
(Initially, this calculation omitted hospital-based physicians 
and group-practice prepayment plans which were considered 
assigned by definition. This distinction is no longer made). 
The assignment rate declined until the mid-1970s when the rate 
leveled off at about 50 percent (table D-20). Since 1985, the 
rate has increased significantly, rising to 97.5 percent in 
1999. This increase reflects both the impact of the 
participating physician program as well as the requirement that 
laboratory services must be paid on an assigned basis.
    The statistics included in table D-20 are programwide data. 
Assignment rates vary geographically. For example, the 
assignment rate (taken as a percent of dollars) for physician 
services in fiscal year 1999 ranged from a low of 86.9 percent 
in Idaho to a high of 99.9 percent in Massachusetts, Ohio, and 
Rhode Island. The national average assignment rate for 
physicians services in 1949 was 99.0 percent (table D-21).

                 TABLE D-20.--ASSIGNMENT RATES, 1969-99
                              [In percent]
------------------------------------------------------------------------
                                                                Covered
                    Fiscal year                       Claims    charges
------------------------------------------------------------------------
1969..............................................       61.0         NA
1970..............................................       61.2         NA
1971..............................................       60.1         NA
1972..............................................       56.4         NA
1973..............................................       53.4       49.0
1974..............................................       52.2       47.8
1975..............................................       51.9       47.7
1976..............................................       51.0       47.8
1977..............................................       50.5       47.9
1978..............................................       50.6       49.3
1979..............................................       51.1       50.4
1980..............................................       51.4       51.3
1981..............................................       52.2       52.9
1982..............................................       52.8       53.8
1983..............................................       53.5       55.3
1984..............................................       56.4       57.7
1985..............................................       67.7       67.4
1986..............................................       68.0       69.5
1987..............................................       71.7       73.7
1988..............................................       76.3       79.4
1989..............................................       79.3       82.6
1990..............................................       80.9       84.8
1991..............................................       82.5       87.6
1992..............................................       85.5       90.8
1993..............................................       89.2       94.0
1994..............................................       92.1       96.0
1995..............................................       94.2       97.1
1996..............................................       95.6       97.9
1997..............................................       96.5       98.3
1998..............................................       97.2       98.6
1999..............................................       97.5      98.8
------------------------------------------------------------------------
NA--Not available.

 Source: Health Care Financing Administration, Office of Financial
  Management.

   TABLE D-21.--PHYSICIAN ASSIGNMENT RATES AS PERCENT OF ALLOWED CHARGES BY STATE, SELECTED YEARS 1985-99 \1\
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal year
                     Census division/State                      ------------------------------------------------
                                                                  1985   1990   1995   1996   1997   1998   1999
----------------------------------------------------------------------------------------------------------------
National.......................................................   65.5   83.0   96.8   97.8   98.4   98.7   99.0
New England:
    Maine......................................................   81.5   92.4   99.1   99.4   99.5   99.6   99.7
    New Hampshire..............................................   56.5   69.9   96.9   97.9   98.6   98.9   99.2
    Vermont....................................................   64.3   94.7   99.1   99.3   99.4   99.5   99.5
    Massachusetts \2\..........................................   93.7   99.5   99.8   99.8   99.9   99.9   99.9
    Rhode Island...............................................   94.0   98.7   99.9   99.9   99.9   99.9   99.9
    Connecticut................................................   57.6   84.7   97.6   98.1   98.5   98.7   98.8
Middle Atlantic:
    New York...................................................   70.3   81.9   95.6   97.0   97.7   98.1   98.3
    New Jersey.................................................   62.3   73.0   92.6   94.9   96.2   97.0   97.6
    Pennsylvania...............................................   88.1   95.7   99.6   99.7   99.7   99.8   99.8
East North Central:
    Ohio.......................................................   50.8   82.6   99.7   99.8   99.8   99.8   99.9
    Indiana....................................................   49.6   77.2   96.5   97.6   98.4   98.9   99.1
    Illinois...................................................   51.7   75.9   98.6   96.9   97.6   98.1   98.5
    Michigan...................................................   88.2   94.5   99.0   99.2   99.4   99.5   99.6
    Wisconsin..................................................   51.7   68.2   94.2   96.3   97.2   98.7   99.4
West North Central:
    Minnesota..................................................   30.6   47.6   86.2   91.7   93.5   95.3   95.8
    Iowa.......................................................   46.9   69.8   99.2   96.3   98.0   98.6   98.8
    Missouri \3\...............................................   50.1   74.9   96.7   97.7   98.3   98.7   99.1
    North Dakota...............................................   30.5   55.0   92.9   96.7   98.5   99.0   99.4
    South Dakota...............................................   18.7   39.2   67.0   73.5   80.0   84.4   90.6
    Nebraska...................................................   47.3   64.9   89.6   91.6   93.9   95.7   96.3
    Kansas \4\.................................................   72.7   88.8   97.1   98.5   99.4   99.5   99.6
South Atlantic:
    Delaware...................................................   81.8   90.5   97.8   98.6   98.7   98.9   99.2
    Maryland \5\...............................................   81.6   91.4   98.1   98.6   98.9   99.1   99.2
    District of Columbia \6\...................................   78.1   87.5   96.6   97.3   97.9   98.2   98.5
    Virginia \7\...............................................   66.4   87.3   98.4   98.9   99.2   99.4   99.5
    West Virginia..............................................   66.7   93.2   99.1   99.4   99.5   99.6   99.6
    North Carolina.............................................   60.3   80.8   96.7   97.6   98.2   98.5   98.9
    South Carolina.............................................   64.9   87.1   97.0   98.0   98.8   99.1   99.3
    Georgia....................................................   63.9   83.5   97.4   98.3   98.7   99.0   99.2
    Florida....................................................   62.2   84.1   98.4   98.8   99.0   99.3   99.4
East South Central:
    Kentucky...................................................   50.3   84.8   97.9   98.6   99.0   99.2   99.4
    Tennessee..................................................   55.6   84.0   98.3   98.8   99.2   99.4   99.5
    Alabama....................................................   74.6   92.3   98.9   99.2   99.4   99.6   99.6
    Mississippi................................................   63.5   88.1   97.8   98.5   98.8   99.1   99.4
West South Central:
    Arkansas...................................................   72.6   92.0   98.7   99.0   99.2   99.4   99.5
    Louisiana..................................................   51.0   88.0   98.1   98.8   99.1   99.2   99.4
    Oklahoma...................................................   39.0   68.2   94.2   96.7   97.7   98.1   98.6
    Texas......................................................   63.0   79.9   96.6   97.7   98.3   98.7   99.0
Mountain:
    Montana....................................................   42.6   53.0   86.3   95.2   96.2   97.1   97.8
    Idaho......................................................   25.2   36.1   71.7   77.9   82.8   85.6   86.9
    Wyoming....................................................   33.8   43.9   81.8   86.0   88.7   90.7   92.9
    Colorado...................................................   56.0   70.4   93.5   95.5   96.7   97.3   97.8
    New Mexico.................................................   58.3   76.1   95.2   96.0   97.1   98.2   98.5
    Arizona....................................................   52.8   76.2   92.8   93.4   94.1   94.4   95.0
    Utah.......................................................   63.1   80.4   96.6   98.0   98.5   99.0   99.3
    Nevada.....................................................   81.6   96.0   99.4   99.5   99.6   99.7   99.8
Pacific:
    Washington.................................................   45.5   54.8   93.4   95.7   97.1   98.1   98.6
    Oregon.....................................................   38.7   59.9   92.3   94.7   96.7   97.4   97.6
    California.................................................   71.3   84.4   97.3   98.0   98.9   98.8   99.0
    Alaska.....................................................   54.4   79.6   96.2   97.0   97.6   98.2   98.5
    Hawaii.....................................................   61.2   82.9   98.7   99.0   99.2   99.4   99.4
----------------------------------------------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during the period.
\2\ Massachusetts enacted a Medicare mandatory assignment provision, effective April 1986. The fact that the
  assignment rates shown here are not 100 percent may be explained by the inclusion in the data base of billings
  by practitioners other than allopathic and osteopathic physicians, which are included in the Medicare
  statutory definition of ``physician.''
\3\ Starting with fiscal year 1993, includes data for all counties in Missouri plus two counties on the State
  border located in Kansas.
\4\ Starting with fiscal year 1993, includes data for all counties in Kansas excluding two counties on the State
  border.
\5\ Starting with fiscal year 1993, includes data for all counties in Maryland excluding two counties on the
  State border.
\6\ Starting with fiscal year 1993, includes data for the District of Columbia plus two counties in Maryland
  located on the State border plus a few counties and cities located in Virginia, near the State border.
\7\ Starting with fiscal year 1993, includes data for all counties in Virginia excluding a few counties and
  cities near the State border.

