[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Appendices]
[Appendix E. Medicare Reimbursement to Physicians ]
[From the U.S. Government Printing Office, www.gpo.gov]


[1998 Green Book] APPENDIX E. MEDICARE REIMBURSEMENT TO PHYSICIANS

                                CONTENTS

Physician Payment Reform
Medicare Fee Schedule
Medicare Volume Performance Standards; Sustainable Growth Rate 
        and Conversion Factor Updates
  Medicare Volume Performance Standards
  Sustainable Growth Rate
  Conversion Factor Updates
Limits on Beneficiary Liability
Medical Care Outcomes and Effectiveness Research
Impact of Medicare Fee Schedule
Historical Data
  Assignment Rate Experience
  Participating Physician Program Data
  Distribution of Physician Services
References

                        PHYSICIAN PAYMENT REFORM

    The Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) 
provided for the implementation, beginning January 1, 1992, of 
a new payment system for physicians' services paid for by 
Medicare. This fee schedule payment system replaced the 
previous reasonable charge payment system. The new system was 
enacted in response to two principal concerns. The first was 
the rapid escalation in program payments. The second was that 
the use of the reasonable charge payment had led, in many 
cases, to payments which were not directly related to the 
resources used. The Balanced Budget Act of 1997 (BBA 1997) made 
several modifications to the fee schedule payment system.
    Medicare payments for physicians' services are made under a 
fee schedule which is based on a resource-based relative value 
scale (RBRVS). Annual updates to the payment amounts are based, 
in part, on a comparison of actual physician spending in a base 
period compared to an expenditure goal. The expenditure goal in 
place prior to fiscal year 1998 was known as the Medicare 
volume performance standard (MVPS). Beginning in fiscal year 
1998 the MVPS is replaced by the sustainable growth rate (SGR). 
Use of an expenditure goal was intended to moderate the rate of 
growth in physician expenditures. The law also places limits on 
amounts that physicians can bill in excess of Medicare's 
approved payment amount.

                         MEDICARE FEE SCHEDULE

    The Secretary of the Department of Health and Human 
Services (DHHS) is required to establish a fee schedule before 
January 1 of each year that sets payment amounts for all 
physicians' services furnished in all fee schedule areas for 
the year. The fee schedule amount for a service is equal to the 
product of:
  --The relative value for the service;
  --The geographic adjustment factor (GAF) for the service for 
        the fee schedule area; and
  --The national dollar conversion factor for the year.
Relative value unit
    The relative value unit (RVU) for each service, the first 
factor used to calculate the fee schedule, has three 
components:
  --The physician work component reflects physician time and 
        intensity, including activities before and after 
        patient contact;
  --The practice expense or overhead component includes all 
        categories of practice expenses (exclusive of 
        malpractice liability insurance costs). Included are 
        office rents, employee wages, physician compensation, 
        and physician fringe benefits; and
  --The malpractice expense component reflects costs of 
        obtaining malpractice insurance.
    The proportion that each component represents of the total 
RVU varies by service.
     The work relative value units incorporated in the initial 
fee schedule were based on resource costs. They were developed 
after extensive input from the physician community. Refinements 
in existing values and establishment of values for new services 
have been included in the annual fee schedule update. In 
addition, HCFA is required to conduct a review of all values at 
least every 5 years. The results of the first review were 
incorporated in the values used in 1997.
     The practice expense and malpractice expense relative 
value units included in the initial fee schedule were based on 
historical charges. An analysis by the Physician Payment Review 
Commission (PPRC) suggested that practice expense relative 
value units for a service were most likely to be overvalued 
when they exceeded the work relative value units by a 
substantial amount. OBRA 1993 provided for reductions in 1994, 
1995, and 1996 in cases where the number of practice expense 
relative value units was substantially more than the number of 
work relative value units for the service. The Social Security 
Act Amendments of 1994 required the Secretary to develop a 
methodology for a resource-based system to be implemented in 
1998.
     BBA 1997 provides for a phase-in of the resource-based 
methodology for practice expenses. In 1998, there will be a 
reallocation of no more than $390 million in practice expense 
relative value units from services whose number of practice 
expense relative value units exceed 110 percent of the number 
of work relative value units. Not included are services 
provided 75 percent of the time in an office setting or 
services which would receive an increase under HCFA's proposed 
regulations issued June 18, 1997. The amount reduced would be 
added to the practice expense relative value units of physician 
office procedure codes. A new practice expense methodology will 
be phased in over the 1999-2002 period. In 1999, 25 percent of 
the practice payment will be based on the new methodology. This 
percentage will increase to 50 percent in 2000, 75 percent in 
2001, and 100 percent in 2002. The Secretary is also required 
to develop new resource-based methodology for practice 
expenses. In developing the units, the Secretary is required, 
to the maximum extent practicable, to utilize generally 
accepted accounting principles. The Secretary is also required 
to use actual data on equipment and other key factors. Proposed 
rulemaking is to be published by May 1, 1998.
     BBA 1997 directs HCFA to develop and implement a resource-
based methodology for malpractice expenses to be implemented by 
January 2000.
Geographic adjustment factor
    The second factor used in calculation of the fee schedule 
is the geographic adjustment factor (GAF) for the fee schedule 
area. There are currently 89 fee schedule areas nationwide. A 
comprehensive revision of fee schedule payment areas occurred 
in 1997, reducing the number of locations from 210 to 89.
    The GAF is designed to account for geographic variations in 
the costs of practicing medicine and obtaining malpractice 
insurance as well as a portion of the difference in physicians' 
incomes that is not attributable to these factors.
    The GAF is the sum of three indices. Separate geographic 
practice cost indices (GPCIs) have been developed for each of 
the three components of the RVU, namely a work GPCI, a practice 
expense or overhead GPCI, and a malpractice GPCI. In effect, a 
separate geographic adjustment is made for each component. 
However, as required by law, only one-quarter of the geographic 
variation in physician work resource costs is taken into 
account in the formula. (Table E-21 at the end of this chapter 
shows the GAF values for each of the 89 fee schedule areas 
nationwide.)
    The three GPCI-adjusted RVU values are summed to produce an 
indexed RVU for each locality.
Conversion factor
    The conversion factor, which is the third fee schedule 
factor, is a dollar multiplier which converts the 
geographically adjusted relative value for a service to an 
actual payment amount for the service. The law initially 
required the establishment of a single conversion factor. 
Beginning in 1993, two conversion factors applied--one for 
surgical services and one for nonsurgical services. Beginning 
in 1994, there were three conversion factors--one for surgical, 
one for primary care, and one for nonsurgical services. The 
1997 conversion factors are $40.96 for surgical services, 
$35.77 for primary care services, and $33.85 for other 
nonsurgical services. Thus, the payment for a surgical service 
with an adjusted relative value of two is $81.92; the payment 
for a primary care service with an adjusted relative value of 
two is $71.54; the payment for a nonsurgical service with an 
adjusted relative value of two is $67.70. Anesthesiologists are 
paid under a separate fee schedule which uses base and time 
units. A separate conversion factor ($16.68 in 1997) applies.
     BBA 1997 establishes a single conversion factor beginning 
in 1998. In 1998, the amount will be the 1997 primary care 
conversion factor, updated to 1998 by the average of the three 
separate updates that would have occurred in the absence of the 
legislation.
Payment formula
    The payment for each service is calculated as follows:

        Payment = CF  x  [(RVUwork  x  
GPCIwork)

                   + (RVUpractice expense  x  
GPCIpractice expense)

                   + (RVUmalpractice  x  
GPCImalpractice)]

    Where:
    CF = conversion factor;
    RVUwork = physician work relative value units 
for the service;
    GPCIwork = geographic practice cost index value 
for physician work in the locality (the value reflects only 
one-quarter of the variation in physician work as required by 
law);
    RVUpractice expense = practice expense or 
overhead relative value units for the service;
     GPCIpractice expense = geographic practice cost 
index value for practice expense or overhead applicable in the 
locality;
    RVUmalpractice = malpractice relative value 
units for the service; and
    GPCImalpractice = geographic practice cost index 
value for malpractice applicable in the locality.

  MEDICARE VOLUME PERFORMANCE STANDARDS; SUSTAINABLE GROWTH RATE AND 
                       CONVERSION FACTOR UPDATES

    A key element of the fee schedule is the conversion factor. 
One consideration in establishing the annual update in the 
conversion factor is whether efforts to stem the annual rate of 
growth in physician payments have succeeded. This growth has 
been measured by the Medicare volume performance standards 
(MVPSs). Beginning in fiscal year 1998, the MVPS is replaced by 
the sustainable growth rate (SGR).

                 Medicare Volume Performance Standards

    The law has required the calculation of annual MVPSs, which 
are standards for the rate of expenditure growth. The purpose 
of these standards has been to provide an incentive for 
physicians to get involved in efforts to stem expenditure 
increases. The relationship of actual expenditures to the MVPS 
has been one factor used in determining the annual update in 
the conversion factor.
    Implementation of the MVPS provision began in fiscal year 
1990. As modified by subsequent legislation, there have been 
three separate MVPS rates of increase--one for surgical care, 
one for primary care, and one for nonsurgical services.
    The law contains a formula for calculating the annual 
update in the MVPS. However, Congress may modify the update 
that would otherwise apply. The Secretary of DHHS has been 
required to make a recommendation to the Congress by April 15 
each year. In making the recommendation, the Secretary is to 
consider inflation, changes in the number of part B enrollees, 
changes in technology, appropriateness of care, and access to 
care. The Physician Payment Review Commission (PPRC), a 
Congressional advisory body, has been required to review the 
Secretary's recommendation and submit its own recommendation by 
May 15.
    The Congress may establish the standard rates of increase. 
If the Congress does not specify the MVPS, however, the rates 
of increase are determined based on the default formula. The 
default standard is the product of four factors reduced by a 
performance standard factor of four percentage points. The four 
factors are:
  --The Secretary's estimate of the weighted average percentage 
        increase in physicians' fees for services for the 
        portions of the calendar years included in the fiscal 
        year involved;
  --The Secretary's estimate of the percentage change from the 
        previous year in the number of part B enrollees (other 
        than HMO enrollees);
  --The Secretary's estimate of the average annual percentage 
        growth in volume and intensity of physicians' services 
        for the preceding 5 fiscal years; and
  --The Secretary's estimate of the percentage change in 
        physician expenditures in the fiscal year (not taken 
        into account above) which will result from changes in 
        law or regulations.
    The MVPS for fiscal year 1997 is a decrease of 3.7 percent 
for surgical services and 0.5 percent for other nonsurgical 
services. There is an increase of 4.5 percent for primary care 
services (see table E-1).

       TABLE E-1.--MEDICARE VOLUME PERFORMANCE STANDARDS, 1990-97       
------------------------------------------------------------------------
                                                       Primary          
         Fiscal year           Surgical  Nonsurgical    care       All  
------------------------------------------------------------------------
1990.........................     (\1\)        (\1\)     (\2\)       9.1
1991.........................       3.3          8.6     (\2\)       7.3
1992.........................       6.5         11.2     (\2\)      10.0
1993.........................       8.4         10.8     (\2\)      10.0
1994.........................       9.1          9.2      10.5       9.4
1995.........................       9.2          4.4      13.8       7.5
1996.........................      -0.5          0.6       9.3       1.8
1997.........................      -3.7         -0.5       4.5     -0.3 
------------------------------------------------------------------------
\1\ Separate performance standards for surgical and nonsurgical services
  not required for fiscal year 1990.                                    
\2\ Separate performance standards for primary care services not        
  required for fiscal years 1990-93.                                    
                                                                        
 Source: Federal Register 1996a.                                        

                         Sustainable Growth Rate

     Beginning in fiscal year 1998, the MVPS is replaced by a 
cumulative sustainable growth rate. The calculation of the 
sustainable growth rate uses the same factors used in the 
calculation of the MVPS, except that actual annual growth in 
gross domestic product replaces the volume and intensity 
factor. Further, there is no performance factor reduction. The 
sustainable growth rate will begin affecting conversion factor 
updates in 1999. The sustainable growth rate must be published 
by August 1 of each year, except that the rate for fiscal year 
1998 must be published by November 1, 1997.

