Center for Studying Health System Change

Revising Medicare's Physician Fee Schedule—Much Activity, Little Change

NEJM Perspective Examines Why Primary Care Specialties Continue to Get Short Shrift

Media Advisories
March 22, 2007

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—Without an effective way to track changes in medical practice and physician productivity, the underlying structure of Medicare’s physician fee schedule has defied gravity, generally rewarding specialty procedures at the expense of primary care services, according to a perspective by economist Paul B. Ginsburg, Ph.D., and Robert Berenson, M.D. in the March 22 New England Journal of Medicine.

Since 1992, Medicare has used a resource-based relative-value scale (RBRVS) fee schedule to set payments for physician services on the basis of relative costs. The RBRVS relies on estimates of three components: physician work (time and intensity), practice expenses and malpractice insurance expenses, with geographic adjustments to reflect cost variation. A conversion factor is used to translate the relative values into dollar amounts for each service, according to the article.

"Keeping the relative values current requires an effective process that reflects changes in medical practice and trends in physician productivity. But during the 15 years since this system was implemented, relative values have defied gravity-going up or staying the same but rarely coming down. For example, in 2006, the Centers for Medicare and Medicaid Services (CMS) raised physician-work values for 227 services and lowered them for only 26," write Ginsburg, president of the Center for Studying Health System Change (HSC), a nonpartisan policy research organization funded primarily by the Robert Wood Johnson Foundation, and Berenson, an HSC senior consulting researcher and senior fellow at the Urban Institute.

Because private insurers and Medicaid programs often base their payment rates on Medicare’s relative values—using different conversion factors—changes in Medicare’s relative values can profoundly affect physician revenues, according to the article.

When CMS announced a final rule on Dec. 1, 2006, that updated relative work values, a news release cited a 37 percent increase in the work values associated with an intermediate office visit for an established patient. "Other visit codes did not fare as well, but overall, work values for evaluation and management services increased by 20%. But because few services received work-value reductions, the required budget-neutrality adjustment reduced the increases in work values for evaluation and management services to 8%. Since such services represent 46% of total spending on physician services, they absorbed much of the reduction for budget neutrality," according to the authors. To access the NEJM perspective, "Revising Medicare’s Physician Fee Schedule-Much Activity, Little Change," go to www.hschange.org/CONTENT/919/.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.