 Source: Health Care Financing Administration, Office of Financial Management.

                  Participating Physician Program Data

    Physician participation rates have increased significantly 
since the inception of the program (tables D-22 and D-23). For 
the calendar year 1999 participation period, the physician 
participation rate (including limited licensed practitioners) 
had risen to 84.6 percent accounting for 95.9 percent of 
allowed charges for physician services during the period. Table 
D-23 shows the participation rates by specialty. Table D-24 
shows the percentage of participating physicians and limited 
licensed practitioners as a percentage of total physicians and 
limited licensed practitioners for each State.

     TABLE D-22.--MEDICARE PHYSICIAN PARTICIPATION RATES: PERCENT OF
 PHYSICIANS AND LIMITED LICENSED PRACTITIONERS WITH AGREEMENTS AND THEIR
                    SHARE OF ALLOWED CHARGES, 1984-99
------------------------------------------------------------------------
                                                           Participating
                                            Percent of      physicians'
                                            physicians        covered
          Participation period                signing      charges as a
                                            agreements      percent of
                                                             total \1\
------------------------------------------------------------------------
October 1984-September 1985.............            30.4            36.0
October 1985-April 1986.................            28.4            36.3
April 1986-December 1986 \2\............            28.3            38.7
January 1987-March 1988.................            30.6            48.1
April 1988-December 1988................            37.3            57.9
January 1989-March 1990.................            40.2            62.0
April 1990-December 1990................            45.5            67.2
January 1991-December 1991..............            47.6            72.3
January 1992-December 1992..............            52.2            78.8
January 1993-December 1993..............            59.8            85.5
January 1994-December 1994..............            64.8            89.4
January 1995-December 1995..............            72.3            92.6
January 1996-December 1996..............            77.5            94.3
January 1997-December 1997..............            80.2            95.1
January 1998-December 1998..............            82.8            95.7
January 1999-December 1999..............            84.6           95.9
------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician services processed
  during period.
\2\ The actual participation period was May through December of 1986,
  and participation agreements were in effect for that time. However,
  charge data are generally collected by quarter; thus, the data for the
  last three quarters of 1986 are used as a proxy for the participation
  period.

 Source: Health Care Financing Administration, Office of Financial
  Management.

    Table D-25 shows the allowed charges of participating 
physicans as a percent of total allowed charges, by State, for 
several participation periods. Overall, this percentage 
increased substantially, rising from 36 percent in the October 
1984-September 1985 period to 95.9 percent in the calendar 1999 
participation period.
    As the participation rate has increased, total allowed 
charges billed by nonparticipating physicians have declined. In 
addition, the number of unassigned claims submitted by 
nonparticipating physicians has declined (table D-26). Total 
covered charges represented by unassigned claims declined from 
34.5 to 1.0 percent over the 1984-99 period. The proportion of 
charges billed by participation and assignment status varies by 
State; these data are shown in table D-27.

                 TABLE D-23.--PARTICIPATION RATES AS PERCENTAGE OF PHYSICIANS BY SPECIALTY, FOR SELECTED PARTICIPATION PERIODS, 1985-99
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Oct. 1985- Jan. 1991- Jan. 1992- Jan. 1993- Jan. 1994- Jan. 1995- Jan. 1996- Jan. 1997- Jan. 1998- Jan. 1999-
                 Specialty                  Apr. 1986  Dec. 1991  Dec. 1992  Dec. 1993  Dec. 1994  Dec. 1995  Dec. 1996  Dec. 1997  Dec. 1998  Dec. 1999

--------------------------------------------------------------------------------------------------------------------------------------------------------
Physicians (M.D.s and D.O.s):
    General practice......................       27.3       44.0       48.0       55.1       59.1       59.9       66.3       69.2       71.1       73.7
    General surgery.......................       33.9       60.5       66.3       73.8       77.6       80.2       85.8       87.8       89.3       90.4
    Otology, laryngology, rhinology.......       24.6       49.6       57.0       66.2       72.2       77.1       82.6       85.8       87.7       88.7
    Anesthesiology........................       21.1       36.5       49.3       64.6       71.5       73.9       81.0       83.5       85.9       88.9
    Cardiovascular disease................       35.6       65.4       72.0       78.7       82.5       81.9       88.3       90.2       91.5       92.9
    Dermatology...........................       34.0       57.0       61.6       69.8       75.8       79.3       83.6       85.4       87.2       88.0
    Family practice.......................       25.5       50.8       57.7       66.1       71.3       74.5       81.4       84.0       85.9       86.9
    Internal medicine.....................       32.5       52.6       57.8       66.2       71.0       73.8       79.8       82.2       84.8       86.8
    Neurology.............................       34.8       56.1       63.8       71.8       76.4       78.9       84.1       85.8       87.1       88.4
    Obstetrics-gynecology.................       29.1       52.6       58.0       65.7       69.9       72.5       77.3       79.5       81.3       82.9
    Ophthalmology.........................       27.3       60.0       66.1       73.2       78.3       81.2       86.2       87.9       89.8       70.9
    Orthopedic surgery....................       29.0       58.4       65.5       74.9       79.2       82.6       86.8       88.7       90.4       90.6
    Pathology.............................       39.6       59.2       65.8       73.3       76.8       78.9       83.1       85.0       86.6       89.8
    Psychiatry............................       30.0       44.1       48.8       53.5       57.8       58.7       64.6       67.6       70.4       73.9
    Radiology.............................       41.3       62.0       68.2       74.7       78.6       82.8       84.9       87.0       88.3       91.6
    Urology...............................       27.8       53.6       61.7       71.8       78.6       83.0       87.3       89.3       90.6       91.5
    Nephrology............................       50.8       71.7       76.3       82.4       84.3       87.0       90.0       90.6       91.3       93.0
    Clinic or other group practice--not          33.8       73.9       77.0       75.5       80.5       79.4       84.5       87.8       90.1       88.2
     group practice prepayment plan.......
Limited licensed practitioners:
    Chiropractor..........................       25.4       28.6       31.4       35.6       39.8       42.6       47.3       51.0       54.3       61.1
    Podiatry-surgical chiropody...........       38.2       59.6       64.2       70.9       75.3       79.2       83.3       86.0       87.9       88.4
    Optometrist...........................       44.0       56.9       59.0       62.7       65.6       66.9       70.3       72.2       74.7       76.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Health Care Financing Administration.

                   Distribution of Physician Services

    Tables D-28 to D-36 show the distribution of physician 
services for calendar year 1998. These tables provide data from 
the seventh year of the implementation of the Medicare fee 
schedule. The 1998 data are a summary of all claims filed with 
the Medicare carriers. The totals shown will differ from total 
supplementary medical insurance (part B) outlay figures for 
1998 shown in the budget for several reasons. First, the 
amounts shown in these tables are allowed amounts, rather than 
reimbursements--that is, they include both Medicare's and the 
enrollee's share of approved charges. Second, the amounts shown 
are for services rendered during calendar year 1998; budget 
figures are for payments made during the fiscal year regardless 
of when the services were rendered. Third, the amounts shown 
are only for services reimbursed by carriers under the fee 
schedule; hence, they do not include part B payments to 
hospital outpatient departments or to risk-based prepaid 
medical plans. Finally, the amounts shown underestimate what 
they are supposed to represent by a small amount because some 
claims for services rendered in 1998 had not been processed by 
carriers at the time the 1998 files were submitted to HCFA, and 
because some claims recorded had to be eliminated due to 
recording errors.
    Table D-28 illustrates that in 1998, 77.6 percent of 
allowed amounts under the fee schedule were for physicians' 
services, and another 1.3 percent were for the services of 
limited licensed practitioners--psychologists, podiatrists, 
optometrists, audiologists, chiropractors, dentists, and 
physical therapists. About 3.7 percent went to independent 
laboratories in 1998, while 17.3 percent went to suppliers of 
medical equipment, prosthetics, and ambulance services.
    Table D-29 shows the distribution of spending for 
physicians' services by specialty. (It excludes limited 
licensed practitioners, labs, and suppliers.) In 1998, 
generalists accounted for 25.1 percent of spending, nonsurgical 
specialists for 28.8 percent, and surgical specialists for 26.1 
percent. Radiologists, anesthesiologists, and pathologists 
together accounted for 10.5 percent of allowed amounts. Other 
physician specialties accounted for the remaining 9.5 percent 
of total allowed amounts for physicians' services.
    The major physician specialties treating the Medicare 
population, in descending order of importance as measured by 
total allowed amounts, were general internists (13.4 percent of 
allowed amounts), cardiologists (9.0 percent), ophthalmologists 
(7.3 percent), radiologists (6.5 percent), and family 
practitioners (6.1 percent).
    The share of services provided on an inpatient basis varies 
by specialty. About 30.4 percent of the services of generalists 
were inpatient in 1998. The inpatient share for nonsurgical 
specialists was 35.7 percent and 32.9 percent for surgical 
specialists.