                       Conversion Factor Updates

    Annual updates in payments under the fee schedule are made 
by updating the dollar conversion factor. The law contains a 
formula for calculating the annual updates. However, the 
Congress may modify the updates that would otherwise apply.
    In April of each year (1991-97), the Secretary of DHHS has 
been required to recommend to the Congress the updates in the 
conversion factors for the following year. In making the update 
recommendations, the Secretary has been required to consider a 
number of factors including the percentage change in actual 
expenditures in the preceding fiscal year compared to the MVPS 
for that year, changes in volume and intensity of services, 
beneficiary access to care, and the increase in the Medicare 
economic index (MEI). The MEI is a percentage figure which is 
revised annually; it has been used in the program to limit 
annual increases in recognized fees. The MEI is generally 
intended to reflect annual increases in the costs of operating 
a medical practice; however, for several years the MEI 
percentage was set by the Congress. The PPRC has been required 
to review the Secretary's update recommendation and submit its 
own recommendation to Congress by May 15 of each year.
    The Congress has either specified the updates to the 
conversion factor or a default formula, specified in law, has 
applied. The default fee update is equal to the Secretary's 
estimate of the MEI increased or decreased by the percentage 
difference between the increase in actual expenditures and the 
MVPS for the second preceding fiscal year. (Thus, the 1997 
updates reflect actual fiscal year 1995 experience.) However, 
the law specifies a lower limit on the default update. The 
maximum downward adjustment in the update has been 5.0 
percentage points. There has been no restriction on upward 
adjustments to the MEI.
    Table E-2 shows the 1992-97 fee schedule updates. This 
table shows what the MEI was for each year, the impact of the 
MVPS calculation (i.e., the ``performance adjustment''), 
legislative modification (if any), and the resulting update 
percentage. The table also shows the conversion factors for 
each year.
     BBA 1997 provides for a single conversion factor beginning 
in 1998 and specifies rules for the calculation of the update 
in 1998 and subsequent years. In 1998, the amount will be the 
1997 primary care conversion factor, updated to 1998 by the 
average of the three separate updates that would have occurred 
in the absence of the legislation.
     Beginning in 1999, the update will effectively be limited 
by the increase in the gross domestic product. Specifically, 
the update will equal the product of the MEI and the update 
adjustment factor. The update adjustment factor will match 
spending on physicians services to the cumulative sustainable 
growth rate (which is linked to the growth in the gross 
domestic product.) By November 1 of each year (beginning in 
1998), the Secretary will calculate an update adjustment factor 
for the succeeding year. The calculation will be made on the 
basis of a comparison of cumulative target spending (based on 
cumulative sustainable growth rate calculations) and cumulative 
actual spending from the base year (April 1997-March 1998). 
Regardless of the result of this calculation, the update can be 
no greater than 3 percentage points above nor no less than 7 
percentage points below the MEI.

        TABLE E-2.--CONVERSION FACTORS: CALCULATION OF UPDATES AND ANNUAL FACTORS, CALENDAR YEARS 1992-97       
----------------------------------------------------------------------------------------------------------------
                                                              Calculation of update (in percent)                
                                                        ---------------------------------------------           
                     Calendar year                        Medicare                                    Conversion
                                                          economic  Performance  Legislative  Update    factor  
                                                           index     adjustment   adjustment                    
----------------------------------------------------------------------------------------------------------------
 1992:                                                                                                          
    All services.......................................        3.2        -0.9         -0.4      1.9     $31.00 
 1993:                                                                                                          
    Surgical...........................................        2.7         0.4   ...........     3.1      31.96 
    Nonsurgical........................................        2.7        -1.9   ...........     0.8      31.25 
 1994:                                                                                                          
    Surgical...........................................        2.3        11.3         -3.6     10.0      35.16 
    Primary care.......................................        2.3         5.6          0.0      7.9      33.72 
    Other nonsurgical..................................        2.3         5.6         -2.6      5.3      32.90 
 1995:                                                                                                          
    Surgical...........................................        2.1        12.8         -2.7     12.2      39.45 
    Primary care.......................................        2.1         5.8          0.0      7.9      36.38 
    Other nonsurgical..................................        2.1         5.8         -2.7      5.2      34.62 
 1996:                                                                                                          
    Surgical...........................................        2.0         1.8   ...........     3.8      40.80 
    Primary care.......................................        2.0        -4.3   ...........    -2.3      35.42 
    Other nonsurgical..................................        2.0        -1.6   ...........     0.4      34.63 
 1997:                                                                                                          
    Surgical...........................................        2.0        -0.1   ...........     1.9      40.96 
    Primary care.......................................        2.0         0.5   ...........     2.5      35.77 
    Other nonsurgical..................................        2.0        -2.8   ...........    -0.8     33.85  
----------------------------------------------------------------------------------------------------------------
Source: Federal Register 1996a.                                                                                 

                    LIMITS ON BENEFICIARY LIABILITY

    Medicare pays 80 percent of the fee schedule amount after 
the beneficiary has met the $100 deductible for the year. The 
beneficiary is responsible for the remaining 20 percent, known 
as coinsurance. If a physician does not accept assignment on a 
claim, the beneficiary may be liable for additional charges 
known as balance billing charges. However, the law places 
certain limits on these balance billing charges.
Assignment/participation
    A physician is able to choose whether to accept assignment 
on a claim paid under the fee schedule. In the case of an 
assigned claim, the physician bills the program directly and is 
paid an amount equal to 80 percent of the fee schedule amount 
(less any unmet deductible). The physician may not charge the 
beneficiary more than the applicable deductible and coinsurance 
amounts. In the case of nonassigned claims, the physician still 
bills the program directly; however, Medicare payment is made 
to the beneficiary. In addition to the deductible and 
coinsurance amounts, the beneficiary is liable for the 
difference between the fee schedule amount and the physician's 
actual charge, subject to certain limits. This is known as the 
balance billed amount.
    A physician may become a ``participating physician'' by 
voluntarily entering into an agreement with the Secretary of 
DHHS to accept assignment on all claims for the forthcoming 
year. Medicare patients of these physicians never face balance 
billing charges.
    The law includes a number of incentives for physicians to 
become participating physicians, chief of which is higher 
recognized fee schedule amounts. The fee schedule amount for a 
nonparticipating physician is only 95 percent of the recognized 
amount for a participating physician.
    The law specifies that physicians are required to accept 
assignment on all claims for persons who are dually eligible 
for Medicare and Medicaid. This includes ``qualified Medicare 
beneficiaries'' (QMBs); these are persons with incomes below 
poverty for whom Medicaid is required to pay Medicare premiums 
and cost-sharing charges.
Balance billing limits
    Nonparticipating physicians may charge beneficiaries more 
than the fee schedule amount on nonassigned claims; these 
balance billing charges are subject to certain limits. The 
limit is 115 percent of the fee schedule amount for 
nonparticipating physicians. The nonparticipating physicians 
fee schedule payment level is 95 percent of the participating 
physicians level. Thus, the balance billing limit is only 9.25 
percent higher than the level recognized for participating 
physicians (95 percent  115 percent).

            MEDICAL CARE OUTCOMES AND EFFECTIVENESS RESEARCH

    OBRA 1989 created a new agency, the Agency for Health Care 
Policy and Research, which replaced the then-existing National 
Center for Health Services Research in the Public Health 
Service. The mission of the new agency was to enhance the 
quality, appropriateness and effectiveness of health care 
services and access to such services. These goals were to be 
accomplished by establishing a broad base of scientific 
research and promoting improvements in the clinical practice of 
medicine and the organization, financing, and delivery of 
health care services.
    Specifically, the agency was directed to conduct and 
support research, demonstration projects, evaluations, 
training, guideline development, and the dissemination of 
information on health care services and delivery systems, 
including activities on: (1) the effectiveness, efficiency, and 
quality of health care services; (2) the outcomes of health 
care services and procedures; (3) clinical practice, including 
primary care and practice-oriented research; (4) health care 
technologies, facilities, and equipment; (5) health care costs, 
productivity, and market forces; (6) health promotion and 
disease prevention; (7) health statistics and epidemiology; and 
(8) medical liability.

                    IMPACT OF MEDICARE FEE SCHEDULE

    The Medicare fee schedule was designed to remove many of 
the inequities of the previous payment system by shifting 
payment away from tests and procedures toward evaluation and 
management services. Because the fee schedule was intended to 
be implemented in a budget-neutral fashion, total outlays under 
the new system were expected to match the outlays that would 
have occurred under the previous payment system. In general, 
under the new payment system, primary care physicians were 
expected to receive higher payments per service, and specialty 
physicians were expected to receive lower payments per service. 
Payment levels in rural areas were also expected to increase 
relative to metropolitan areas.
    The overall payment level under the Medicare fee schedule 
is established through the conversion factor. In effect, the 
conversion factor translates the relative value units for 
individual services into actual dollar payments. Increases or 
decreases in the overall level of payments are accomplished by 
adjusting the level of the conversion factor.
    Using data from 1991, 1992, and 1993, PPRC examined the 
initial impact of the Medicare fee schedule on physicians. From 
1991 to 1993, physicians' payments per service declined by 4 
percent. Surgical specialties had about an 8-percent reduction 
in payment per service compared with the 2-percent increase for 
medical specialties. Specialties that predominantly provide 
evaluation and management services fared better. Payments to 
general and family practitioners increased by 17 percent over 
the 2-year period, while those to internists rose by 2 percent. 
Pathologists and thoracic surgeons had the largest reduction of 
16 percent, followed by gastroenterologists, radiologists, and 
cardiologists with reductions ranging from 10 to 12 percent.
    The total Medicare payment a physician receives depends not 
only on the payment per service but also on changes in the 
number and intensity of services billed. Although physicians 
had about a 4-percent reduction in payment overall from 1991 to 
1993, a 6-percent increase in the number and intensity of 
services per physician led to about a 4-percent increase in 
total Medicare payment per physician over the 2-year period.
    PPRC analyzed Medicare claims data from the first 6 months 
of 1995 and 1996 to measure changes in physician payment 
policy. In 1996, Medicare's physician payment rates decreased, 
on average, about 2 percent from 1995 levels (table E-3). 
Payment rates were influenced the most by the low conversion 
factor updates for 1996 and the completion of the transition to 
Medicare fee schedule payments. Changes in relative value units 
(RVUs) had a lesser effect, and changes in the geographic 
adjustment factors had a negligible effect.

                     TABLE E-3.--EFFECT OF POLICY CHANGES ON FEE SCHEDULE PAYMENTS, 1995-96                     
----------------------------------------------------------------------------------------------------------------
                                                            Total              Percentage change due to         
                                                           change  ---------------------------------------------
                                                             in                                                 
        Type of service, location, and specialty          Medicare              Relative  Geographic            
                                                           payment  Conversion    value   adjustment  Transition
                                                             per      factor      unit      factor      to fee  
                                                           service    updates    changes    changes    schedule 
----------------------------------------------------------------------------------------------------------------
Type of service:                                                                                                
     Evaluation and management                                                                                  
        Primary care....................................       0.6       -2.3        1.8        0.0         1.1 
        Other...........................................       2.0        0.4        0.1        0.0         1.5 
    Surgical............................................      -4.9        3.8       -1.6        0.0        -7.1 
    Other nonsurgical...................................      -3.4        0.4        1.0        0.1        -4.9 
Location:                                                                                                       
     Metropolitan areas                                                                                         
         Greater than 1 million.........................      -2.0        0.6        0.5        0.2        -3.3 
        Less than 1 million.............................      -2.2        0.7        0.2        0.0        -3.1 
    Rural counties                                                                                              
         Greater than 25,000............................      -1.9        0.6        0.1       -0.3        -2.3 
        Less than 25,000................................      -0.5        0.0        0.2       -0.6        -0.1 
Specialty:                                                                                                      
     Primary care                                                                                               
         Family/general practice........................       0.2       -1.2        0.3       -0.1         1.2 
        Internal medicine...............................      -0.4       -0.8        0.5        0.1        -0.2 
     Other medical                                                                                              
         Cardiology.....................................      -6.5        0.1       -1.0        0.0        -5.6 
        Gastroenterology................................      -4.1        0.2        0.0        0.1        -4.4 
        Other medical...................................       2.7       -0.1        3.9        0.1        -1.2 
     Surgical                                                                                                   
         Dermatology....................................      -0.2        2.3        0.0        0.1        -2.6 
        General surgery.................................      -1.5        2.5       -0.1        0.0        -3.9 
        Ophthalmology...................................      -9.6        2.3       -3.4        0.0        -8.5 
        Orthopedic surgery..............................      -2.6        2.5       -0.5        0.0        -4.6 
         Thoracic surgery...............................      -2.6        3.3       -0.2        0.0        -5.7 
        Urology.........................................       0.7        2.0        0.4        0.0        -1.7 
        Other surgical..................................      -2.4        1.9       -0.6        0.0        -3.7 
     Other                                                                                                      
         Pathology......................................      -6.2        0.4       -0.1        0.1        -6.6 
        Radiology.......................................      -3.8        0.4        0.0        0.0        -4.2 
         Other..........................................      -0.2        0.6        2.9        0.0        -3.7 
                                                         -------------------------------------------------------
            All services................................      -2.1        0.6        0.3        0.1       -3.1  
----------------------------------------------------------------------------------------------------------------
Note.--Changes due to the transition to fee schedule based payments are calculated as the difference between    
  total payment changes and the sum of changes attributable to relative value changes, geographic adjustment    
  factor changes, and conversion factor updates.                                                                
                                                                                                                
