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Statement of Need: Since January 1, 1992, Medicare has paid for physicians' services under section 1848 of the Social Security Act (the Act), "Payment for Physicians' Services." This section provides for three major elements: 1) a fee schedule for the payment of physicians' services; 2) a sustainable growth rate for the rates of increase in Medicare expenditures for physicians' services; and 3) limits on the amounts that nonparticipating physicians can charge beneficiaries. The Act requires that payments under the fee schedule be based on national uniform relative value units (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.

Summary of the Legal Basis: Section 6102 of the Omnibus Reconciliation Act of 1989 (Pub. L. 101-239) amended the Act by adding section 1848, "Payment for Physicians' Services" that requires Medicare to pay for physicians' services under a fee schedule. Section 4644 of the Balanced Budget Act of 1997 (Pub. L. 105-33) amended section 1848(b)(1) of the Act by requiring that we publish fee schedules that establish payment amount of all physicians' services before November 1 of the preceding year, each year.

Alternatives: None.

Anticipated Costs and Benefits: The statute requires that annual adjustments to physician fee schedule RVUs not cause annual payments to differ by more than $20 million from what they would have been had the adjustments not been made. If this threshold is exceeded, we would make adjustments to the conversion factor (the dollar amount that converts relative values into a payment amount for a physician's service) to preserve budget neutrality. Because changes to RVUs must be budget neutral, if we increase a service's RVUs, we must reduce the overall multiplier (or the actual RVUs) that converts the RVUs to a dollar amount. Therefore, certain physician specialty groups may experience an increase in payment and some may experience a decrease in payment.

Risks: Failure to establish payment amounts for physicians' services would place us in violation of section 1848 of the Act.