 TABLE D-24.--PHYSICIAN AND LIMITED LICENSED PRACTITIONER PARTICIPATION RATES AS PERCENTAGE OF PHYSICIANS AND LIMITED LICENSED PRACTITIONERS, BY STATE,
                                                       FOR SELECTED PARTICIPATION PERIODS, 1985-99
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Oct. 1985- Jan. 1991- Jan. 1992- Jan. 1993- Jan. 1994- Jan. 1995- Jan. 1996- Jan. 1997- Jan. 1998- Jan. 1999-
                   State                    Apr. 1986  Dec. 1991  Dec. 1992  Dec. 1993  Oct. 1994  Dec. 1995  Dec. 1996  Dec. 1997  Dec. 1998  Dec. 1999

--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama...................................       58.2       82.7       83.4       85.1       87.2       90.5       91.8       93.5       74.0       94.5
Alaska....................................       10.4       53.8       55.1       60.4       66.3       77.1       73.5       79.0       79.6       81.4
Arizona...................................       15.4       61.3       64.5       76.2       82.6       87.1       85.2       86.6       89.2       89.7
Arkansas..................................       45.2       59.9       57.8       62.1       64.4       74.8       77.2       78.9       80.4       83.1
California................................       30.0       60.8       62.6       65.9       69.0       74.5       80.5       80.9       81.9       81.0
Colorado..................................       28.1       35.3       48.0       55.7       58.5       65.2       79.5       81.4       83.1       89.6
Connecticut...............................       22.2       29.3       40.8       48.1       55.4       57.8       61.8       86.4       87.8       88.7
Delaware..................................       23.9       43.9       51.9       57.4       60.0       68.0       72.2       68.6       83.1       84.1
District of Columbia......................       30.5       39.8       45.9       50.6       52.8       63.0       65.3       68.6       79.5       81.0
Florida...................................       25.7       36.5       41.5       55.6       62.2       68.0       70.9       73.9       76.2       77.6
Georgia...................................       33.1       53.6       57.2       74.9       82.7       86.3       87.2       88.6       88.6       83.3
Hawaii....................................       20.6       57.3       64.1       75.9       80.4       82.8       83.6       84.0       84.6       85.6
Idaho.....................................       11.0       19.5       22.9       37.1       49.7       54.7       60.1       67.6       72.2       75.6
Illinois..................................       23.1       46.9       50.8       57.6       61.8       73.3       75.6       83.3       85.4       84.2
Indiana...................................       18.2       45.1       49.3       55.8       61.3       72.8       75.7       76.8       77.9       79.0
Iowa......................................       29.7       51.9       58.8       61.8       63.2       81.1       83.6       88.5       90.0       91.1
Kansas....................................       45.4       62.6       70.3       73.2       78.7       84.4       91.1       91.8       93.3       94.7
Kentucky..................................       24.3       59.5       64.0       73.6       69.1       83.4       85.8       88.7       89.7       92.3
Louisiana.................................       18.8       42.9       44.6       44.0       46.7       57.4       61.0       64.6       67.6       73.5
Maine.....................................       35.4       50.3       51.6       52.0       53.6       68.9       72.2       79.9       92.4       93.8
Maryland..................................       30.4       45.3       58.7       72.5       77.3       88.1       89.9       89.6       90.6       91.7
Massachusetts.............................       48.1       50.8       50.0       50.2       48.9       64.7       74.9       77.2       93.7       94.0
Michigan..................................       44.0       53.7       51.7       58.1       62.1       75.3       80.2       82.6       88.2       87.7
Minnesota.................................       18.5       29.3       34.4       44.4       51.3       58.6       70.6       77.3       77.9       78.1
Mississippi...............................       19.1       42.7       47.9       53.6       53.8       59.4       77.3       79.3       81.4       82.6
Missouri..................................       35.2       49.0       51.8       67.5       81.8       87.6       86.8       88.1       89.3       89.2
Montana...................................       24.3       24.8       23.7       54.7       58.7       70.1       77.4       78.7       82.7       84.7
Nebraska..................................       20.0       56.5       61.1       70.6       75.9       82.5       86.3       87.2       89.7       92.4
Nevada....................................       21.7       72.9       75.4       84.9       87.9       91.2       90.8       92.2       92.6       93.3
New Hampshire.............................       26.9       32.7       38.5       43.0       48.0       60.4       77.0       79.7       91.9       92.2
New Jersey................................       18.0       29.6       36.5       42.6       45.9       54.9       60.6       62.8       66.0       80.1
New Mexico................................       17.7       49.7       53.6       66.8       74.2       78.1       80.7       81.7       87.8       89.3
New York..................................       20.8       34.6       36.9       40.7       46.2       59.2       64.2       70.0       72.8       75.3
North Carolina............................       39.1       58.1       68.2       72.8       76.5       77.6       81.0       84.6       86.0       88.3
North Dakota..............................       10.9       43.9       45.8       55.0       77.4       81.8       92.2       93.2       93.5       94.3
Ohio......................................       21.7       52.5       57.3       76.6       83.3       90.5       91.8       92.7       73.2       93.2
Oklahoma..................................       13.8       39.0       44.4       53.9       64.9       72.3       76.1       84.0       88.4       89.9
Oregon....................................       18.5       46.7       51.7       59.2       66.5       79.7       82.1       87.6       89.3       89.8
Pennsylvania..............................       50.8       45.9       53.0       59.7       61.1       67.3       69.3       72.0       73.6       83.5
Rhode Island..............................       46.7       67.8       70.3       80.9       82.2       80.9       66.8       68.4       70.1       71.7
South Carolina............................       17.9       57.9       63.0       67.3       70.2       76.1       82.7       85.5       87.1       90.0
South Dakota..............................        8.0       20.6       23.7       31.6       41.2       51.7       71.4       79.3       83.5       85.7
Tennessee.................................       21.1       63.7       67.6       70.5       76.9       80.6       83.1       87.5       88.7       99.9
Texas.....................................       19.7       38.9       52.9       61.3       68.6       76.9       80.3       82.1       84.2       83.3
Utah......................................       29.3       65.6       69.5       80.3       82.0       85.9       86.8       90.2       92.1       94.1
Vermont...................................       41.5       45.4       54.2       56.5       58.8       68.8       76.1       78.6       91.1       91.8
Virginia..................................       29.6       48.1       49.7       52.2       52.9       55.6       84.3       85.7       86.8       87.2
Washington................................       23.6       46.1       53.1       64.7       73.9       76.2       86.4       89.9       91.2       91.7
West Virginia.............................       22.9       66.3       68.4       75.9       81.9       87.2       89.3       90.8       90.1       92.1
Wisconsin.................................       31.0       46.8       55.5       66.8       73.7       81.2       83.9       85.2       89.0       89.4
Wyoming...................................       18.3       39.1       50.2       53.3       63.0       66.4       81.2       83.3       84.9       86.4
                                           -------------------------------------------------------------------------------------------------------------
      National............................       28.4       47.6       52.2       59.8       64.8       72.3       77.5       80.2       82.8       84.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Health Care Financing Administration, Office of Financial Management.