 Source: Physician Payment Review Commission analysis of 1995-96 Medicare claims, 5 percent sample of           
  beneficiaries.                                                                                                

    In accordance with the volume performance standard system, 
conversion factor updates varied by type of service. For 1996, 
the updates were -2.3 percent for primary care services, 3.8 
percent for surgical services, and 0.4 percent for other 
services. The average conversion factor update for all 
services, weighted by total payments in each service category, 
was 0.6 percent.
    The variation in conversion factor updates led to 
differences in average updates among specialties and geographic 
areas, reflecting differences in the mix of services provided. 
The average update ranged from -1.2 percent for family/general 
practice to 3.3 percent for thoracic surgery. For metropolitan 
areas and rural counties with populations of more than 25,000, 
the average updates were near the national average, 0.6-0.7 
percent. For rural counties with populations less than 25,000, 
the average conversion factor was essentially unchanged from 
1995 to 1996 because of the greater share of primary care 
services provided in those counties.
    Relative value unit changes implemented in 1996 included 
reductions in practice expense RVUs for some procedures, as 
required by the Omnibus Budget Reconciliation Act of 1993, and 
refinement of work RVUs for some procedures. The changes 
ranged, on average, from -1.6 percent for surgical services to 
1.8 percent for primary care.
    Geographic adjustment factor (GAF) changes reflected the 
use of more current price data and technical improvements in 
calculating the payment adjustments. The GAF changes, which 
were intended to be budget neutral, averaged less than 0.1 
percent.
    Effects of the final transition to the fee schedule varied 
by type of service. Payment for primary care evaluation and 
management (EM) services increased 1.1 percent, while payment 
for other EM services rose 1.5 percent. The transition caused 
payment reductions for all other types of services, including 
-7.1 percent for surgical services and -4.9 percent for 
nonsurgical services.

                            HISTORICAL DATA

                       Assignment Rate Experience

    The total number of assigned claims as a percentage of 
total claims received by Medicare carriers for physicians and 
other medical services is known as the total assignment rate. 
Initially, the net assignment rate was computed in the same 
manner except that it omitted hospital-based physicians and 
group-practice prepayment plans which were considered assigned 
by definition (this distinction is no longer made). The net 
assignment rate declined until the mid-1970s when the rate 
leveled off at about 50 percent. Since 1985, the rate has 
increased significantly, rising to 95.6 percent in 1996. This 
increase reflects both the impact of the participating 
physician program as well as the requirement that laboratory 
services must be paid on an assigned basis. Table E-4 shows the 
net assignment rates for fiscal years 1969-96.
    The statistics included in table E-4 are programwide data. 
Assignment rates vary geographically. For example, the 
assignment rate (taken as a percent of dollars) for physician 
services in fiscal year 1996 ranged from a low of 73.5 percent 
in South Dakota to a high of 99.9 percent in Rhode Island. The 
national average assignment rate for physicians services during 
this period was 97.8 percent (see table E-5).

              TABLE E-4.--NET ASSIGNMENT RATES, \1\ 1969-96             
                              [In percent]                              
------------------------------------------------------------------------
                                                                Covered 
                    Fiscal year                       Claims    charges 
------------------------------------------------------------------------
1969..............................................       61.0         NA
1970..............................................       61.2         NA
1971..............................................       60.1         NA
1972..............................................       56.4         NA
1973..............................................       53.4       49.0
1974..............................................       52.2       47.8
1975..............................................       51.9       47.7
1976..............................................       51.0       47.8
1977..............................................       50.5       47.9
1978..............................................       50.6       49.3
1979..............................................       51.1       50.4
1980..............................................       51.4       51.3
1981..............................................       52.2       52.9
1982..............................................       52.8       53.8
1983..............................................       53.5       55.3
1984..............................................       56.4       57.7
1985..............................................       67.7       67.4
1986..............................................       68.0       69.5
1987..............................................       71.7       73.7
1988..............................................       76.3       79.4
1989..............................................       79.3       82.6
1990..............................................       80.9       84.8
1991..............................................       82.5       87.6
1992..............................................       85.5       90.8
1993..............................................       89.2       94.0
1994..............................................       92.1       96.0
1995..............................................       94.2       97.1
1996..............................................       95.6      97.9 
------------------------------------------------------------------------
\1\ Both measures of assignment exclude claims from hospital-based      
  physicians and group-practice prepayment plans that are considered    
  assigned by definition.                                               
                                                                        
 NA--Not available.                                                     
                                                                        
 Source: Health Care Financing Administration, Bureau of Program        
  Operations.                                                           


    TABLE E-5.--PHYSICIAN ASSIGNMENT RATES AS PERCENT OF ALLOWED CHARGES BY STATE, SELECTED YEARS 1985-96 \1\   
                                                  [In percent]                                                  
----------------------------------------------------------------------------------------------------------------
                                                                                Fiscal year                     
                  Census division/State                  -------------------------------------------------------
                                                           1985   1990   1991   1992   1993   1994   1995   1996
----------------------------------------------------------------------------------------------------------------
National................................................   65.5   83.0   86.1   89.4   93.2   95.6   96.8   97.8
New England:                                                                                                    
    Maine...............................................   81.5   92.4   94.4   96.7   98.0   98.6   99.1   99.4
    New Hampshire.......................................   56.5   69.9   80.8   89.4   93.9   95.6   96.9   97.9
    Vermont.............................................   64.3   94.7   95.9   97.8   98.6   99.0   99.1   99.3
    Massachusetts \2\...................................   93.7   99.5   99.5   99.6   99.7   99.7   99.8   99.8
    Rhode Island........................................   94.0   98.7   99.7   99.7   99.8   99.8   99.9   99.9
    Connecticut.........................................   57.6   84.7   87.7   91.7   94.7   96.6   97.6   98.1
Middle Atlantic:                                                                                                
    New York............................................   70.3   81.9   84.4   87.7   90.7   93.2   95.6   97.0
    New Jersey..........................................   62.3   73.0   76.3   80.5   85.4   89.7   92.6   94.9
    Pennsylvania........................................   88.1   95.7   98.5   99.1   99.4   99.6   99.6   99.7
East North Central:                                                                                             
    Ohio................................................   50.8   82.6   87.3   92.5   97.7   99.5   99.7   99.8
    Indiana.............................................   49.6   77.2   81.5   85.7   92.9   95.4   96.5   97.6
    Illinois............................................   51.7   75.9   78.8   83.2   89.2   93.6   98.6   96.9
    Michigan............................................   88.2   94.5   94.4   95.9   97.8   98.6   99.0   99.2
    Wisconsin...........................................   51.7   68.2   71.7   78.2   86.8   91.2   94.2   96.3
West North Central:                                                                                             
    Minnesota...........................................   30.6   47.6   52.3   57.1   67.1   77.4   86.2   91.7
    Iowa................................................   46.9   69.8   73.4   78.8   85.6   89.9   99.2   96.3
    Missouri \3\........................................   50.1   74.9   78.5   83.7   91.6   95.1   96.7   97.7
    North Dakota........................................   30.5   55.0   67.1   72.1   74.9   87.6   92.9   96.7
    South Dakota........................................   18.7   39.2   40.2   43.3   50.2   57.3   67.0   73.5
    Nebraska............................................   47.3   64.9   70.3   76.8   83.8   87.7   89.6   91.6
    Kansas \4\..........................................   72.7   88.8   91.9   94.5   96.2   96.8   97.1   98.5
South Atlantic:                                                                                                 
    Delaware............................................   81.8   90.5   92.9   95.2   96.8   97.5   97.8   98.6
    Maryland \5\........................................   81.6   91.4   92.8   94.3   96.7   97.5   98.1   98.6
    District of Columbia \6\............................   78.1   87.5   89.4   92.1   94.1   95.7   96.6   97.3
    Virginia \7\........................................   66.4   87.3   89.6   92.5   95.7   97.4   98.4   98.9
    West Virginia.......................................   66.7   93.2   95.5   97.2   98.4   98.8   99.1   99.4
    North Carolina......................................   60.3   80.8   83.9   88.8   93.7   95.5   96.7   97.6
    South Carolina......................................   64.9   87.1   88.9   91.6   94.4   95.9   97.0   98.0
    Georgia.............................................   63.9   83.5   96.6   90.3   94.0   96.3   97.4   98.3
    Florida.............................................   62.2   84.1   87.6   91.0   95.0   97.3   98.4   98.8
East South Central:                                                                                             
    Kentucky............................................   50.3   84.8   88.8   91.9   95.5   97.1   97.9   98.6
    Tennessee...........................................   55.6   84.0   89.5   93.1   96.3   97.5   98.3   98.8
    Alabama.............................................   74.6   92.3   94.9   96.6   98.0   98.6   98.9   99.2
    Mississippi.........................................   63.5   88.1   90.6   93.1   95.6   97.1   97.8   98.5
West South Central:                                                                                             
    Arkansas............................................   72.6   92.0   93.7   95.4   96.6   97.9   98.7   99.0
    Louisiana...........................................   51.0   88.0   91.0   93.8   95.2   96.9   98.1   98.8
    Oklahoma............................................   39.0   68.2   72.8   77.8   85.0   90.6   94.2   96.7
    Texas...............................................   63.0   79.9   83.0   87.4   91.6   94.7   96.6   97.7
Mountain:                                                                                                       
    Montana.............................................   42.6   53.0   54.8   61.3   72.7   80.6   86.3   95.2
    Idaho...............................................   25.2   36.1   40.2   40.1   54.1   64.5   71.7   77.9
    Wyoming.............................................   33.8   43.9   48.9   57.5   69.0   78.2   81.8   86.0
    Colorado............................................   56.0   70.4   74.1   79.7   86.8   91.4   93.5   95.5
    New Mexico..........................................   58.3   76.1   80.1   84.9   91.5   94.0   95.2   96.0
    Arizona.............................................   52.8   76.2   80.3   84.4   89.6   91.7   92.8   93.4
    Utah................................................   63.1   80.4   83.1   88.4   92.8   95.2   96.6   98.0
    Nevada..............................................   81.6   96.0   97.4   98.4   99.0   99.2   99.4   99.5
Pacific:                                                                                                        
    Washington..........................................   45.5   54.8   60.8   69.2   74.3   87.5   93.4   95.7
    Oregon..............................................   38.7   59.9   63.2   69.3   82.1   88.0   92.3   94.7
    California..........................................   71.3   84.4   87.4   90.2   93.8   96.0   97.3   98.0
    Alaska..............................................   54.4   79.6   83.2   89.1   93.9   95.4   96.2   97.0
    Hawaii..............................................   61.2   82.9   85.8   93.1   96.1   92.8   98.7  99.0 
----------------------------------------------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during the period.                             
\2\ Massachusetts enacted a Medicare mandatory assignment provision, effective April 1986. The fact that the    
  assignment rates shown here are not 100 percent may be explained by the inclusion in the data base of billings
  by practictioners other than allopathic and osteopathic physicians, which are included in the Medicare        
  statutory definition of ``physician.''                                                                        
\3\ Starting with fiscal year 1993, includes data for all counties in Missouri plus two counties on the State   
  border located in Kansas.                                                                                     
\4\ Starting with fiscal year 1993, includes data for all counties in Kansas excluding two counties on the State
  border.                                                                                                       
\5\ Starting with fiscal year 1993, includes data for all counties in Maryland excluding two counties on the    
  State border.                                                                                                 
\6\ Starting with fiscal year 1993, includes data for the District of Columbia plus two counties in Maryland    
  located on the State border plus a few counties and cities located in Virginia, near the State border.        
\7\ Starting with fiscal year 1993, includes data for all counties in Virginia excluding a few counties and     
  cities near the State border.                                                                                 
                                                                                                                
 Source: Health Care Financing Administration, Bureau of Program Operations.                                    

