Medicare payment rates will drop 4.3% in 2006, CMS proposed rule says

August 4, 2005

The Centers for Medicare & Medicaid Services has announced the details of a proposed rule that would lower payment rates and revise payment policies under the Medicare Physician Fee Schedule.

The Centers for Medicare & Medicaid Services has announced the details of a proposed rule that would lower payment rates and revise payment policies under the Medicare Physician Fee Schedule. Under the proposed rule, payment rates per service for physicians' services would be reduced by 4.3% for 2006, a reduction required by a statutory formula that takes into account substantial growth in overall Medicare spending in 2004.

The fee schedule is updated on an annual basis according to a formula specified by statute. The formula requires CMS to adjust the update up or down, depending on how actual expenditures compare to the sustainable growth rate or SGR. The SGR in turn is calculated based on medical inflation, the projected growth in the domestic economy, projected growth in the number of beneficiaries in fee-for-service Medicare, and changes in law or regulation. If actual spending exceeds the target, or SGR, as it has in recent years, then the law requires CMS to reduce the update factor, CMS said in a statement.

Other provisions in the proposed rule address:

  • revising the methodology used to account for the costs of running a physician's practice

  • refinements to the payment adjustments for the medical liability costs associated with specific services

  • revising the list of health services for which physicians are prohibited from self-referring their patients to include diagnostic and therapeutic nuclear medicine services

  • and technical refinements to the average sales price methodology.