Press release



The Centers for Medicare & Medicaid Services today issued a final rule that will increase payments to more than 875,000 physicians and other health care professionals for services under the Medicare Physician Fee Schedule by an average of more than 1.5 percent for calendar year 2004.

These increases were part of the Medicare Prescription Drug, Improvement, and Modernization Act (DIMA) and replace payment rates published in November that would have reduced payment rates by an average of about 4.5 percent. The earlier rates were based on formula required by Medicare law, but President Bush signed the DIMA law on December 8 that included provisions to raise physician payment rates. The new, higher rates become effective January 1.

Physicians in some rural and other areas will see an additional increase in payments as a result of the DIMA provision requiring CMS to change how it adjusts payments to recognize area cost differences. This provision will increase Medicare payment to physicians in some areas of the country by as much as 4.8 percent. A separate provision, affecting physicians in Alaska, will result in more than a 52 percent increase in average physician fee schedule payments for 2004.

"We’ve moved quickly to implement these changes and provide physicians with the higher payments on time with the New Year," Health and Human Services Secretary Tommy G. Thompson said. "By raising payment rates instead of reducing them, we create incentives for physicians to continue to treat Medicare beneficiaries."

Because of the late timing of the change in payment rates under this rule, CMS is extending until February 17 the deadline for physicians to decide whether or not they want to participate in Medicare in 2004. Nearly 90 percent of physicians enrolled to treat Medicare beneficiaries chose participating status in 2003, and nearly 95 percent of Medicare claims are submitted by participating physicians. Participating physicians are paid using a higher fee schedule than that used for nonparticipating physicians, but agree to accept assignment and to bill beneficiaries only for the 20 percent co-payment.

The new rule will establish more accurate Medicare payment for drugs and their administration. The rule reduces payment for injectible and certain other drugs covered by Medicare to more closely reflect the prices actually charged to physicians by their suppliers. Currently, Medicare pays for these drugs at the lesser of the physician’s actual charge to Medicare or 95 percent of the average wholesale price (AWP). Under the new rule, Medicare will pay for most of these drugs at the lesser of the actual charge or 85 percent of the April 1, 2003 AWP. In addition, Medicare will increase payment for the administration of drugs.

As required by the statute, certain drugs will continue to be paid at 95 percent of the AWP. These include blood clotting factors; drugs or biologicals that are new in 2004; pneumonia, influenza and hepatitis B vaccines; certain drugs or biologicals furnished in connection with renal dialysis services; and certain infusion drugs that are furnished through certain items of durable medical equipment, such as a nebulizer.

Still other drugs, specifically identified as overpaid in studies by the General Accounting Office or the Health and Human Services Office of Inspector General, may be paid as low as 80 percent of the AWP. However, the rule also permits the manufacturer to submit data and other information to CMS to support a request for higher reimbursement for any drug paid under Part B.

The final rule with comment period will be published in the January 6, 2004 Federal Register, and will become effective January 1, 2004. Comments will be accepted until March 8, 2004. CMS will review and respond to public comments through additional rulemaking later in 2004.