                  Participating Physician Program Data

    Physician participation rates have increased significantly 
since the inception of the program (see tables E-6 and E-7). 
For the calendar year 1996 participation period, the physician 
participation rate (including limited licensed practitioners) 
had risen to 77.5 percent accounting for 94.3 percent of 
allowed charges for physician services during the period. The 
participation rate rose to 80.2 percent in 1997. Table E-7 
shows the participation rates by specialty. Table E-8 shows the 
percentage of participating physicians and limited licensed 
practitioners as a percentage of total physicians and limited 
licensed practitioners for each State.

     TABLE E-6.--MEDICARE PHYSICIAN PARTICIPATION RATES: PERCENT OF     
 PHYSICIANS AND LIMITED LICENSED PRACTITIONERS WITH AGREEMENTS AND THEIR
                    SHARE OF ALLOWED CHARGES, 1984-97                   
------------------------------------------------------------------------
                                                           Participating
                                            Percent of      physicians' 
                                            physicians        covered   
          Participation period                signing      charges as a 
                                            agreements      percent of  
                                                             total \1\  
------------------------------------------------------------------------
October 1984-September 1985.............            30.4            36.0
October 1985-April 1986.................            28.4            36.3
April 1986-December 1986 \2\............            28.3            38.7
January 1987-March 1988.................            30.6            48.1
April 1988-December 1988................            37.3            57.9
January 1989-March 1990.................            40.2            62.0
April 1990-December 1990................            45.5            67.2
January 1991-December 1991..............            47.6            72.3
January 1992-December 1992..............            52.2            78.8
January 1993-December 1993..............            59.8            85.5
January 1994-December 1994..............            64.8            89.4
January 1995-December 1995..............            72.3            92.6
January 1996-December 1996..............            77.5            94.3
January 1997-December 1997..............            80.2             NA 
------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician services processed      
  during period.                                                        
\2\ The actual participation period was May through December of 1986,   
  and participation agreements were in effect for that time. However,   
  charge data are generally collected by quarter; thus, the data for the
  last three quarters of 1986 are used as a proxy for the participation 
  period.                                                               
                                                                        
 NA--Not available.                                                     
                                                                        
 Source: Health Care Financing Administration, Bureau of Program        
  Operations.                                                           

    Table E-9 shows the allowed charges of participating 
physicans as a percent of total allowed charges, by State, for 
several participation periods. This percentage increased 
substantially, rising from 36 percent in the October 1984-
September 1985 period to 94.3 percent in the calendar 1996 
participation period.

                  TABLE E-7.--PARTICIPATION RATES AS PERCENTAGE OF PHYSICIANS BY SPECIALTY, FOR SELECTED PARTICIPATION PERIODS, 1985-97                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Oct. 1985-  Jan. 1991-  Jan. 1992-  Jan. 1993-  Jan. 1994-  Jan. 1995-  Jan. 1996-  Jan. 1997-
                        Specialty                          Apr. 1986   Dec. 1991   Dec. 1992   Dec. 1993   Dec. 1994   Dec. 1995   Dec. 1996   Dec. 1997
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physicians (M.D.s and D.O.s):                                                                                                                           
    General practice....................................        27.3        44.0        48.0        55.1        59.1        59.9        66.3        69.2
    General surgery.....................................        33.9        60.5        66.3        73.8        77.6        80.2        85.8        87.8
    Otology, laryngology, rhinology.....................        24.6        49.6        57.0        66.2        72.2        77.1        82.6        85.8
    Anesthesiology......................................        21.1        36.5        49.3        64.6        71.5        73.9        81.0        83.5
    Cardiovascular disease..............................        35.6        65.4        72.0        78.7        82.5        81.9        88.3        90.2
    Dermatology.........................................        34.0        57.0        61.6        69.8        75.8        79.3        83.6        85.4
    Family practice.....................................        25.5        50.8        57.7        66.1        71.3        74.5        81.4        84.0
    Internal medicine...................................        32.5        52.6        57.8        66.2        71.0        73.8        79.8        82.2
    Neurology...........................................        34.8        56.1        63.8        71.8        76.4        78.9        84.1        85.8
    Obstetrics-gynecology...............................        29.1        52.6        58.0        65.7        69.9        72.5        77.3        79.5
    Ophthalmology.......................................        27.3        60.0        66.1        73.2        78.3        81.2        86.2        87.9
    Orthopedic surgery..................................        29.0        58.4        65.5        74.9        79.2        82.6        86.8        88.7
    Pathology...........................................        39.6        59.2        65.8        73.3        76.8        78.9        83.1        85.0
    Psychiatry..........................................        30.0        44.1        48.8        53.5        57.8        58.7        64.6        67.6
    Radiology...........................................        41.3        62.0        68.2        74.7        78.6        82.8        84.9        87.0
    Urology.............................................        27.8        53.6        61.7        71.8        78.6        83.0        87.3        89.3
    Nephrology..........................................        50.8        71.7        76.3        82.4        84.3        87.0        90.0        90.6
    Clinic or other group practice--not GPPP............        33.8        73.9        77.0        75.5        80.5        79.4        84.5        87.8
Limited license practitioners (LLP):                                                                                                                    
    Chiropractor........................................        25.4        28.6        31.4        35.6        39.8        42.6        47.3        51.0
    Podiatry-surgical chiropody.........................        38.2        59.6        64.2        70.9        75.3        79.2        83.3        86.0
    Optometrist.........................................        44.0        56.9        59.0        62.7        65.6        66.9        70.3       72.2 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Health Care Financing Administration.                                                                                                           


  TABLE E-8.--PHYSICIAN AND LIMITED LICENSED PRACTITIONER PARTICIPATION RATES AS PERCENTAGE OF PHYSICIANS AND LIMITED LICENSED PRACTITIONERS, BY STATE, 
                                                       FOR SELECTED PARTICIPATION PERIODS, 1985-97                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Oct. 1985- Jan. 1991- Jan. 1992- Jan. 1993- Jan. 1994- Jan. 1995- Jan. 1996- Jan. 1997-
                              State                               Apr. 1986  Dec. 1991  Dec. 1992  Dec. 1993  Oct. 1994  Dec. 1995  Dec. 1996  Dec. 1997
                                                                                                                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.........................................................       58.2       82.7       83.4       85.1       87.2       90.5       91.8       93.5
Alaska..........................................................       10.4       53.8       55.1       60.4       66.3       77.1       73.5       79.0
Arizona.........................................................       15.4       61.3       64.5       76.2       82.6       87.1       85.2       86.6
Arkansas........................................................       45.2       59.9       57.8       62.1       64.4       74.8       77.2       78.9
California......................................................       30.0       60.8       62.6       65.9       69.0       74.5       80.5       80.9
                                                                                                                                                        
Colorado........................................................       28.1       35.3       48.0       55.7       58.5       65.2       79.5       81.4
Connecticut.....................................................       22.2       29.3       40.8       48.1       55.4       57.8       61.8       86.4
Delaware........................................................       23.9       43.9       51.9       57.4       60.0       68.0       72.2       68.6
District of Columbia............................................       30.5       39.8       45.9       50.6       52.8       63.0       65.3       68.6
Florida.........................................................       25.7       36.5       41.5       55.6       62.2       68.0       70.9       73.9
                                                                                                                                                        
Georgia.........................................................       33.1       53.6       57.2       74.9       82.7       86.3       87.2       88.6
Hawaii..........................................................       20.6       57.3       64.1       75.9       80.4       82.8       83.6       84.0
Idaho...........................................................       11.0       19.5       22.9       37.1       49.7       54.7       60.1       67.6
Illinois........................................................       23.1       46.9       50.8       57.6       61.8       73.3       75.6       83.3
Indiana.........................................................       18.2       45.1       49.3       55.8       61.3       72.8       75.7       76.8
                                                                                                                                                        
Iowa............................................................       29.7       51.9       58.8       61.8       63.2       81.1       83.6       88.5
Kansas..........................................................       45.4       62.6       70.3       73.2       78.7       84.4       91.1       91.8
Kentucky........................................................       24.3       59.5       64.0       73.6       69.1       83.4       85.8       88.7
Louisiana.......................................................       18.8       42.9       44.6       44.0       46.7       57.4       61.0       64.6
Maine...........................................................       35.4       50.3       51.6       52.0       53.6       68.9       72.2       79.9
                                                                                                                                                        
Maryland........................................................       30.4       45.3       58.7       72.5       77.3       88.1       89.9       89.6
Massachusetts...................................................       48.1       50.8       50.0       50.2       48.9       64.7       74.9       77.2
Michigan........................................................       44.0       53.7       51.7       58.1       62.1       75.3       80.2       82.6
Minnesota.......................................................       18.5       29.3       34.4       44.4       51.3       58.6       70.6       77.3
Mississippi.....................................................       19.1       42.7       47.9       53.6       53.8       59.4       77.3       79.3
                                                                                                                                                        
Missouri........................................................       35.2       49.0       51.8       67.5       81.8       87.6       86.8       88.1
Montana.........................................................       24.3       24.8       23.7       54.7       58.7       70.1       77.4       78.7
Nebraska........................................................       20.0       56.5       61.1       70.6       75.9       82.5       86.3       87.2
Nevada..........................................................       21.7       72.9       75.4       84.9       87.9       91.2       90.8       92.2
New Hampshire...................................................       26.9       32.7       38.5       43.0       48.0       60.4       77.0       79.7
                                                                                                                                                        
New Jersey......................................................       18.0       29.6       36.5       42.6       45.9       54.9       60.6       62.8
New Mexico......................................................       17.7       49.7       53.6       66.8       74.2       78.1       80.7       81.7
New York........................................................       20.8       34.6       36.9       40.7       46.2       59.2       64.2       70.0
North Carolina..................................................       39.1       58.1       68.2       72.8       76.5       77.6       81.0       84.6
North Dakota....................................................       10.9       43.9       45.8       55.0       77.4       81.8       92.2       93.2
                                                                                                                                                        
Ohio............................................................       21.7       52.5       57.3       76.6       83.3       90.5       91.8       92.7
Oklahoma........................................................       13.8       39.0       44.4       53.9       64.9       72.3       76.1       84.0
Oregon..........................................................       18.5       46.7       51.7       59.2       66.5       79.7       82.1       87.6
Pennsylvania....................................................       50.8       45.9       53.0       59.7       61.1       67.3       69.3       72.0
Rhode Island....................................................       46.7       67.8       70.3       80.9       82.2       80.9       66.8       68.4
                                                                                                                                                        
South Carolina..................................................       17.9       57.9       63.0       67.3       70.2       76.1       82.7       85.5
South Dakota....................................................        8.0       20.6       23.7       31.6       41.2       51.7       71.4       79.3
Tennessee.......................................................       21.1       63.7       67.6       70.5       76.9       80.6       83.1       87.5
Texas...........................................................       19.7       38.9       52.9       61.3       68.6       76.9       80.3       82.1
Utah............................................................       29.3       65.6       69.5       80.3       82.0       85.9       86.8       90.2
                                                                                                                                                        
Vermont.........................................................       41.5       45.4       54.2       56.5       58.8       68.8       76.1       78.6
Virginia........................................................       29.6       48.1       49.7       52.2       52.9       55.6       84.3       85.7
Washington......................................................       23.6       46.1       53.1       64.7       73.9       76.2       86.4       89.9
West Virginia...................................................       22.9       66.3       68.4       75.9       81.9       87.2       89.3       90.8
Wisconsin.......................................................       31.0       46.8       55.5       66.8       73.7       81.2       83.9       85.2
Wyoming.........................................................       18.3       39.1       50.2       53.3       63.0       66.4       81.2       83.3
                                                                 ---------------------------------------------------------------------------------------
      National..................................................       28.4       47.6       52.2       59.8       64.8       72.3       77.5      80.2 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Health Care Financing Administration, Bureau of Program Operations.                                                                             