TABLE D-25.--ALLOWED CHARGES OF PARTICIPATING PHYSICIANS AS A PERCENT OF TOTAL ALLOWED CHARGES BY STATE, FOR SELECTED PARTICIPATION PERIODS, 1984-99 \1\
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Oct. 1984-    Jan.       Apr.       Jan.       Jan.       Jan.       Jan.       Jan.
                      Census division/State                      Sept. 1985  1989-Mar.  1990-Dec.  1995-Dec.  1996-Dec.  1997-Dec.  1998-Dec.  1999-Dec.
                                                                                1990       1990       1995       1996       1997       1998       1999
--------------------------------------------------------------------------------------------------------------------------------------------------------
National.......................................................       36.0        62.0       67.2       92.6       94.3       95.1       95.7       95.9
New England:
    Maine......................................................       50.9        79.4       80.5       96.2       97.4       98.2       98.3       98.4
     New Hampshire.............................................       40.1        42.8       46.2       93.2       94.8       96.7       97.4       98.2
     Vermont...................................................       37.3        81.4       85.9       96.9       97.9       98.4       98.9       98.9
     Massachusetts.............................................       70.7        95.4       95.0       97.4       97.9       98.6       98.8       98.6
     Rhode Island..............................................       68.7        88.8       95.2       99.4       99.5       99.5       99.6       99.6
     Connecticut...............................................       30.7        65.9       67.9       94.1       95.1       96.2       96.2       95.9
 Middle Atlantic:
     New York..................................................       31.5        51.7       58.0       87.5       89.9       91.7       92.6       93.3
     New Jersey................................................       21.5        42.3       49.6       84.6       89.8       90.7       92.0       92.9
     Pennsylvania..............................................       71.4        81.6       87.9       98.7       99.0       98.8       98.8       98.8
 East North Central:
    Ohio.......................................................       41.5        61.9       70.9       97.8       97.8       97.1       96.5       96.7
     Indiana...................................................       18.9        60.6       65.2       94.0       95.5       96.4       97.3       97.2
     Illinois..................................................       29.4        58.1       61.8       90.7       93.0       94.8       95.5       95.6
     Michigan..................................................       55.4        85.6       86.0       97.6       97.9       98.2       98.1       97.8
     Wisconsin.................................................       31.3        42.7       48.9       91.1       93.4       94.4       97.5       98.4
 West North Central:
     Minnesota.................................................        9.9        20.2       25.4       80.5       81.9       83.5       83.5       83.6
     Iowa......................................................       28.5        54.2       57.8       90.4       95.0       97.1       97.8       98.1
     Missouri \2\..............................................       26.7        41.8       40.1       93.4       94.5       95.4       95.8       95.9
     North Dakota..............................................        6.9        32.3       45.5       89.3       96.3       97.4       98.4       98.8
     South Dakota..............................................        3.2        19.5       21.2       59.2       66.4       75.1       81.2       88.2
     Nebraska..................................................       30.5        51.7       54.8       86.2       88.8       91.6       93.7       94.3
     Kansas \3\................................................       48.0        82.5       82.3       95.3       98.0       98.4       98.9       98.9
 South Atlantic:
     Delaware..................................................       57.0        70.8       76.6       95.3       96.7       97.0       97.2       97.3
     Maryland \4\..............................................       57.8        80.4       83.3       92.9       94.3       95.5       96.0       96.5
     District of Columbia \5\..................................       60.3        73.9       76.8       93.8       94.9       95.7       96.0       96.1
     Virginia \6\..............................................       31.0        69.5       71.2       96.3       97.4       97.8       98.0       98.0
     West Virginia.............................................       34.5        77.5       80.6       96.3       96.0       96.2       94.9       94.9
     North Carolina............................................       34.4        55.2       63.9       92.7       94.7       95.5       95.7       96.1
     South Carolina............................................       29.9        68.5       67.6       62.7       95.5       96.8       97.1       97.6
     Georgia...................................................       29.3        50.7       65.9       94.8       95.8       95.9       96.3       96.6
     Florida...................................................       30.0        61.6       68.8       94.7       95.8       96.5       97.3       97.7
 East South Central:
     Kentucky..................................................       22.3        64.3       72.6       94.6       95.5       95.7       96.1       96.7
     Tennessee.................................................       25.1        57.4       68.5       95.6       96.6       97.3       97.7       97.5
     Alabama...................................................       42.5        81.3       84.9       97.0       97.7       98.1       98.4       98.5
     Mississippi...............................................       14.3        65.3       68.3       92.8       94.3       94.9       95.3       96.4
 West South Central:
     Arkansas..................................................       47.9        81.0       84.5       96.4       97.4       97.6       97.6       98.0
     Louisiana.................................................       16.2        71.0       76.7       92.2       93.6       94.5       95.3       95.7
     Oklahoma..................................................       16.6        39.1       50.0       91.4       93.8       95.2       96.1       96.9
     Texas.....................................................       26.2        52.5       56.9       90.6       92.5       92.8       93.2       93.1
 Mountain:
     Montana...................................................       25.6        29.9       29.7       83.1       91.8       93.6       94.5       95.8
     Idaho.....................................................        8.6        13.2       17.5       61.6       69.7       76.4       79.0       79.2
     Wyoming...................................................       15.7        19.7       25.8       75.6       81.0       84.7       87.2       89.7
     Colorado..................................................       23.5        47.7       50.5       86.1       90.3       92.7       93.8       94.9
     New Mexico................................................       34.1        39.5       51.1       89.6       90.8       93.4       96.1       96.6
     Arizona...................................................       32.7        49.8       60.2       90.6       91.5       92.7       92.9       92.2
     Utah......................................................       43.8        68.9       65.1       94.7       96.2       96.9       97.7       98.4
     Nevada....................................................       41.5        69.9       82.1       98.4       98.8       98.9       98.7       98.9
 Pacific:
     Washington................................................       17.5        26.9       31.8       90.5       92.9       95.1       96.5       96.8
     Oregon....................................................       17.3        34.8       43.3       87.5       91.7       94.3       95.3       95.5
     California................................................       42.2        67.2       71.2       91.7       93.3       95.5       94.4       94.5
     Alaska....................................................       17.2        50.0       49.3       85.4       89.8       91.1       91.5       93.7
     Hawaii....................................................       39.7        58.6       70.1       97.2       97.3       97.5       96.8       97.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during the period.
\2\ Starting with fiscal year 1993, includes data for all counties in Missouri plus two counties on the State border located in Kansas.
\3\ Starting with fiscal year 1993, includes data for all counties in Kansas excluding two countries on the State border.
\4\ Starting with fiscal year 1993, includes data for all counties in Maryland excluding two countries on the State border.
\5\ Starting with fiscal year 1993, includes data for the District of Columbia plus two counties in Maryland located on the State border plus several
  counties and cities located in Virginia near the State border.
\6\ Starting with fiscal year 1993, includes data for all counties in Virginia excluding several counties and cities near the State border.

 Source: Health Care Financing Administration, Office of Financial Management.

   TABLE D-26.--DISTRIBUTION OF ALLOWED CHARGES FOR SERVICES BILLED BY
 PARTICIPATION STATUS OF PHYSICIAN AND ASSIGNMENT STATUS OF CLAIM, 1984-
                                 99 \1\
                              [In percent]
------------------------------------------------------------------------
                                                      Nonparticipants
            Time period             Participants -----------------------
                                                   Assigned   Unassigned
------------------------------------------------------------------------
Oct. 1984-Sept. 1985..............         36.0         29.5        34.5
Oct. 1985-Mar. 1986...............         36.3         29.4        34.3
Apr. 1986-Dec. 1986 \2\...........         38.7         28.0        32.9
Jan. 1987-Mar. 1988 \3\...........         48.1         25.2        26.7
Apr. 1988-Dec. 1988...............         57.9         21.0        21.1
Jan. 1989-Mar. 1990...............         62.0         19.0        18.5
Apr. 1990-Dec. 1990...............         67.2         16.7        16.1
Jan. 1991-Dec. 1991...............         72.3         14.6        13.1
Jan. 1992-Dec. 1992...............         78.8         11.6         9.7
Jan. 1993-Dec. 1993...............         85.5          8.5         6.0
Jan. 1994-Dec. 1994...............         89.4          6.6         4.0
Jan. 1995-Dec. 1995...............         92.6          4.6         2.8
Jan. 1996-Dec. 1996...............         94.3          3.7         2.0
Jan. 1997-Dec. 1997...............         95.1          3.3         1.5
Jan. 1998-Dec. 1998...............         95.7          3.1         1.2
Jan. 1999-Dec. 1999...............         95.9          3.0        1.0
------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during
  the period.
\2\ The actual participation period was May through December 1986, and
  the participation agreements were in effect for that time.
\3\ The actual participation period is January 1987 through March 1988,
  and the participation agreements are in effect for that time.

 Source: Health Care Financing Administration, Office of Financial
  Management.

