Physician payment reform under Medicare: monitoring utilization and access

Health Care Financing Review, Spring, 1993 by Marian Gornick

INTRODUCTION

OBRA 1989 (Public Law 101-239), required the development of a new payment system for physicians' services provided under Medicare. This legislation brought about the most significant changes in physician payment policy since Medicare was enacted in 1965. The three major components of the OBRA 1989 physician payment reforms were the introduction of a Medicare fee schedule (MFS); the establishment of restrictions on the ability of physicians to bill Medicare beneficiaries for amounts exceeding the fee schedule; and the institution of target rates of growth for expenditures for physicians' services. The issues that motivated the Congress to make these fundamental changes in physician payment under Medicare have been widely discussed. For an overview of the issues and options considered by Congress in formulating the OBRA 1989 physician payment reforms, see Ginsburg (1989).

The MFS was implemented on January 1, 1992, which began a transition period that will end in 1995, with the largest proportion of fee schedule changes having been implemented in 1992. The MFS is expected to have the effect of shifting Medicare payments toward primary care services and toward rural areas. In recognition of these far-reaching changes, OBRA 1989 requires the Secretary of Health and Human Services to monitor and report annually to Congress on changes in utilization and access, by population groups, geographic areas, types of service, and on possible sources of inappropriate utilization.

This article presents an overview of the 1993 Third Annual Report to Congress, "Monitoring Utilization of and Access to Services for Medicare Beneficiaries Under Physician Payment Reform" (Health Care Financing Administration, 1993). The first arid second Annual Reports to Congress focused on potential analytical approaches, sources of data, and the design by HCFA of a monitoring system for Part B services in order to observe the effect of the MFS (Health Care Financing Administration, 1991; 1992). Although the Second Report to Congress contained some analyses on patterns of use in the period preceding the implementation of the MFS, data were not yet available on the use of physicians' services after the MFS became effective. The 1993 Report to Congress contains the first preliminary data from the monitoring system on use of Part B services in 1992, the first year the MFS was in effect.

First, the article discusses the OBRA 1989 physician payment changes and the complexities involved in monitoring access to care under the MFS. Next, the article describes approaches being used in HCFA for monitoring changes in access to arid utilization of physicians' services. Last, the article discusses the six analyses included in the 1993 Report to Congress and the major findings.

OBRA 1989 PAYMENT CHANGES AND MONITORING ISSUES

Under OBRA 1989, the charge-based system for paying physicians was replaced by a nationwide resource-based fee schedule to be phased in during the period 1992-95. The MFS is expected to bring about greater equity in payments between procedure-based services and primary care services. Across geographic areas fees will vary only to reflect differences in practice costs. Differences in Medicare payments for the same procedure performed by different specialists have been eliminated. Efforts are being made to eliminate variations across areas in how Medicare services are defined and coded. The use of local codes developed by carriers to define procedures for their area is being reduced. There are now standard definitions of what is included under global fees.

To curtail the shifting of billings to the beneficiary, restrictions were placed on the ability of physicians to bill the beneficiary for amounts above the allowed Medicare charge. Beneficiaries' liability for the amount above the allowed charge on unassigned claims will be no more than 15 percent of the non-participating fee schedule amounts in 1993 and thereafter. (The non-participating fee schedule is 95 percent of the fee schedule for participating physicians, i.e., physicians who accept assignment on 100 percent of their claims.) Moreover, Medicare will pay a 10-percent bonus to physicians practicing in health professional shortage areas.

To curb the overall growth in spending for physicians' services, a process was instituted for setting target rates of growth, or Medicare volume performance standards (MVPS). The MVPS and fee schedule updates are to be set by Congress or, if Congress does not set a target, by a formula prescribed in the law. The Secretary is required to provide annual recommendations to Congress for the target MVPS, and the Physician Payment Review Commission (PPRC) is charged with advising Congress on the Secretary's recommendations. If the growth in physician expenditures exceeds the target, then the percentage increase in physician fees may be reduced and vice versa. As with MVPS targets, the Secretary recommends to Congress the fee schedule update for the next year, and the Commission advises Congress on this matter. MVPS have been in effect since 1990.