 TABLE E-9.--ALLOWED CHARGES OF PARTICIPATING PHYSICIANS AS A PERCENT OF TOTAL ALLOWED CHARGES BY STATE, FOR SELECTED PARTICIPATION PERIODS, 1984-96 \1\
                                                                      [In percent]                                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Oct. 1984-    Jan.       Apr.       Jan.     Jan 1992-    Jan.       Jan.       Jan.       Jan.  
                Census division/State                 Sept. 1985  1989-Mar.  1990-Dec.  1991-Dec.  Dec. 1992  1993-Dec.  1994-Dec.  1995-Dec.  1996-Dec.
                                                                     1990       1990       1991                  1993       1994       1995       1996  
--------------------------------------------------------------------------------------------------------------------------------------------------------
National............................................       36.0        62.0       67.2       72.3       78.8       85.5       89.4       92.6       94.3
New England:                                                                                                                                            
    Maine...........................................       50.9        79.4       80.5       84.2       89.9       92.4       93.6       96.2       97.4
     New Hampshire..................................       40.1        42.8       46.2       68.3       80.7       88.1       90.8       93.2       94.8
     Vermont........................................       37.3        81.4       85.9       90.2       93.4       94.8       95.6       96.9       97.9
     Massachusetts..................................       70.7        95.4       95.0       96.7       96.3       95.9       96.4       97.4       97.9
     Rhode Island...................................       68.7        88.8       95.2       97.6       98.5       98.9       99.1       99.4       99.5
     Connecticut....................................       30.7        65.9       67.9       76.2       82.4       87.9       92.2       94.1       95.1
 Middle Atlantic:                                                                                                                                       
     New York.......................................       31.5        51.7       58.0       63.7       72.2       77.7       82.5       87.5       89.9
     New Jersey.....................................       21.5        42.3       49.6       55.2       61.8       72.6       80.1       84.6       89.8
     Pennsylvania...................................       71.4        81.6       87.9       92.3       95.4       98.0       98.6       98.7       99.0
 East North Central:                                                                                                                                    
    Ohio............................................       41.5        61.9       70.9       79.1       86.3       94.6       97.0       97.8       97.8
     Indiana........................................       18.9        60.6       65.2       70.2       80.9       89.1       92.4       94.0       95.5
     Illinois.......................................       29.4        58.1       61.8       66.1       72.2       82.2       87.9       90.7       93.0
     Michigan.......................................       55.4        85.6       86.0       86.5       92.0       95.1       96.5       97.6       97.9
     Wisconsin......................................       31.3        42.7       48.9       45.6       61.5       76.9       84.0       91.1       93.4
 West North Central:                                                                                                                                    
     Minnesota......................................        9.9        20.2       25.4       28.6       35.5       49.5       68.3       80.5       81.9
     Iowa...........................................       28.5        54.2       57.8       61.9       71.0       80.8       85.2       90.4       95.0
     Missouri \2\...................................       26.7        41.8       40.1       40.4       45.3       67.7       86.9       93.4       94.5
     North Dakota...................................        6.9        32.3       45.5       53.2       61.2       65.8       68.1       89.3       96.3
     South Dakota...................................        3.2        19.5       21.2       21.1       24.6       36.0       42.6       59.2       66.4
     Nebraska.......................................       30.5        51.7       54.8       60.3       69.7       79.8       83.8       86.2       88.8
     Kansas \3\.....................................       48.0        82.5       82.3       86.8       91.3       94.6       94.8       95.3       98.0
 South Atlantic:                                                                                                                                        
     Delaware.......................................       57.0        70.8       76.6       81.7       87.2       93.5       94.6       95.3       96.7
     Maryland \4\...................................       57.8        80.4       83.3       85.6       86.4       87.1       87.4       92.9       94.3
     District of Columbia \5\.......................       60.3        73.9       76.8       80.8       85.4       90.1       92.4       93.8       94.9
     Virginia \6\...................................       31.0        69.5       71.2       78.4       84.1       90.9       94.1       96.3       97.4
     West Virginia..................................       34.5        77.5       80.6       85.2       90.0       93.4       95.3       96.3       96.0
     North Carolina.................................       34.4        55.2       63.9       68.3       82.4       87.1       90.7       92.7       94.7
     South Carolina.................................       29.9        68.5       67.6       71.6       79.3       86.6       90.4       62.7       95.5
     Georgia........................................       29.3        50.7       65.9       74.9       82.8       81.6       90.9       94.8       95.8
     Florida........................................       30.0        61.6       68.8       74.9       81.8       89.0       90.1       94.7       95.8
 East South Central:                                                                                                                                    
     Kentucky.......................................       22.3        64.3       72.6       76.9       84.3       90.7       93.4       94.6       95.5
     Tennessee......................................       25.1        57.4       68.5       76.8       86.8       91.8       94.3       95.6       96.6
     Alabama........................................       42.5        81.3       84.9       88.5       91.7       94.9       96.2       97.0       97.7
     Mississippi....................................       14.3        65.3       68.3       73.9       82.1       88.6       91.2       92.8       94.3
 West South Central:                                                                                                                                    
     Arkansas.......................................       47.9        81.0       84.5       86.5       90.0       93.4       95.2       96.4       97.4
     Louisiana......................................       16.2        71.0       76.7       81.2       86.6       89.4       91.3       92.2       93.6
     Oklahoma.......................................       16.6        39.1       50.0       57.7       62.8       74.0       83.8       91.4       93.8
     Texas..........................................       26.2        52.5       56.9       63.6       72.6       81.5       85.9       90.6       92.5
 Mountain:                                                                                                                                              
     Montana........................................       25.6        29.9       29.7       34.1       42.7       58.9       67.4       83.1       91.8
     Idaho..........................................        8.6        13.2       17.5       21.1       23.5       41.2       54.0       61.6       69.7
     Wyoming........................................       15.7        19.7       25.8       31.9       44.1       61.0       72.1       75.6       81.0
     Colorado.......................................       23.5        47.7       50.5       55.9       63.5       76.4       82.6       86.1       90.3
     New Mexico.....................................       34.1        39.5       51.1       57.8       64.9       78.2       85.0       89.6       90.8
     Arizona........................................       32.7        49.8       60.2       67.8       75.2       83.7       88.9       90.6       91.5
     Utah...........................................       43.8        68.9       65.1       75.1       81.8       83.1       91.3       94.7       96.2
     Nevada.........................................       41.5        69.9       82.1       87.5       92.3       96.0       97.9       98.4       98.8
 Pacific:                                                                                                                                               
     Washington.....................................       17.5        26.9       31.8       37.9       45.2       50.7       82.3       90.5       92.9
     Oregon.........................................       17.3        34.8       43.3       50.7       59.8       73.6       80.9       87.5       91.7
     California.....................................       42.2        67.2       71.2       75.6       80.0       86.6       89.6       91.7       93.3
     Alaska.........................................       17.2        50.0       49.3       58.0       70.9       81.3       84.4       85.4       89.8
     Hawaii.........................................       39.7        58.6       70.1       74.3       84.7       90.6       94.7       97.2      97.3 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during the period.                                                                     
\2\ Starting with fiscal year 1993, includes data for all counties in Missouri plus two counties on the State border located in Kansas.                 
\3\ Starting with fiscal year 1993, includes data for all counties in Kansas excluding two countries on the State border.                               
\4\ Starting with fiscal year 1993, includes data for all counties in Maryland excluding two countries on the State border.                             
\5\ Starting with fiscal year 1993, includes data for the District of Columbia plus two counties in Maryland located on the State border plus several   
  counties and cities located in Virginia near the State border.                                                                                        
\6\ Starting with fiscal year 1993, includes data for all counties in Virginia excluding several counties and cities near the State border.             
                                                                                                                                                        
 NA--Not available.                                                                                                                                     
                                                                                                                                                        
 Source: Health Care Financing Administration, Bureau of Program Operations.                                                                            

    As the participation rate has increased, total allowed 
charges billed by nonparticipating physicians have declined. In 
addition, the number of unassigned claims submitted by 
nonparticipating physicians has declined (see table E-10). 
Total covered charges represented by unassigned claims declined 
from 34.5 to 2.0 percent over the 1984-96 period. The 
proportion of charges billed by participation and assignment 
status varies by State; these data are shown in table E-11.

   TABLE E-10.--DISTRIBUTION OF ALLOWED CHARGES FOR SERVICES BILLED BY  
 PARTICIPATION STATUS OF PHYSICIAN AND ASSIGNMENT STATUS OF CLAIM, 1984-
                                 96 \1\                                 
                              [In percent]                              
------------------------------------------------------------------------
                                                      Nonparticipants   
            Time period             Participants -----------------------
                                                   Assigned   Unassigned
------------------------------------------------------------------------
Oct. 1984-Sept. 1985..............         36.0         29.5        34.5
Oct. 1985-Mar. 1986...............         36.3         29.4        34.3
Apr. 1986-Dec. 1986 \2\...........         38.7         28.0        32.9
Jan. 1987-Mar. 1988 \3\...........         48.1         25.2        26.7
Apr. 1988-Dec. 1988...............         57.9         21.0        21.1
Jan. 1989-Mar. 1990...............         62.0         19.0        18.5
Apr. 1990-Dec. 1990...............         67.2         16.7        16.1
Jan. 1991-Dec. 1991...............         72.3         14.6        13.1
Jan. 1992-Dec. 1992...............         78.8         11.6         9.7
Jan. 1993-Dec. 1993...............         85.5          8.5         6.0
Jan. 1994-Dec. 1994...............         89.4          6.6         4.0
Jan. 1995-Dec. 1995...............         92.6          4.6         2.8
Jan. 1996-Dec. 1996...............         94.3          3.7        2.0 
------------------------------------------------------------------------
\1\ Rates reflect covered charges for physician claims processed during 
  the period.                                                           
\2\ The actual participation period was May through December 1986, and  
  the participation agreements were in effect for that time.            
\3\ The actual participation period is January 1987 through March 1988, 
  and the participation agreements are in effect for that time.         
                                                                        
 Source: Health Care Financing Administration, Bureau of Program        
  Operations.                                                           


   TABLE E-11.--DISTRIBUTION OF ALLOWED CHARGES FOR SERVICES BILLED BY  
   STATE, PARTICIPATION STATUS OF PHYSICIAN, AND ASSIGNMENT STATUS OF   
                    CLAIM, JANUARY-DECEMBER 1996 \1\                    
                              [In percent]                              
------------------------------------------------------------------------
                                                    Nonparticipating    
                                 Participating          physician       
     Census division/State         physician   -------------------------
                                                  Assigned    Unassigned
------------------------------------------------------------------------
National.......................          94.3           3.7          2.0
New England:                                                            
    Maine......................          97.4           2.1          0.5
    New Hampshire..............          94.8           3.4          1.9
    Vermont....................          97.9           1.4          0.7
    Massachusetts..............          97.9           1.9          0.1
    Rhode Island...............          99.5           0.4          0.1
    Connecticut................          95.1           3.1          1.8
Middle Atlantic:                                                        
    New York...................          89.9           7.3          2.8
    New Jersey.................          89.8           5.5          4.7
    Pennsylvania...............          99.0           0.7          0.3
East North Central:                                                     
    Ohio.......................          97.8           1.9          0.2
    Indiana....................          95.5           2.4          2.1
    Illinois...................          93.0           4.2          2.8
    Michigan...................          97.9           1.3          0.7
    Wisconsin..................          93.4           3.2          3.3
West North Central:                                                     
    Minnesota..................          81.9          10.9          7.2
    Iowa.......................          95.0           2.0          3.1
    Missouri \2\...............          94.5           3.4          2.2
    North Dakota...............          96.3           1.7          2.0
    South Dakota...............          66.4           8.4         25.1
    Nebraska...................          88.8           3.4          7.9
    Kansas \3\.................          98.0           1.0          1.0
South Atlantic:                                                         
    Delaware...................          96.7           1.8          1.5
    Maryland \4\...............          94.3           4.4          1.3
    District of Columbia \5\...          94.9           2.6          2.5
    Virginia \6\...............          97.4           1.6          1.0
    West Virginia..............          96.0           3.4          0.6
    North Carolina.............          94.7           3.1          2.2
    South Carolina.............          95.5           2.7          1.8
    Georgia....................          95.8           2.6          1.6
    Florida....................          95.8           3.1          1.1
East South Central:                                                     
    Kentucky...................          95.5           3.2          1.3
    Tennessee..................          96.6           2.3          1.1
    Alabama....................          97.7           1.6          0.8
    Mississippi................          94.3           4.4          1.3
West South Central:                                                     
    Arkansas...................          97.4           1.7          0.9
    Louisiana..................          93.6           5.3          1.1
    Oklahoma...................          93.8           3.3          2.9
    Texas......................          92.5           5.4          2.1
Mountain:                                                               
    Montana....................          91.8           3.8          4.5
    Wyoming....................          81.0           5.7         13.3
    Idaho......................          69.7           9.4         20.9
    Colorado...................          90.3           5.6          4.0
    New Mexico.................          90.8           5.4          3.7
    Arizona....................          91.5           2.1          6.4
    Utah.......................          96.2           2.1          1.7
    Nevada.....................          98.8           0.7          0.5
Pacific:                                                                
    Washington.................          92.9           3.1          3.9
    Oregon.....................          91.7           3.8          4.5
    California.................          93.3           4.9          1.8
    Alaska.....................          89.8           7.4          2.8
    Hawaii.....................          97.3           1.7         0.9 
------------------------------------------------------------------------
\1\ Rates reflect charges for physician claims processed during the     
  period.                                                               
\2\ Includes data for all counties in Missouri plus two counties on the 
  State border located in Kansas.                                       
\3\ Includes data for all counties in Kansas excluding two counties on  
  the State border.                                                     
\4\ Includes data for all counties in Maryland excluding two counties on
  the State border.                                                     
\5\ Includes data for the District of Columbia plus two counties in     
  Maryland located on the State border plus several counties and cities 
  located in Virginia, near the State border.                           
\6\ Includes data for all counties in Virginia excluding several        
  counties and cities near the State border.                            
                                                                        