   TABLE D-27.--DISTRIBUTION OF ALLOWED CHARGES FOR SERVICES BILLED BY
   STATE, PARTICIPATION STATUS OF PHYSICIAN, AND ASSIGNMENT STATUS OF
                    CLAIM, JANUARY-DECEMBER 1999 \1\
                              [In percent]
------------------------------------------------------------------------
                                                    Nonparticipating
                                 Participating          physician
     Census division/State         physician   -------------------------
                                                  Assigned    Unassigned
------------------------------------------------------------------------
National.......................          95.9           3.0          1.0
New England:
    Maine......................          98.4           1.3          0.3
    New Hampshire..............          98.2           1.0          0.8
    Vermont....................          98.9           0.6          0.5
    Massachusetts..............          98.6           1.3          0.1
    Rhode Island...............          99.6           0.3          0.1
    Connecticut................          95.9           2.9          1.2
Middle Atlantic:
    New York...................          93.3           5.1          1.6
    New Jersey.................          92.9           4.8          2.3
    Pennsylvania...............          98.8           1.0          0.2
East North Central:
    Ohio.......................          96.7           3.1          0.1
    Indiana....................          97.2           2.0          0.8
    Illinois...................          95.6           3.1          1.4
    Michigan...................          97.8           1.8          0.4
    Wisconsin..................          98.4           1.0          0.6
West North Central:
    Minnesota..................          83.6          12.0          4.4
    Iowa.......................          98.1           0.9          1.0
    Missouri \2\...............          95.9           3.2          1.0
    North Dakota...............          98.8           0.6          0.6
    South Dakota...............          88.2           3.7          8.1
    Nebraska...................          94.3           2.1          3.6
    Kansas \3\.................          98.9           0.6          0.4
South Atlantic:
    Delaware...................          97.3           1.9          0.8
    Maryland \4\...............          96.5           2.8          0.8
    District of Columbia \5\...          96.1           2.4          1.5
    Virginia \6\...............          98.0           1.6          0.4
    West Virginia..............          94.9           4.7          0.4
    North Carolina.............          96.1           2.8          1.1
    South Carolina.............          97.6           1.7          0.7
    Georgia....................          96.6           2.6          0.8
    Florida....................          97.7           1.7          0.6
East South Central:
    Kentucky...................          96.7           2.7          0.6
    Tennessee..................          97.5           2.0          0.5
    Alabama....................          98.5           1.1          0.4
    Mississippi................          96.4           3.0          0.6
West South Central:
    Arkansas...................          98.0           1.5          0.5
    Louisiana..................          95.7           3.7          0.6
    Oklahoma...................          96.9           1.8          1.3
    Texas......................          93.5           5.9          1.0
Mountain:
    Montana....................          95.8           2.2          2.1
    Wyoming....................          79.2           8.0         12.8
    Idaho......................          89.7           3.6          6.7
    Colorado...................          95.9           1.8          2.3
    New Mexico.................          96.6           1.9          1.5
    Arizona....................          92.2           2.2          5.6
    Utah.......................          98.4           1.0          0.6
    Nevada.....................          98.9           0.8          0.2
Pacific:
    Washington.................          96.8           1.8          1.3
    Oregon.....................          95.5           2.2          2.3
    California.................          94.5           4.5          1.0
    Alaska.....................          93.7           5.0          1.4
    Hawaii.....................          97.2           2.1         0.6
------------------------------------------------------------------------
\1\ Rates reflect charges for physician claims processed during the
  period.
\2\ Includes data for all counties in Missouri plus two counties on the
  State border located in Kansas.
\3\ Includes data for all counties in Kansas excluding two counties on
  the State border.
\4\ Includes data for all counties in Maryland excluding two counties on
  the State border.
\5\ Includes data for the District of Columbia plus two counties in
  Maryland located on the State border plus several counties and cities
  located in Virginia, near the State border.
\6\ Includes data for all counties in Virginia excluding several
  counties and cities near the State border.

 Source: Health Care Financing Administration, Office of Financial
  Management.

    TABLE D-28.--ALLOWED AMOUNTS FOR CLAIMS BY TYPE OF PROVIDER, 1998
------------------------------------------------------------------------
                                                    Allowed
                Type of provider                    amounts   Percent of
                                                  (millions)     total
------------------------------------------------------------------------
Physicians......................................   $44,929.6        77.6
Limited licensed practitioners \1\..............       772.3         1.3
Laboratories....................................     2,154.2         3.7
Medical suppliers \2\...........................    10,044.7        17.3
                                                 -----------------------
      All providers \3\.........................    57,903.7      100.0
------------------------------------------------------------------------
\1\ Includes psychology, podiatry, optometry, audiology, chiropractic,
  dentistry, and physical therapy.
\2\ Includes suppliers of medical equipment, prosthetics, and ambulance
  services.
\3\ Total does not include charges for hospital outpatient department
  facility fees or for risk-based prepaid medical plans since these are
  not reimbursed under the customary, prevailing, and reasonable system.

 Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

TABLE D-29.--ALLOWED AMOUNTS FOR PHYSICIANS' SERVICES BY SPECIALTY, 1998
------------------------------------------------------------------------
                                        Allowed    Percent
             Specialty                  charges       of       Percent
                                      (millions)    total     inpatient
------------------------------------------------------------------------
 Generalists:
    General practice...............          $931     2.07         17.86
    Family practice................         2,811      6.1          22.7
    Internal medicine..............         6,166     13.4          35.3
    Pediatrics.....................            48      0.1          20.2
    Clinics........................         1,578      3.4          33.1
                                    ------------------------------------
      All generalists..............        11,533     25.1          30.4
                                    ====================================
 Nonsurgical specialists:
    Allergy/immunology.............           113      0.2           2.7
    Cardiology.....................         4,151      9.0          44.8
    Dermatology....................           988      2.2           0.7
    Gastroenterology...............         1,267      2.8          40.1
    Neurology......................           767      1.7          41.1
    Physical medicine..............           419      0.9          45.1
    Psychiatry.....................           803      1.7          36.4
    Pulmonary disease..............           991      2.2          65.5
    Nuclear medicine...............            64      0.1          16.4
    Geriatrics.....................            74      0.2          28.6
    Nephrology.....................           869      1.9          43.0
    Infectious disease.............           238      0.5          74.7
    Endocrinology..................           196      0.4          30.7
    Rheumatology...................           285      0.6          10.1
    Peripheral vascular disease....            19      0.0          51.9
    Hematology/oncology............         1,444      3.1          11.1
    Medical oncology...............           529      1.2           9.9
                                    ------------------------------------
      All nonsurgical specialists..        13,218     28.8          35.7
                                    ====================================
 Surgical specialists:
    General surgery................         1,893      4.1          56.7
    Otology, laryngology, rhinology           521      1.1          10.4
    Neurosurgery...................           346      0.8          77.8
    Obstetrics-gynecology..........           365      0.8          29.7
    Ophthalmology..................         3,344      7.3           1.1
    Orthopedic surgery.............         2,059      4.5          50.1
    Plastic surgery................           193      0.4          27.5
    Proctology.....................            78      0.2          34.5
    Thoracic surgery...............           544      1.2          88.2
    Urology........................         1,954      4.3          15.9
    Hand surgery...................            28      0.1          13.4
    Vascular surgery...............           305      0.7          65.5
    Cardiac surgery................           278      0.6          95.2
    Surgical oncology..............            25      0.1          49.4
    Other..........................            36      0.1          33.8
                                    ------------------------------------
      All surgical specialists.....        11,968     26.1          32.9
                                    ====================================
Other:
    Anesthesiology.................         1,301      2.8          59.4
    Manipulative therapy...........            22      0.0          17.4
    Pathology......................           552      1.2          33.8
    Radiology......................         2,982      6.5          24.0
    Critical care (intensivists)...            68      0.1          77.3
    Radiation oncology.............           629      1.4           3.8
    Intervention medicine..........           147      0.3          40.9
    Other physician specialties....         3,497      7.6           7.5
                                    ------------------------------------
      All other....................         9,198     20.0          22.6
                                    ------------------------------------
        Total--all physicians......        45,917    100.0         31.0
------------------------------------------------------------------------
Source: Health Care Financing Administration.

    Table D-30 shows the distribution of spending for 
physicians' services by type of service. About 43.5 percent of 
spending was for medical care (nonsurgical) in 1998. About 27.8 
percent of spending was for surgical procedures in total, 
adding together the amounts for surgeons, assistant surgeons, 
and anesthesiologists. About 8.3 percent was for diagnostic 
laboratory tests, which would include not only blood chemistry 
analysis and urinalysis, but also tests such as 
electrocardiograms. About 8.5 percent of spending was for 
radiology, and 5.6 percent was for consultations.

