Press Releases



The Centers for Medicare & Medicaid Services (CMS) announced today a proposed rule that will update payment rates under the Medicare physician fee schedule for 2004, as well as revise a number of other policies affecting Medicare Part B payments under the fee schedule. The fee schedule specifies payment rates to physicians and other providers for more than 7,000 health care services and procedures, ranging from simple office visits to complex surgery.

In calendar year 2004, Medicare is expected to pay approximately $48.7 billion to 900,000 physicians and other suppliers for services paid under the fee schedule, up from a projected $47.9 billion in 2003.

The physician fee schedule is updated on an annual basis according to a formula specified by statute, which is designed to rein in the growth in outlays for physician services. The formula requires CMS to adjust the update up or down depending on how actual expenditures compare to a target rate, called the sustainable growth rate or SGR. The SGR in turn is calculated based on medical inflation, the projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation. Largely due to slow growth in the economy and to a significant growth in physician outlays in 2002, CMS advised the Medicare Payment Advisory Commission (MedPAC) in March that the update for 2004 would be - 4.2 percent. This projection will be updated before the final rule.

"Physicians should note that while CMS is required to publish a proposed physician fee schedule rule at this time, both the House and Senate versions of Medicare legislation contain provisions that address the proposed fee schedule cuts," said CMS Administrator Tom Scully.

The House bill provides that the physician fee schedule update cannot be less than 1.5 percent in 2004 and 2005. The Senate bill includes provisions calling for the enactment of legislation to prevent anticipated cuts in 2004 and 2005. Even if a law is enacted after CMS publishes a final physician fee schedule rule, the law will supersede the final rule.

CMS is proposing to make several changes to the Medicare payment methodology in 2004. The proposed rule rebases and revises the Medicare Economic Index (MEI), which measures inflation in physician practice costs and general wage levels. The MEI is one of the key components used to update physician payment rates. First, CMS is proposing to change the base year used to derive the structure of costs for physician practices for the MEI from 1996 to 2000. CMS is also proposing to change the data sources, cost categories and price proxies used in the MEI.

The revisions to the MEI will increase the weight given to malpractice insurance costs and will help address concerns that physicians have about rising professional liability insurance costs. CMS is also proposing to revise the geographic practice cost indices (GPCIs) applicable to the malpractice component of the fee schedule using data that is expected to be available later this summer.

The proposed rule will include information about the recommendations from the Practice Expense Advisory Committee (PEAC), a multi-specialty panel of the American Medical Association that reviews items included in practice expenses for specific services. CMS's including the PEAC's recommendations in the proposed rule will enable specialty societies to assess the potential impact of the recommendations on the codes in time to provide feedback to CMS for the final rule.

In an effort to improve medical care for beneficiaries with End Stage Renal Disease (ESRD), CMS is proposing to create new codes that would allow Medicare to align payment for physician oversight dialysis services with the frequency of physician visits. Medicare currently pays a composite rate to physicians for medical oversight without regard to the patient's condition or the number of times the physician sees the patient. CMS understands that physician involvement in dialysis for ESRD varies based on the patient's condition and response to dialysis, and the presence of other acute or chronic conditions. In addition, a physician's involvement with a single patient may vary from month to month. The proposed codes are intended to ensure that beneficiaries with ESRD receive the highest quality dialysis care available and that physician involvement in dialysis for ESRD patients is appropriate and consistent with the needs of the patient in any month.

Other provisions in the proposed rule include:

  • Creation of special codes that would allow physicians to bill for a new technology that is used to monitor heart rhythms.
  • Revision of the payments for removing benign and malignant skin lesions to reflect the size of the excision rather than the type of lesion.

CMS plans to issue a separate proposed rule addressing issues relating to the practice expenses for the administration of drugs along with changes in the payment methodology for the drugs.

The proposed rule will be published in the August 15 Federal Register. CMS will accept comments on the proposals until October 7, and publish a final rule later this year.