 Source: Health Care Financing Administration, Bureau of Program        
  Operations.                                                           

                   Distribution of Physician Services

    Tables E-12 to E-20 show the distribution of physicians' 
services for calendar year 1995. These tables provide data from 
the fourth year of the implementation of the Medicare fee 
schedule. As noted earlier, the fee schedule appears to be 
having its intended effect. The projected pattern of 
redistribution from the procedurally oriented specialties to 
the primary care specialties has begun taking place.
    The 1995 data are tabulations from the 1994 National Claims 
History Procedure Summary, which is a summary of all claims 
filed with the Medicare carriers. The totals shown will differ 
from total SMI outlay figures for 1995 shown in the budget for 
several reasons. First, the amounts shown in these tables are 
allowed amounts, rather than reimbursements--that is, they 
include both Medicare's and the enrollee's share of approved 
charges. Second, the amounts shown are for services rendered 
during calendar year 1995; budget figures are for payments made 
during the fiscal year regardless of when the services were 
rendered. Third, the amounts shown are only for services 
reimbursed by carriers under the fee schedule; hence, they do 
not include part B payments to hospital outpatient departments 
or to risk-based prepaid medical plans. Finally, the amounts 
shown underestimate what they are supposed to represent by a 
small amount because some claims for services rendered in 1995 
had not been processed by carriers at the time the 1995 files 
were submitted to HCFA, and because some claims recorded had to 
be eliminated due to recording errors.
    Table E-12 illustrates that in 1995, 76.7 percent of 
allowed amounts under the fee schedule were for physicians' 
services, and another 3.2 percent were for the services of 
limited license practitioners--psychologists, podiatrists, 
optometrists, audiologists, chiropractors, dentists, and 
physical therapists. About 3.9 percent went to independent 
laboratories in 1995, while 16.2 percent went to suppliers of 
medical equipment, prosthetics, and ambulance services.

    TABLE E-12.--ALLOWED AMOUNTS FOR CLAIMS BY TYPE OF PROVIDER, 1995   
------------------------------------------------------------------------
                                        Allowed                         
          Type of provider              amounts   Percent of    Percent 
                                      (millions)     total     inpatient
------------------------------------------------------------------------
Physicians..........................   $42,369.0        76.7        35.3
Limited license practitioners \1\...    $1,784.0         3.2         1.4
Laboratories........................    $2,132.0         3.9         0.2
Medical suppliers \2\...............    $8,932.0        16.2         0.8
                                     -----------------------------------
      All providers \3\.............   $55,217.0       100.0       27.3 
------------------------------------------------------------------------
\1\ Includes psychology, podiatry, optometry, audiology, chiropractic,  
  dentistry, and physical therapy.                                      
\2\ Includes suppliers of medical equipment, prosthetics, and ambulance 
  services.                                                             
\3\ Total does not include charges for hospital outpatient department   
  facility fees or for risk-based prepaid medical plans since these are 
  not reimbursed under the CPR system.                                  
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         

    About 27.3 percent of all allowed amounts were for hospital 
inpatient services, and about 35.3 percent of allowed amounts 
for physicians' services were inpatient. The share of 
physicians' services that are inpatient has dropped in recent 
years, from nearly 64 percent in 1981.
    Table E-13 shows the distribution of spending for 
physicians' services by specialty. (It excludes limited license 
practitioners, labs, and suppliers.) In 1995, generalists 
accounted for 25.8 percent of spending, nonsurgical specialists 
for 27.1 percent, and surgical specialists for 30.7 percent. 
Radiologists, anesthesiologists, and pathologists together 
accounted for 11.3 percent of allowed amounts. Radiation 
oncologists, osteopathic manipulative therapists, intensivists, 
emergency medicine physicians, and other physician specialties 
accounted for 5 percent of total allowed amounts for 
physicians' services.
    The major physician specialties treating the Medicare 
population, in descending order of importance as measured by 
total allowed amounts, were general internists (13.5 percent of 
allowed amounts), ophthalmologists (9.6 percent), cardiologists 
(8.7 percent), radiologists (7.0 percent), and family 
practitioners (6.2 percent).

TABLE E-13.--ALLOWED AMOUNTS FOR PHYSICIANS' SERVICES BY SPECIALTY, 1995
------------------------------------------------------------------------
                                        Allowed    Percent              
             Specialty                  charges       of       Percent  
                                      (millions)    total     inpatient 
------------------------------------------------------------------------
 Generalists:                                                           
    Internal medicine..............      $5,704.0     13.5          36.0
    Family practice................       2,633.0      6.2          23.5
    Clinics........................       1,417.0      3.3          35.8
    General practice...............       1,149.0      2.7          17.6
    Pediatrics.....................          42.0      0.1          22.8
                                    ------------------------------------
      All generalists..............      10,945.0     25.8          31.0
                                    ====================================
 Nonsurgical specialists:                                               
    Cardiology.....................       3,693.0      8.7          51.2
    Gastroenterology...............       1,170.0      2.8          42.5
    Psychiatry.....................         968.0      2.3          31.6
    Dermatology....................         966.0      2.3           0.8
    Hematology/oncology............         941.0      2.2          17.1
    Pulmonary disease..............         897.0      2.1          64.8
    Nephrology.....................         709.0      1.7          49.1
    Neurology......................         663.0      1.6          43.2
    Physical medicine and                                               
     rehabilitation................         326.0      0.8          53.0
    Medical oncology...............         284.0      0.7          16.3
    Rheumatology...................         240.0      0.6          12.4
    Infectious disease.............         189.0      0.4          75.5
    Endocrinology..................         177.0      0.4          32.9
    Allergy/immunology.............         101.0      0.2           3.5
    Geriatric medicine.............          77.0      0.2          29.2
    Nuclear medicine...............          65.0      0.2          18.9
    Peripheral vascular disease....          24.0      0.1          58.5
                                    ------------------------------------
      All nonsurgical specialists..      11,487.0     27.1          39.9
                                    ====================================
 Surgical specialists:                                                  
    Ophthalmology..................       4,082.0      9.6           1.9
    General surgery................       2,137.0      5.0          61.8
    Orthopedic surgery.............       2,101.0      5.0          57.9
    Urology........................       1,784.0      4.2          23.9
    Thoracic surgery...............         728.0      1.7          89.5
    Otolaryngology.................         514.0      1.2          13.5
    Neurosurgery...................         363.0      0.9          83.1
    Gynecology/obstetrics..........         338.0      0.8          37.7
    Cardiac surgery................         314.0      0.7          96.4
    Vascular surgery...............         283.0      0.7          71.5
    Plastic and reconstructive                                          
     surgery.......................         215.0      0.5          28.9
    Colorectal surgery.............          83.0      0.2          35.4
    Hand surgery...................          29.0      0.1          17.9
    Surgical oncology..............          27.0      0.1          56.4
                                    ------------------------------------
      All surgical specialists.....      12,999.0     30.7          37.0
                                    ====================================
Other:                                                                  
    Radiology......................       2,949.0      7.0          28.6
    Anesthesiology.................       1,291.0      3.0          65.7
    Emergency medicine.............         734.0      1.7           3.6
    Pathology......................         554.0      1.3          40.2
    Radiation oncology.............         502.0      1.2           4.6
    Critical care (intensivists)...          62.0      0.1          78.3
    Manipulative therapy...........          20.0    (\1\)          16.0
    Other physician specialties....         827.0      2.0          21.0
                                    ------------------------------------
      Total--all physicians........      42,369.0    100.0         35.3 
------------------------------------------------------------------------
\1\ Less than 0.1 percent.                                              
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         

    The share of services provided on an inpatient basis varied 
by specialty, generally increasing with specialization. About 
31 percent of the services of generalists were inpatient in 
1995. The inpatient share for nonsurgical specialists was 39.9 
percent and 37 percent for surgical specialists.
    Table E-14 shows the distribution of spending for 
physicians' services by type of service. About 39 percent of 
spending was for medical care (nonsurgical) in 1995. About 32.3 
percent of spending was for surgical procedures in total, 
adding together the amounts for surgeons, assistant surgeons, 
and anesthesiologists. About 9.8 percent was for diagnostic 
laboratory tests, which would include not only blood chemistry 
analysis and urinalysis, but also tests such as EKGs. About 9.6 
percent of spending was for radiology, and 5.2 percent was for 
consultations.

    TABLE E-14.--ALLOWED AMOUNTS FOR PHYSICIANS' SERVICES BY TYPE OF    
                              SERVICE, 1995                             
------------------------------------------------------------------------
                                     Allowed                            
         Type of service             charges     Percent of    Percent  
                                    (millions)     total      inpatient 
------------------------------------------------------------------------
Medical care.....................    $16,564.0         39.1         31.8
Surgery..........................     12,099.0         28.6         48.0
Assistance at surgery............        245.0          0.6         92.8
Anesthesia.......................      1,315.0          3.1         64.6
Diagnostic laboratory tests......      4,151.0          9.8         18.3
Diagnostic radiology.............      3,349.0          7.9         22.0
Consultations \1\................      2,221.0          5.2         57.4
Therapeutic radiology............        726.0          1.7          4.8
Mammography......................         64.0          0.2          0.4
Pneumococcal vaccine.............         93.0          0.2  ...........
Other \2\........................      1,540.0          3.6          0.3
                                  --------------------------------------
      All services...............     42,369.0        100.0        35.3 
------------------------------------------------------------------------
\1\ Includes first and second opinions for surgery.                     
\2\ Includes treatment for renal patients, pneumococcal vaccine, and    
  medical supplies, among other services.                               
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         

    Table E-15 lists the top 20 individual services, ranked by 
total allowed amounts on claims submitted by selected 
physicians for 1995. The most important exclusion is amounts 
for the services of anesthesiologists, since there would 
typically be a charge for anesthesiology for the surgical 
procedures. The amounts for surgical procedures include claims 
by both the primary surgeon and any assistant surgeons, but not 
the amounts for anesthesiologists.