    TABLE D-30.--ALLOWED AMOUNTS FOR PHYSICIANS' SERVICES BY TYPE OF
                              SERVICE, 1998
------------------------------------------------------------------------
                                            Allowed   Percent
             Type of service                charges      of     Percent
                                          (millions)   total   inpatient
------------------------------------------------------------------------
Pneumococcal, flu, and hepatitis B               $97      0.2       0.0
 vaccine................................
Medical care............................      19,994     43.5      28.2
Surgery.................................      11,187     24.4      43.5
Consultation............................       2,557      5.6      54.0
Diagnostic radiology....................       3,888      8.5      17.7
Diagnostic laboratory...................       3,792      8.3      16.5
Therapeutic radiology...................         816      1.8       4.5
Anesthesia..............................       1,377      3.0      61.0
Assistant at surgery....................         177      0.4      91.6
Other...................................       2,032      4.4       0.2
                                         -------------------------------
      All services......................      45,917    100.0     31.0
------------------------------------------------------------------------
Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

    Table D-31 lists the top 20 individual services, ranked by 
total allowed amounts on claims submitted by selected 
physicians for 1998. The most important exclusion is amounts 
for the services of anesthesiologists, since there would 
typically be a charge for anesthesiology for the surgical 
procedures. The amounts for surgical procedures include claims 
by both the primary surgeon and any assistant surgeons, but not 
the amounts for anesthesiologists.
    The top 20 services (out of more than 7,000) accounted for 
37.6 percent of all spending for all physicians' services in 
1998. Cataract extraction with implantation of an intraocular 
lens was the highest ranked surgical procedure, accounting by 
itself for 2.6 percent of total allowed amounts for physicians' 
services. Most of the services in the top 20 were evaluation 
and management services (that is, visits and consultations).
    Table D-32 presents total allowed amounts for selected 
groups of generic services, and shows the percent of total 
allowed amounts for all physicians' services accounted for by 
each group. As in table D-31, certain physicians' services--
most notably for anesthesiologists--are not included in the 
allowed amounts for each service group. No attempt was made to 
define and rank all possible service groups, so that there may 
be other important service groups that do not appear in the 
table. For example, diagnostic radiology accounts for 8.5 
percent of allowed amounts for physicians' services (from table 
D-14), but radiological services do not appear in table D-16.

 TABLE D-31.--TOP 20 SERVICES BILLED BY PHYSICIANS UNDER MEDICARE, 1998
------------------------------------------------------------------------
                                                     Allowed
  Rank order    Service         Description        charges \1\   Percent
                  code                              (millions)  of total
------------------------------------------------------------------------
 1                99213  Office/outpatient visit,       $3,356       7.4
                          EST.
 2                99214  Office/outpatient visit,        2,030       4.5
                          EST.
 3                99232  Subsequent hospital care        1,880       4.1
 4                66984  Remove cataract, insert         1,194       2.6
                          lens.
 5                99233  Subsequent hospital care          933       2.1
 6                99231  Subsequent hospital care          854       1.9
 7                99212  Office/outpatient visit,          804       1.8
                          EST.
 8                99223  Initial hospital care...          656       1.5
 9                99215  Office/outpatient visit,          582       1.3
                          EST.
10                88305  Tissue exam by                    532       1.2
                          pathologist.
11                99254  Initial inpatient                 525       1.2
                          consultation.
12                93307  Echo exam of heart......          487       1.1
13                99244  Office consultation.....          419       0.9
14                99285  Emergency department              417       0.9
                          visit.
15                99284  Emergency department              401       0.9
                          visit.
16                99255  Initial inpatient                 396       0.9
                          consultation.
17                90921  ESRD-related services,            389       0.9
                          month.
18                99238  Hospital discharge day..          375       0.8
19                99312  Nursing fac care,                 372       0.8
                          subsequent.
20                92014  Eye exam and treatment..          368       0.8
                                                  ----------------------
                             Total...............       16,849     37.6
------------------------------------------------------------------------
\1\ Amounts for surgical procedures include fees for primary and
  assistant surgeons, but not for anesthesiologists.

Note.--EST = established patient.

 Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

    The 20 service groups shown in table D-32 accounted for 
42.8 percent of all allowed amounts for all physicians' 
services in 1998. The single most costly group was office 
visits (accounting for 16.7 percent of total allowed amounts 
for physicians' services), followed by hospital visits (11.1 
percent). Cataract surgery of all types accounted for 2.6 
percent of total allowed amounts for physicians' services. It 
should also be noted that the amount for hemodialysis includes 
only physician services and does not include the much larger 
amounts for the facility charges for hemodialysis that were not 
billed under the fee-for-service reimbursement system.
    In recent years, there have been many changes in the 
delivery of health care services. Some of the more significant 
changes affecting Medicare services have been in the delivery 
of surgical services. First, there has been significant growth 
in the amount of surgical care provided by some specialties. 
Second, there has been a dramatic shift in the place of 
surgical care; that is, surgical care is now frequently 
provided in outpatient settings, whereas previously most 
surgical care was provided in inpatient settings.

     TABLE D-32.--ALLOWED AMOUNTS FOR SELECTED GROUPS OF PHYSICIANS'
                             SERVICES, 1998
------------------------------------------------------------------------
                                                    Allowed
   Rank                Service group                charges      Percent
                                                (millions) \1\  of total
------------------------------------------------------------------------
 1          Office visits (99201-99215).......       $7,712         16.7
 2          Hospital visits (99221-99238).....        5,145         11.1
 3          Cataract surgery (66830-66985)....        1,209          2.6
 4          Emergency room visits (99281-             1,148          2.5
             99285).
 5          Skilled nursing facility visits             933          2.0
             (99301-99313).
 6          Electrocardiograms (93000-93018,            736          1.6
             93015-26).
 7          Colonoscopy (45378-45385, 44388-            563          1.2
             44393, 45355).
 8          Coronary artery bypass (33510-              475          1.0
             33516).
 9          Cardiac catheterization (93501-             425          1.0
             93553).
10          Knee arthroplasty, arthroscopy              358          0.8
             (27446, 27447, 29881).
11          Hip arthroplasty, arthroscopy               174          0.4
             (27130-27132).
12          Thromboendarterectomy (35301-               141          0.3
             35381).
13          Hemodialysis/continuous ambulatory          141          0.3
             peritoneal dialysis (90935-90947).
14          Pacemaker implant/removal (33200-           102          0.2
             33214, 33233-33237).
15          Home visits (99341-99353).........          100          0.2
16          Transurethral surgery (52602).....           94          0.2
17          Pacemaker tests (93731-93736).....           86          0.2
18          Vein bypass (35501-35587).........           69          0.2
19          Electroencephalograms (95816-                43          0.1
             95827, 95950, 95955).
20          Prostatectomy (55801-55845).......           41          0.1
                                               -------------------------
                Total.........................       19,744        42.8
------------------------------------------------------------------------
\1\ Amounts for surgical procedures do not include fees for
  anesthesiologists.

 Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

    As shown in table D-33, the most significant shift in site 
of surgical care between 1980 and 1998 was out of inpatient 
settings and into other settings. Outpatient hospital settings 
benefited most from this shift, growing from only 3.3 percent 
of all surgical charges in 1980 to 26.2 percent in 1998. The 
proportions of surgery taking place in a physician's office and 
in other nonhospital settings also grew. In 1998 the proportion 
of all surgical care provided in inpatient settings had dropped 
to 43.5 percent.

