Medicare's new payment plan

In an effort to improve subsidized health care, Medicare announced that it would launch a revised system for reimbursing physicians who provide care to Medicare patients.

The 1999 physician fee schedule will relate payment for physician practice expenses to the actual resources used to provide medical services rather than for the physicians' historical charges. Medicare will also increase physician fees annually by 2.3%.

Under the new system, physicians who provide services primarily in office settings, such as family practice and internal medicine specialists, will generally receive increased payments. Physicians who provide services in hospital settings, such as cardiac surgeons and neurosurgeons, will generally receive decreased payments.

"By making sure that Medicare pays physicians fairly, we help ensure that Medicare beneficiaries will continue to have broad access to the physicians they need to stay healthy and productive," said Nancy-Ann DeParle, HCFA administrator.

In the past, physicians' reimbursement levels fluctuated. A coronary bypass surgery, for example, might merit practice-reimbursement payment that was more than 100 times greater than those for an office visit, even though costs for bypass surgery are only approximately 40 times higher than an office visit.

In order to devise the new policy, HCFA divided practice expenses into indirect and direct expenses. Indirect expenses include the cost of general office supplies and utilities, and cannot be tied to individual procedures. Direct expenses include non-physician labor, medical equipment and medical supplies needed for individual procedures.

Under the new policy, each medical procedure will be measured relative to all other procedures according to the amount of resources used. Malpractice expenses will be resource-based beginning in the year 2000. PR