 TABLE E-15.--TOP 20 SERVICES BILLED BY PHYSICIANS UNDER MEDICARE, 1995 
------------------------------------------------------------------------
                                                     Allowed            
  Rank order    Service         Description          charges     Percent
                  code                              (millions)  of total
------------------------------------------------------------------------
 1.               99213  Office/outpatient visit,       $2,856       6.7
                          EST.                                          
 2.               66984  Remove cataract, insert         2,096       4.9
                          lens.                                         
 3.               99214  Office/outpatient visit,        1,678       4.0
                          EST.                                          
 4.               99232  Subsequent hospital care        1,656       3.9
 5.               99231  Subsequent hospital care          876       2.1
 6.               99233  Subsequent hospital               822       1.9
                          care--comprehensive.                          
 7.               99212  Office/outpatient visit,          735       1.7
                          EST.                                          
 8.               99223  Initial hospital care...          596       1.4
 9.               99215  Office/outpatient visit,          577       1.4
                          EST.                                          
10.               88305  Tissue exam by                    497       1.2
                          pathologist.                                  
11.               90844  Psychotherapy 45-50               486       1.1
                          minutes.                                      
12.               99254  Initial inpatient                 470       1.1
                          consult.                                      
13.               J9217  Leuprolide acetate                456       1.1
                          suspension.                                   
14.               93307  Echo exam of heart......          445       1.1
15.               99285  Emergency room visit....          413       1.0
16.               92014  Eye, exam and treatment.          366       0.9
17.               99238  Hospital discharge pay..          360       0.9
18.               99255  Initial inpatient                 360       0.8
                          consult.                                      
19.               E1400  Oxygen concentrator less          357       0.8
                          than 2 lite.                                  
20.               99284  Emergency department              346       0.8
                          visit.                                        
                                                  ----------------------
                         Total...................       16,450     38.8 
------------------------------------------------------------------------
\1\ Amounts for surgical procedures include fees for primary and        
  assistant surgeons, but not for anesthesiologists.                    
                                                                        
Note.--EST = established patient.                                       
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         

    The top 20 services (out of more than 7,000) accounted for 
38.8 percent of all spending for all physicians' services in 
1995. Cataract extraction with implantation of an intraocular 
lens was the highest ranked surgical procedure, accounting by 
itself for 4.9 percent of total allowed amounts for physicians' 
services. Most of the services in the top 20 were evaluation 
and management services (that is, visits and consultations).
    Table E-16 presents total allowed amounts for selected 
groups of generic services, and shows the percent of total 
allowed amounts for all physicians' services accounted for by 
each group. As in table E-15, certain physicians' services--
most notably for anesthesiologists--are not included in the 
allowed amounts for each service group. No attempt was made to 
define and rank all possible service groups, so that there may 
be other important service groups that do not appear in the 
table. For example, diagnostic radiology accounts for 7.9 
percent of allowed amounts for physicians' services (from table 
E-14), but radiological services do not appear in table E-16.

     TABLE E-16.--ALLOWED AMOUNTS FOR SELECTED GROUPS OF PHYSICIANS'    
                             SERVICES, 1995                             
------------------------------------------------------------------------
                                                    Allowed             
                 Service group                      charges      Percent
                                                (millions) \1\  of total
------------------------------------------------------------------------
Office visits (99201-99215)...................         $6,718       15.9
Hospital visits (99221-99238).................          4,662       11.0
Cataract surgery (66830-66985)................          2,123        5.0
Emergency room visits (99281-99285)...........          1,065        2.5
SNF visits (99301-99313)......................            803        1.9
EKGs (93000-93018, 93015-26)..................            719        1.7
Colonoscopy (45378-45385, 44388-44393, 45355).            576        1.4
Cardiac catheterization (93501-93553).........            527        1.2
Knee arthroplasty (27446, 27447, 29881).......            372        0.9
Coronary artery bypass (33510-33516)..........            206        0.5
Hemodialysis/CAPD (90935-90947)...............            171        0.4
Hip arthroplasty (27130-27132)................            168        0.4
Thromboendarterectomy (35301-35381)...........            166        0.4
Transurethal surgery (52602)..................            127        0.3
Pacemaker inplant/removal (33200-33214, 33233-                          
 33237).......................................            104        0.2
Home visits (99341-99353).....................             94        0.2
Pacemaker tests (93731-93736).................             86        0.2
Vein bypass (35501-35587).....................             79        0.2
Prostatectomy (55801-55845)...................             58        0.1
Nursing home visits (99321-99333).............             42        0.1
EEGs (95816-95827, 95950, 95955)..............             41        0.1
                                               -------------------------
      Total...................................         18,908      44.6 
------------------------------------------------------------------------
\1\ Amounts for surgical procedures include fees for primary and        
  assistant surgeons, but not for anesthesiologists.                    
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         

    The 21 service groups shown in table E-16 accounted for 
44.6 percent of all allowed amounts for all physicians' 
services in 1995. The single most costly group was office 
visits (accounting for 15.9 percent of total allowed amounts 
for physicians' services), followed by hospital visits (11.0 
percent). Cataract surgery of all types accounted for 5.0 
percent of total allowed amounts for physicians' services. It 
should also be noted that the amount for hemodialysis includes 
only physician services and does not include the much larger 
amounts for the facility charges for hemodialysis that were not 
billed under the fee-for-service reimbursement system.
    In recent years, there have been many changes in the 
delivery of health care services. Some of the more significant 
changes affecting Medicare services have been in the delivery 
of surgical services. First, there has been significant growth 
in the amount of surgical care provided by some specialties. 
Second, there has been a dramatic shift in the place of 
surgical care; that is, surgical care is now frequently 
provided in outpatient settings, whereas previously most 
surgical care was provided in inpatient settings.
    As shown in table E-17, the most significant shift in site 
of surgical care between 1980 and 1995 was out of inpatient 
settings and into other settings. Outpatient hospital settings 
benefited most from this shift, growing from only 3.3 percent 
of all surgical charges in 1980 to 25.5 percent in 1995. The 
proportions of surgery taking place in a physician's office and 
in other nonhospital settings also grew. In 1995 the proportion 
of all surgical care provided in inpatient settings had dropped 
to 45.3 percent.
    Table E-18 shows the percent of total surgical charges by 
specialty in 1980 and 1995. In 1980, three specialties 
(ophthalmology, general surgery, and orthopedic surgery) 
accounted for nearly half of all Medicare surgical care. These 
same three specialties accounted for close to 44 percent of 
total surgical care in 1995. The shares among these specialties 
changed. While ophthalmologists accounted for only 13.6 percent 
in 1980, by 1995 their share had increased to 20.4 percent due 
primarily to the substantial growth in cataract surgery during 
the 1980s. For gastroenterologists, surgical care represented 
much larger proportions of their total Medicare practice in 
1995 than in 1980. On the other hand, surgical charges for 
urologists represented much smaller proportions of their total 
Medicare practice in 1995 than in 1980.
    As shown in table E-19, many different medical specialties 
participated in the shift to outpatient surgery. In 1980, only 
two specialties (dermatology and podiatry) performed the 
majority of their surgical services in outpatient settings; in 
these cases, the care was generally provided in the physician's 
office. In 1995, eight specialties provided a majority of their 
surgical care in outpatient settings: ophthalmology, podiatry, 
gastroenterology, dermatology, ENT (otology, laryngology, and 
rhinology), internal medicine, plastic surgery, and urology. 
Podiatrists and dermatologists continued primarily to work in 
their offices; internists split their noninpatient work between 
office and outpatient settings, while most of the other 
specialties provided their surgical services in outpatient 
hospital and ambulatory surgical facilities. Most surgical 
specialties, such as general, orthopedic, cardiovascular, 
neurological, and thoracic surgeons, remained closely tied to 
inpatient hospital settings.
    In 1995, ophthalmologists provided most (39.9 percent) of 
the surgery done in outpatient hospital settings (see table E-
20). The predominance of ophthalmologists in this setting is 
due to cataract surgery. Dermatologists accounted for the 
largest proportion of office surgical charges, 24.7 percent. 
However, ophthalmologists and podiatrists also represented 
significant percentages of office surgical charges, 20.3 and 
17.6 percent respectively. In inpatient settings, the 
traditional surgical specialties--general surgery, orthopedic 
surgery, cardiovascular surgery, thoracic surgery, and urology 
accounted for 64.9 percent of all surgical charges.
    Table E-21 summarizes the geographic practice cost indices 
for 1997.

  TABLE E-17.--CHARGES SUBMITTED TO MEDICARE FOR ALL PHYSICIAN SURGICAL 
          SERVICES BY PLACE OF SERVICE, SELECTED YEARS 1980-95          
------------------------------------------------------------------------
                                             Surgical charges \1\       
                                     -----------------------------------
                                                              As percent
      Year and place of service        Amount in  Percent of   of total 
                                       millions    surgical    settings 
                                                    charges     charges 
------------------------------------------------------------------------
1980:                                                                   
    Office..........................        $445        11.6        12.2
    Outpatient hospital \1\.........         129         3.3        29.5
    Inpatient hospital..............       3,231        84.4        44.1
    Other \2\.......................          23         0.6         3.7
                                     -----------------------------------
        Total.......................       3,828       100.0        31.8
                                     ===================================
1990:                                                                   
    Office..........................       2,004        18.1        16.2
    Outpatient hospital \1\.........       2,867        26.0        54.3
    Inpatient hospital..............       5,563        50.4        40.6
    Ambulatory surgical center......         488         4.4        51.2
    Other \2\.......................         127         1.1        14.5
                                     -----------------------------------
        Total.......................      11,048       100.0        33.3
                                     ===================================
1993:                                                                   
    Office..........................       2,128        19.7        14.1
    Outpatient hospital \1\.........       2,731        25.3        48.4
    Inpatient hospital..............       5,085        47.2        38.4
    Ambulatory surgical center......         697         6.5        90.5
    Other \2\.......................         136         1.3        11.1
                                     -----------------------------------
        Total.......................      10,777       100.0        30.0
                                     ===================================
1994:                                                                   
    Office..........................       2,379        20.0        14.0
    Outpatient hospital \1\.........       3,046        25.6        47.9
    Inpatient hospital..............       5,518        46.4        38.5
    Ambulatory surgical center......         798         6.7        91.0
    Other \2\.......................         162         1.4         8.7
                                     -----------------------------------
        Total.......................      11,904       100.0        29.5
                                     ===================================
1995:                                                                   
    Office..........................       2,656        20.7        14.3
    Outpatient hospital \1\.........       3,273        25.5        47.3
    Inpatient hospital..............       5,817        45.3        38.8
    Ambulatory surgical center......         887         6.9        91.0
    Other \2\.......................         195         1.5         8.9
                                     -----------------------------------
        Total.......................      12,828       100.0       29.3 
------------------------------------------------------------------------
\1\ May include some services rendered in an ambulatory surgical center.
  Medicare began covering services in ambulatory surgical centers in    
  1982.                                                                 
\2\ Includes homes, nursing homes, and other places of service.         
                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management
  and Strategy.                                                         


  TABLE E-18.--SUBMITTED SURGICAL CHARGES AS A SHARE OF TOTAL SURGICAL  
CHARGES AND AS A PERCENT OF TOTAL PRACTICE CHARGES BY MEDICAL SPECIALTY,
                              1980 AND 1995                             
------------------------------------------------------------------------
                                        Percent        Surgical charges 
                                    distribution of     as a percent of 
                                   surgical charges     total practice  
            Specialty            --------------------       charges     
                                                     -------------------
                                    1980      1995      1980      1995  
------------------------------------------------------------------------
Ophthalmology...................      13.6      20.4      62.1      64.0
General surgery.................      22.1      11.8      71.6      71.0
Orthopedic surgery..............      13.0      11.6      73.6      70.9
Cardiovascular disease..........       2.7       6.4      22.4      22.2
Urology.........................      10.7       5.8      75.6      41.9
Gastroenterology................       1.7       5.5      45.9      60.1
Dermatology.....................       2.4       5.3      60.9      70.0
Podiatry........................       3.0       5.3      53.5      69.1
Thoracic surgery................       8.0       4.7      82.2      82.4
Internal medicine...............       4.2       2.4       6.9       5.5
Clinic and other group practice.       4.7       2.3      25.8      20.9
Neurological surgery............       2.9       2.2      70.2      78.0
Otology, laryngology, rhinology.       1.9       1.7      49.7      43.7
Plastic surgery.................       1.3       1.4      88.1      84.0
Other...........................       8.4      13.2  ........       9.5
                                 ---------------------------------------
      All physicians............     100.0     100.0      31.8     29.5 
------------------------------------------------------------------------
Source: Health Care Financing Administration, Bureau of Data Management 
  and Strategy.                                                         