  TABLE D-33.--CHARGES SUBMITTED TO MEDICARE FOR ALL PHYSICIAN SURGICAL
          SERVICES BY PLACE OF SERVICE, SELECTED YEARS 1980-98
------------------------------------------------------------------------
                                             Surgical charges \1\
                                     -----------------------------------
                                                              As percent
      Year and place of service        Amount in  Percent of   of total
                                       millions    surgical    settings
                                                    charges     charges
------------------------------------------------------------------------
1980:
    Office..........................        $445        11.6        12.2
    Outpatient hospital \1\.........         129         3.3        29.5
    Inpatient hospital..............       3,231        84.4        44.1
    Other \2\.......................          23         0.6         3.7
                                     -----------------------------------
        Total.......................       3,828       100.0        31.8
                                     ===================================
1990:
    Office..........................       2,004        18.1        16.2
    Outpatient hospital \1\.........       2,867        26.0        54.3
    Inpatient hospital..............       5,563        50.4        40.6
    Ambulatory surgical center......         488         4.4        51.2
    Other \2\.......................         127         1.1        14.5
                                     -----------------------------------
        Total.......................      11,048       100.0        33.3
                                     ===================================
1995:
    Office..........................       2,656        20.7        14.3
    Outpatient hospital \1\.........       3,273        25.5        47.3
    Inpatient hospital..............       5,817        45.3        38.8
    Ambulatory surgical center......         887         6.9        91.0
    Other \2\.......................         195         1.5         8.9
                                     -----------------------------------
        Total.......................      12,828       100.0        29.3
                                     ===================================
1997:
    Office..........................       2,603        21.7        12.9
    Outpatient hospital \1\.........       3,064        25.6        45.2
    Inpatient hospital..............       5,263        44.0        36.8
    Ambulatory surgical center......         839         7.0        88.7
    Other \2\.......................         200         1.7         7.6
                                     -----------------------------------
        Total.......................      11,969       100.0        26.7
                                     ===================================
1998:
    Office..........................       2,427        21.7        11.3
    Outpatient hospital \1\.........       2,935        26.2        42.6
    Inpatient hospital..............       4,861        43.5        34.1
    Ambulatory surgical center......         781         7.0        87.4
    Other \2\.......................         183         1.6         7.3
                                     -----------------------------------
        Total.......................      11,187       100.0       24.4
------------------------------------------------------------------------
\1\ May include some services rendered in an ambulatory surgical center.
  Medicare began covering services in ambulatory surgical centers in
  1982.
\2\ Includes homes, nursing homes, and other places of service.

 Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

    Table D-34 shows the percent of total surgical charges by 
specialty in 1980 and 1998. In 1980, three specialties 
(ophthalmology, general surgery, and orthopedic surgery) 
accounted for nearly half of all Medicare surgical care. These 
same three specialties accounted for 40.3 percent of total 
surgical care in 1998. The shares among these specialties 
changed. Ophthalmologists accounted for only 13.6 percent in 
1980, by 1995 their share had increased to 20.4 percent due 
primarily to the substantial growth in cataract surgery during 
the 1980s. The percentage declined to 16.8 by 1998. For 
gastroenterologists, surgical care represented much larger 
proportions of their total Medicare practice in 1998 than in 
1980. On the other hand, surgical charges for urologists 
represented much smaller proportions of their total Medicare 
practice in 1998 than in 1980.

  TABLE D-34.--SUBMITTED SURGICAL CHARGES AS A SHARE OF TOTAL SURGICAL
CHARGES AND AS A PERCENT OF TOTAL PRACTICE CHARGES BY MEDICAL SPECIALTY,
                              1980 AND 1998
------------------------------------------------------------------------
                                        Percent        Surgical charges
                                    distribution of     as a percent of
                                   surgical charges     total practice
            Specialty            --------------------       charges
                                                     -------------------
                                    1980      1998      1980      1998
------------------------------------------------------------------------
General surgery.................      22.1      11.6      71.6      68.6
Otology, laryngology, rhinology.       1.9       1.8      49.7      38.7
Cardiology......................       2.7       7.1      22.4      19.2
Dermatology.....................       2.4       5.9      60.9      66.3
Family practice.................        NA       1.0        NA       3.9
Gastroenterology................       1.7       6.4      45.9      56.9
Internal medicine...............       4.2       2.6       6.9       4.8
Neurosurgery....................       2.9       2.3      70.2      73.9
Obstetrics-gynecology...........        NA       1.3        NA      39.2
Ophthalmology...................      13.6      16.8      62.1      56.3
Orthopedic surgery..............      13.0      11.9      73.6      64.7
Plastic surgery.................       1.3       1.4      88.1      80.3
Thoracic surgery................       8.0       4.0      82.2      81.8
Urology.........................      10.7       5.2      75.6      29.6
Podiatry........................       3.0       5.6      53.5      66.4
Clinic or other group...........       4.7       2.5      25.8      18.1
All other physician specialties.       8.4      12.6        NA       8.4
                                 ---------------------------------------
      All physicians............     100.0     100.0      26.7     24.4
------------------------------------------------------------------------
NA--Not available.

Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

    As shown in table D-35, many different medical specialties 
participated in the shift to outpatient surgery. In 1980, only 
two specialties (dermatology and podiatry) performed the 
majority of their surgical services in outpatient settings; in 
these cases, the care was generally provided in the physician's 
office. In 1998, nine specialties provided a majority of their 
surgical care in outpatient settings: ophthalmology, podiatry, 
gastroenterology, dermatology, ENT

                     TABLE D-35.--SUBMITTED SURGICAL CHARGES UNDER MEDICARE BY MEDICAL SPECIALTY AND PLACE OF SERVICE, 1980 AND 1998
                                                                      [In percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   1980                                                  1998
                                             -----------------------------------------------------------------------------------------------------------
              Medical specialty                            Inpatient  Outpatient                           Inpatient  Outpatient
                                                Office     hospital    hospital    Other \1\    Office     hospital    hospital       ASC        Other
--------------------------------------------------------------------------------------------------------------------------------------------------------
General surgery.............................         4.4        92.6         2.9         0.1         5.1        64.5        28.4         1.7         0.3
Otology, laryngology, rhinology.............        12.6        83.7         3.7       (\2\)        40.2        19.4        35.2         4.6         0.6
Cardiology..................................         1.7        97.9         0.4       (\2\)         2.5        78.1        18.2         0.1         1.0
Dermatology.................................        94.6         4.0         0.9         0.6        97.0         0.1         2.1         0.6         0.2
Family practice.............................          NA          NA          NA          NA        75.1         6.9        16.3         0.7         1.0
Gastroenterology............................        12.0        75.6        12.3         0.1         5.9        31.3        50.2        12.4         0.2
Internal medicine...........................        17.5        76.6         5.7         0.2        24.8        38.3        32.5         3.5         0.9
Neurosurgery................................         1.1        98.5         0.5       (\2\)         1.0        92.5         6.3         0.1         0.1
Obstetrics-gynecology.......................          NA          NA          NA          NA        17.6        66.1        14.8         1.2         0.2
Ophthalmology...............................         7.9        87.1         5.0         0.1        21.7         1.6        47.9        28.5         0.2
Orthopedic surgery..........................         6.3        90.2         3.4         0.1         9.7        70.9        17.1         2.1         0.2
Plastic surgery.............................        13.0        67.2        19.7         0.1        23.6        29.4        38.1         8.6         0.3
Thoracic surgery............................         0.8        98.7         0.5       (\2\)         0.5        95.7         3.6         0.1         0.1
Urology.....................................         8.0        90.6         1.4         0.1        30.4        40.9        25.9         2.6         0.2
Podiatry....................................        71.3        13.5         0.9        14.3        68.8         1.4         5.0         1.7        23.1
Clinic or other group.......................        10.1        85.3         4.5         0.1        11.6        55.6        27.7         4.2         0.9
All other physician specialties.............          NA          NA          NA          NA        12.7        59.4        25.6         1.9         0.4
                                             -----------------------------------------------------------------------------------------------------------
      All physicians........................        21.7        44.4        25.6         1.7        21.7        43.5        26.2         7.0        1.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Includes homes, nursing homes, and other places of service.
\2\ Less than 0.05.

 NA--Not available.

Source: Health Care Financing Administration, Center for Health Plans and Providers.

(otology, laryngology, and rhinology), internal medicine, 
plastic surgery, family practice, and urology. Podiatrists and 
dermatologists continued primarily to work in their offices; 
internists split their noninpatient work between office and 
outpatient settings, while many of the other specialties 
provided their surgical services in outpatient hospital and 
ambulatory surgical facilities. Most surgical specialties, such 
as general, orthopedic, cardiology, neurology, and thoracic 
surgeons, remained closely tied to inpatient hospital settings.
    In 1998, ophthalmologists provided most (30.8 percent) of 
the surgery done in outpatient hospital settings (table D-36). 
The predominance of ophthalmologists in this setting is due to 
cataract surgery. Dermatologists accounted for the largest 
proportion of office surgical charges at 26.2 percent. However, 
ophthalmologists and podiatrists also represented significant 
percentages of office surgical charges, 16.8 and 17.9 percent 
respectively. In inpatient settings, the traditional surgical 
specialties--general surgery, orthopedic surgery, 
cardiovascular surgery, thoracic surgery, and urology accounted 
for 63.1 percent of all surgical charges.
    Table D-37 shows the GPCIs, by Medicare carrier and 
locality, for 1999 and 2000.

