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Statement of Need: As pertinent to this regulation, the BBA requires implementation of resource-based practice expense relative value units on January 1, 1999. In addition, the BBA provided for the payment of drugs and biologicals on a new payment basis, implemented private contracting with Medicare beneficiaries, and provided for a new payment system for outpatient rehabilitation services. The BBA expanded the Medicare scope of practice for nurse practitioners and physician assistants. ^PFurthermore, since we established the physician fee schedule on January 1, 1992, our experience indicates that some of our part B payment policies need to be reconsidered. This final rule is intended to correct some of these payment policies. Also, we are rebasing and revising the Medicare Economic Index, which is used in formulas to update payments for physicians services and other part B services. In addition, we are finalizing the 1998 interim work RVUs and are issuing interim work RVUs for new and revised codes for 1999.

Summary of the Legal Basis: Since January 1, 1992, Medicare has paid for physician services under section 1848 of the Social Security Act (the Act), "Payment for Physician Services." This section contains three major elements: (1) A fee schedule for the payment of physician services; (2) a sustainable growth rate system for the rate of increase in Medicare expenditures for physician services; and (3) limits on the amounts that nonparticipating physicians can charge beneficiaries. The Act requires that payment under the fee schedule be based on national uniform RVUs based on the resources used in furnishing a service. Section 1848(c) of the Act requires that national RVUs be established for physician work, practice expense, and malpractice expense. Section 1848(c)(2)(ii)(II) of the Act provides that adjustments in RVUs because of charges resulting from a review of those RVUs may not cause total physician fee schedule payments to differ by more than $20 million from what they would have been had the adjustments not been made. If this tolerance is exceeded, we must make adjustments to the conversion factors (CFs) to preserve budget neutrality.

Alternatives: If this final rule is not published, we would not implement the BBA provisions related to physician services, physician assistants, nurse practitioners, payment for drugs and biologicals, and payment for outpatient rehabilitation services. In addition, known payment problems would not be resolved for the 1999 physician fee schedule and for other payment policies that need to be further clarified.

Anticipated Costs and Benefits: The practice expense provision is, by statute, budget neutral. The statute requires that revisions to payment policies not cause total annual physician fee schedule payments to differ by more than $20 million from what they would have been had the revisions not been made. If this threshold is exceeded, we would make adjustments to the conversion factor to preserve budget neutrality.

Risks: We expect a reaction to the practice expense proposal since there is a reallocation of relative value units for practice expenses between physician specialties and between codes. We expect that some physicians will argue that the relative value units are too low for them to provide the service. Also, we expect comments about the fundamental methodology used to calculate the practice expense relative values.