                     TABLE E-19.--SUBMITTED SURGICAL CHARGES UNDER MEDICARE BY MEDICAL SPECIALTY AND PLACE OF SERVICE, 1980 AND 1995                    
                                                                      [In percent]                                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 1980                                                   1995                            
                                           -------------------------------------------------------------------------------------------------------------
             Medical specialty                           Inpatient  Outpatient                           Inpatient   Outpatient                         
                                              Office     hospital    hospital    Other \1\    Office     hospital   hospital \2\    ASC \3\    Other \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
General surgery...........................         4.4        92.6         2.9         0.1         5.3        69.6         23.4          1.4         0.2
Cardiovascular disease....................         1.7        97.9         0.4       (\4\)         1.9        82.2         14.8          0.1         1.0
Dermatology...............................        94.6         4.0         0.9         0.6        97.1         0.2          2.0          0.5         0.2
Gastroenterology..........................        12.0        75.6        12.3         0.1         6.9        35.2         48.7          9.0         0.1
Internal medicine.........................        17.5        76.6         5.7         0.2        25.3        41.6         30.2          2.5         0.4
Neurological surgery......................         1.1        98.5         0.5       (\4\)         1.0        94.8          4.0          0.1         0.0
Obstetrics/gynecology.....................  ..........  ..........  ..........  ..........        15.7        70.7         12.4          1.0         0.1
Otology, laryngology, rhinology...........        12.6        83.7         3.7       (\4\)        34.1        23.6         37.4          4.4         0.4
Ophthalmology.............................         7.9        87.1         5.0         0.1        20.6         2.6         50.0         26.5         0.3
Orthopedic surgery........................         6.3        90.2         3.4         0.1         8.0        75.3         14.9          1.6         0.1
Plastic surgery...........................        13.0        67.2        19.7         0.1        22.2        30.2         39.7          7.5         0.4
Thoracic surgery..........................         0.8        98.7         0.5       (\4\)         0.6        96.4          2.9          0.1         0.0
Urology...................................         8.0        90.6         1.4         0.1        27.5        46.8         23.6          1.9         0.2
Podiatry..................................        71.3        13.5         0.9        14.3        68.8         1.3          4.9          1.6        23.4
Clinic and other group practice...........        10.1        85.3         4.5         0.1        12.3        59.9         25.7          1.9         0.3
Other.....................................  ..........  ..........  ..........  ..........        16.9        59.9         21.5          1.3         0.5
                                           -------------------------------------------------------------------------------------------------------------
      All physicians......................        11.6        84.4         3.3         0.5        20.7        45.3         25.5          6.9        1.5 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Includes homes, nursing homes, and other places of service. Medicare began covering services in ambulatory surgical centers in 1982.                
\2\ May include some services rendered in an ASC.                                                                                                       
\3\ Ambulatory surgical center.                                                                                                                         
\4\ Less than 0.05.                                                                                                                                     
                                                                                                                                                        
 Source: Health Care Financing Administration, Bureau of Data Management and Strategy.                                                                  


    TABLE E-20.--PERCENT DISTRIBUTION OF ALLOWED SURGICAL CHARGES BY    
        SELECTED SPECIALTIES AND SELECTED PLACE OF SERVICE, 1995        
------------------------------------------------------------------------
                       Place of service                          Percent
------------------------------------------------------------------------
Inpatient hospital:                                                     
    Orthopedic surgery........................................      19.3
    General surgery...........................................      18.1
    Cardiovascular disease....................................      11.6
    Thoracic surgery..........................................       9.9
    Urology...................................................       6.0
    Neurological surgery......................................       4.6
    Gastroenterology..........................................       4.3
    Clinic and other group practice...........................       3.0
    Internal medicine.........................................       2.2
    Ophthalmology.............................................       1.2
    Other medical and surgical specialties....................      19.8
                                                               ---------
      Total...................................................     100.0
                                                               =========
Office:                                                                 
    Dermatology...............................................      24.7
    Ophthalmology.............................................      20.3
    Podiatry..................................................      17.6
    Urology...................................................       7.7
    Orthopedic surgery........................................       4.5
    Family Practice...........................................       3.4
    General surgery...........................................       3.0
    Internal medicine.........................................       3.0
    Gastroenterology..........................................       1.8
    Clinic and other group practice...........................       1.3
    Other medical and surgical specialties....................      12.6
                                                               ---------
      Total...................................................     100.0
                                                               =========
Outpatient hospital:                                                    
    Ophthalmology.............................................      39.9
    General surgery...........................................      10.8
    Gastroenterology..........................................      10.5
    Orthopedic surgery........................................       6.8
    Urology...................................................       5.4
    Internal medicine.........................................       2.9
    Otology, larynology, rhinology............................       2.6
    Clinic and other group practice...........................       2.3
    Plastic surgery...........................................       2.2
    Other medical and surgical specialties....................      16.7
                                                               ---------
      Total...................................................    100.0 
------------------------------------------------------------------------
Source: Health Care Financing Administration, Bureau of Data Management 
  and Strategy.                                                         


 TABLE E-21.--1997 GEOGRAPHIC PRACTICE COST INDICES BY MEDICARE CARRIER 
                              AND LOCALITY                              
------------------------------------------------------------------------
                                                   Cost indices         
Carrier  Locality                       --------------------------------
 number   number       Locality name               Practice             
                                           Work     expense  Malpractice
------------------------------------------------------------------------
00510..        00  Alabama.............     0.980     0.871       0.927 
01020..        01  Alaska..............     1.064     1.155       1.617 
01030..        00  Arizona.............     0.996     0.955       1.321 
00520..        13  Arkansas............     0.954     0.853       0.427 
00542..        03  Marin/Napa/Solano,                                   
                    CA.................     1.015     1.180       0.596 
00542..        05  San Francisco, CA...     1.068     1.330       0.596 
00542..        06  San Mateo, CA.......     1.049     1.300       0.596 
00542..        07  Oakland/Berkeley, CA     1.042     1.215       0.596 
00542..        09  Santa Clara, CA.....     1.064     1.289       0.596 
02050..        17  Ventura.............     1.028     1.192       0.686 
02050..        18  Los Angeles, CA.....     1.056     1.207       0.752 
02050..        26  Anaheim/Santa Ana,                                   
                    CA.................     1.037     1.205       0.752 
02050..        99  Rest of California..     1.009     1.048       0.627 
00542..        99  Rest of California..     1.009     1.048       0.627 
00824..        01  Colorado............     0.989     0.951       0.827 
10230..        00  Connecticut.........     1.050     1.194       1.001 
00570..        01  Delaware............     1.021     1.032       0.792 
00580..        01  DC & MD/VA Suburbs..     1.051     1.192       0.980 
00590..        04  Miami, FL...........     1.016     1.087       2.456 
00590..        03  Ft. Lauderdale, FL..     0.998     1.036       1.867 
00590..        99  Rest of Florida.....     0.977     0.944       1.417 
01040..        01  Atlanta, GA.........     1.007     1.030       0.902 
01040..        99  Rest of Georgia.....     0.971     0.891       0.902 
01120..        01  Hawaii..............     0.999     1.220       0.921 
05130..        00  Idaho...............     0.962     0.882       0.588 
00621..        16  Chicago, IL.........     1.028     1.080       1.382 
00621..        15  Suburban Chicago, IL     1.007     1.093       1.159 
00621..        12  East St. Louis, IL..     0.988     0.929       1.202 
00621..        99  Rest of Illinois....     0.965     0.884       0.824 
00630..        00  Indiana.............     0.982     0.917       0.356 
00640..        00  Iowa................     0.960     0.877       0.679 
00650..        00  Kansas..............     0.964     0.891       1.191 
00660..        00  Kentucky............     0.971     0.869       0.819 
00528..        01  New Orleans, LA.....     0.999     0.946       0.997 
00528..        99  Rest of Louisiana...     0.969     0.870       0.912 
21200..        03  Southern Maine......     0.980     1.034       0.759 
21200..        99  Rest of Maine.......     0.962     0.925       0.759 
00901..        01  Baltimore/Surr Ctys,                                 
                    MD.................     1.021     1.036       1.115 
00901..        99  Rest of Maryland....     0.984     0.953       0.862 
00700..        01  Boston, MA..........     1.040     1.213       0.978 
00700..        99  Rest of                                              
                    Massachusetts......     1.012     1.086       0.978 
00623..        01  Detroit, MI.........     1.043     1.038       3.051 
00623..        99  Rest of Michigan....     0.998     0.935       1.844 
10240..        00  Minnesota...........     0.990     0.965       0.594 
10250..        00  Mississippi.........     0.958     0.845       0.726 
11260..        01  St. Louis, MO.......     0.994     0.944       1.207 
00740..        02  Metro Kansas City,                                   
                    MO.................     0.989     0.949       1.207 
00740..        99  Rest of Missouri....     0.947     0.835       1.159 
11260..        99  Rest of Missouri....     0.947     0.835       1.159 
00751..        01  Montana.............     0.952     0.864       0.756 
00655..        00  Nebraska............     0.951     0.872       0.444 
01290..        00  Nevada..............     1.007     1.029       0.887 
00780..        40  New Hampshire.......     0.988     1.034       0.916 
00860..        01  Northern New Jersey.     1.059     1.215       0.762 
00860..        99  Rest of New Jersey..     1.029     1.115       0.762 
01360..        05  New Mexico..........     0.975     0.903       0.792 
00803..        01  Manhattan, NY.......     1.095     1.359       1.546 
00803..        02  NYC Suburbs/LI, NY..     1.068     1.235       1.759 
00803..        03  Poughkeepsie/N NYC,                                  
                    NY.................     1.011     1.081       1.218 
14330..        04  Queens, NY..........     1.058     1.240       1.686 
00801..        99  Rest of New York....     1.002     0.955       0.821 
05535..        00  North Carolina......     0.971     0.918       0.435 
00820..        01  North Dakota........     0.951     0.860       0.617 
16360..        00  Ohio................     0.991     0.940       1.049 
01370..        00  Oklahoma............     0.970     0.882       0.481 
01380..        01  Portland, OR........     0.996     0.998       0.637 
01380..        99  Rest of Oregon......     0.963     0.930       0.637 
00865..        01  Philadelphia, PA....     1.025     1.091       1.314 
00865..        99  Rest of Pennsylvania     0.990     0.924       0.735 
00973..        20  Puerto Rico.........     0.883     0.739       0.268 
00870..        01  Rhode Island........     1.019     1.074       1.569 
00880..        01  South Carolina......     0.976     0.899       0.361 
00820..        02  South Dakota........     0.936     0.856       0.443 
05440..        35  Tennessee...........     0.976     0.899       0.524 
00900..        09  Brazoria, TX........     0.993     0.966       1.428 
00900..        11  Dallas, TX..........     1.012     1.012       0.893 
00900..        15  Galveston, TX.......     0.989     0.966       1.428 
00900..        18  Houston, TX.........     1.021     1.005       1.428 
00900..        20  Beaumont, TX........     0.993     0.893       1.428 
00900..        28  Fort Worth, TX......     0.989     0.972       0.893 
00900..        31  Austin, TX..........     0.987     0.986       0.827 
00900..        99  Rest of Texas.......     0.967     0.879       0.839 
00910..        09  Utah................     0.978     0.891       0.644 
00780..        50  Vermont.............     0.974     0.988       0.452 
10490..        00  Virginia............     0.987     0.941       0.518 
00973..        50  Virgin Islands......     0.966     0.978       1.023 
01390..        02  Seattle (King Co),                                   
                    WA.................     1.006     1.077       0.748 
01390..        99  Rest of Washington..     0.983     0.961       0.748 
16510..        00  West Virginia.......     0.964     0.850       1.004 
00951..        00  Wisconsin...........     0.982     0.926       1.160 
00825..        21  Wyoming.............     0.968     0.881      0.811  
------------------------------------------------------------------------
Note.--Work geographic practice cost index (GPCI) is the 1/4 work GPCI  
  required by section 1848(e)(1)(A)(iii) of the Social Security Act.    
                                                                        
 Source: Federal Register (1996b).                                      

                               REFERENCES

Federal Register. (1996a, November 22). Medicare Program; 
        Physician fee schedule update for calendar year 1997 
        and Physician volume performance standard Rates of 
        Increase for Federal fiscal year 1997; Final notice. 
        61(227). pp. 59717-24.
Federal Register. (1996b, November 22). Medicare Program; 
        Revisions to Payment Policies and Five-Year Review of 
        and Adjustments to the Relative Value Units Under the 
        Physician fee schedule update for calendar year 1997; 
        Final rule. 61(227). pp. 59490-714.
Physician Payment Review Commission. (1997). Annual report to 
        Congress. Washington, DC: Author.