November 2, 2001

CMS Issues Negative 2002 Update to Physician Payments

The Centers for Medicaid and Medicare Services (CMS) Oct. 31 issued a press release announcing that the 2002 update to physician payments will be negative 4.8 percent.

"This formula, using new economic data from a slowing economy and high levels of expenditures for physicians' services, has produced a negative update for the base physician fee calculation for calendar year 2002. As a result, although total spending is projected to increase by about 1 percent in 2002, the factor used to update payment rates for individual services will go down by 4.8 percent, and the conversion factor will be still lower (5.4 percent below 2001 levels)."

The update to the conversion factor is based on a target for overall spending for physician services according to a methodology known as the sustainable growth rate (SGR). The calculation of the SGR is based on a formula designed to control overall spending while accounting for factors that affect the costs of providing care. As one of the factors used in the calculation is the change in gross domestic product, the downward economy will significantly affect the update. Additionally, the American Medical Association (AMA) as well as most specialty societies and the AAMC believe that the costs of mandated services and significant unfunded mandates are not accurately reflected in the calculation.

The AAMC, American Medical Association and 71 other physician specialty organizations Oct. 30 wrote asking Congress to delay the update cut, citing a flawed methodology to determine the update. The letter states, "The Medicare Payment Advisory Commission (MedPAC) has called for the elimination of the current update formula and warned that cuts of the magnitude expected under this formula next year could 'raise concerns about the adequacy of payments and beneficiary access to care.'" The letter supports a delay of the 2002 update until permanent changes can be made in the formula.

Information: Denise Dodero, Division of Health Care Affairs, 202-828-0493.