    TABLE D-36.--DISTRIBUTION OF ALLOWED SURGICAL CHARGES BY SELECTED
             SPECIALTIES AND SELECTED PLACE OF SERVICE, 1998
                              [In percent]
------------------------------------------------------------------------
                                                   Inpatient  Outpatient
               Specialty                  Office    hospital   hospital
------------------------------------------------------------------------
General surgery........................       2.7       17.2       12.6
Otology, laryngology, rhinology........       3.3        0.8        2.4
Cardiology.............................       0.8       12.8        4.9
Dermatology............................      26.2        0.0        0.5
Family practice........................       3.3        0.2        0.6
Gastroenterology.......................       1.8        4.6       12.3
Internal medicine......................       3.0        2.3        3.3
Neurosurgery...........................       0.1        4.9        0.5
Obstetrics-gynecology..................       1.0        1.9        0.7
Ophthalmology..........................      16.8        0.6       30.8
Orthopedic surgery.....................       5.3       19.4        7.7
Plastic surgery........................       1.5        0.9        2.0
Thoracic surgery.......................       0.1        8.8        0.5
Urology................................       7.2        4.9        5.1
Podiatry...............................      17.9        0.2        1.1
Clinic or other group..................       1.4        3.3        2.7
Other physician specialties............       7.3       17.2       12.3
                                        --------------------------------
      Total............................     100.0      100.0      100.0
------------------------------------------------------------------------
Source: Health Care Financing Administration, Center for Health Plans
  and Providers.

   TABLE D-37.--GEOGRAPHIC PRACTICE COST INDICES BY MEDICARE STATE AND
                           LOCALITY, 1999-2000
------------------------------------------------------------------------
                                                Cost indices
                                  --------------------------------------
          Locality name                         Practice
                                     Work        expense     Malpractice
------------------------------------------------------------------------
Alabama..........................     0.978           0.872        0.876
Alaska...........................     1.063           1.173        1.533
Arizona..........................     0.995           0.971        1.189
Arkansas.........................     0.953           0.855        0.403
Anaheim/Santa Ana, CA............     1.036           1.191        0.846
Los Angeles, CA..................     1.055           1.199        0.846
Marin/Napa/Solano, CA............     1.014           1.161        0.667
Oakland/Berkeley, CA.............     1.040           1.196        0.667
San Francisco, CA................     1.067           1.299        0.667
San Mateo, CA....................     1.047           1.274        0.667
Santa Clara, CA..................     1.062           1.262        0.667
Ventura..........................     1.027           1.131        0.717
Rest of California \1\...........     1.008           1.043        0.698
Rest of California \1\...........     1.008           1.043        0.698
Colorado.........................     0.987           0.970        0.795
Connecticut......................     1.049           1.172        1.052
Delaware.........................     1.019           1.028        0.860
DC & MD/VA suburbs...............     1.050           1.161        1.032
Ft. Lauderdale, FL...............     0.996           1.026        1.783
Miami, FL........................     1.015           1.077        2.350
Rest of Florida..................     0.975           0.948        1.327
Atlanta, GA......................     1.006           1.034        0.951
Rest of Georgia..................     0.970           0.900        0.951
Hawaii/Guam......................     0.998           1.183        0.954
Idaho............................     0.960           0.892        0.566
Chicago, IL......................     1.027           1.088        1.693
East St. Louis, IL...............     0.988           0.931        1.487
Suburban Chicago, IL.............     1.006           1.067        1.365
Rest of Illinois.................     0.963           0.886        0.990
Indiana..........................     0.981           0.917        0.408
Iowa.............................     0.958           0.882        0.648
Kansas \1\.......................     0.963           0.898        0.890
Kansas \1\.......................     0.963           0.898        0.890
Kentucky.........................     0.970           0.874        0.807
New Orleans, LA..................     0.998           0.950        1.153
Rest of Louisiana................     0.969           0.881        1.031
Southern Maine...................     0.979           1.030        0.708
Rest of Maine....................     0.961           0.924        0.708
Baltimore/Surr Ctys, MD..........     1.019           1.039        1.098
Rest of Maryland.................     0.985           0.986        0.866
Metropolitan Boston..............     1.039           1.196        0.713
Rest of Massachusetts............     1.010           1.093        0.713
Detroit, MI......................     1.042           1.022        3.069
Rest of Michigan.................     0.996           0.939        1.828
Minnesota........................     0.989           0.967        0.507
Mississippi......................     0.957           0.846        0.721
Metropolitan Kansas City, MO.....     0.988           0.949        1.196
Metropolitan St. Louis, MO.......     0.994           0.943        1.198
Rest of Missouri \1\.............     0.945           0.828        1.165
Rest of Missouri \1\.............     0.945           0.828        1.165
Montana..........................     0.951           0.877        0.732
Nebraska.........................     0.949           0.873        0.443
Nevada...........................     1.005           1.032        0.997
New Hampshire....................     0.988           1.033        1.013
Northern New Jersey..............     1.057           1.191        0.795
Rest of New Jersey...............     1.028           1.094        0.795
New Mexico.......................     0.973           0.910        0.716
Manhattan, NY....................     1.093           1.353        1.654
NYC Suburbs/LI, NY...............     1.067           1.233        1.932
Poughkeepsie/N NYC suburbs, NY...     1.010           1.084        1.326
Queens, NY.......................     1.057           1.234        1.839
Rest of New York.................     0.999           0.959        0.793
North Carolina...................     0.970           0.924        0.497
North Dakota.....................     0.950           0.877        0.656
Ohio.............................     0.990           0.939        1.074
Oklahoma.........................     0.969           0.882        0.451
Portland, OR.....................     0.996           1.021        0.587
Rest of Oregon...................     0.961           0.938        0.587
Metropolitan Philadelphia, PA....     1.024           1.089        1.207
Rest of Pennsylvania.............     0.989           0.931        0.637
Puerto Rico......................     0.882           0.729        0.359
Rhode Island.....................     1.018           1.069        1.189
South Carolina...................     0.975           0.905        0.280
South Dakota.....................     0.935           0.873        0.435
Tennessee........................     0.975           0.899        0.552
Austin, TX.......................     0.986           1.000        0.849
Beaumont, TX.....................     0.992           0.899        1.386
Brazoria, TX.....................     0.992           0.977        1.386
Dallas, TX.......................     1.010           1.016        0.930
Fort Worth, TX...................     0.987           0.971        0.930
Galveston, TX....................     0.988           0.970        1.386
Houston, TX......................     1.020           1.007        1.418
Rest of Texas....................     0.966           0.888        0.871
Utah.............................     0.977           0.909        0.594
Vermont..........................     0.973           0.984        0.548
Virgin Islands...................     0.965           1.034        1.032
Virginia.........................     0.985           0.941        0.557
Seattle (King Co), WA............     1.005           1.080        0.742
Rest of Washington...............     0.982           0.976        0.742
West Virginia....................     0.963           0.853        1.106
Wisconsin........................     0.981           0.933        0.841
Wyoming..........................     0.967           0.895       0.705
------------------------------------------------------------------------
\1\ Payment locality is serviced by two carriers.

 Source: Federal Register (1999b).

                               REFERENCES

Federal Register. (1991, August 30). Prospective Payment System 
        for Inpatient Hospital Capital-Related Costs, 56(169), 
        43358-524.
Federal Register. (1999a, July 30). Medicare program; Changes 
        to the hospital inpatient prospective payment systems 
        and fiscal year 2000 rates, 64(146), 41440-641.
Federal Register. (1999b, November 2). Medicare Program; 
        Revisions to Payment Policies Under the Physician Fee 
        Schedule for Calendar Year 2000; Final rule. 64(211). 
        59379-590.
Federal Register. (2000, January 12). Medicare program; Changes 
        to the hospital inpatient prospective payment systems 
        and fiscal year 2000 rates, corrections 65(8), 1817-23.
Medicare Payment Advisory Commission (1998, March) Report to 
        the Congress: Medicare Payment Policy. Volume II 
        Analytic Papers. Washington, DC: Author.
Medicare Payment Advisory Commission (1999, March) Report to 
        the Congress: Medicare Payment Policy. Washington, DC: 
        Author.
Office of Rural Health Policy. (1999, September). The Medicare 
        Rural Hospital Flexibility Program: Rapid Progress 
        Towards Full Implementation. Chapel Hill, NC.
Prospective Payment Assessment Commission. (1997, March). 
        Report and recommendations to the Secretary. 
        Washington, DC: Author.
Prospective Payment Assessment Commission. (1997, June). 
        Medicare prospective payment and the American health 
        care system. Washington, DC: Author.
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