Impact of the Medicare Fee Schedule on Payments to Physicians

Beginning in 1992, the Medicare program will pay physicians by the Medicare Fee Schedule, a system of geographically adjusted standardized payment rates based in part on the Resource-Based Relative Value Scale developed by Hsaio et al and in part on current Medicare payments. In our simulations of the Medicare Fee Schedule, we find that (1) redistributions of Medicare-allowed charges across specialities will be substantial but approximately only half the size projected by Hsaio, (2) there will be large redistributions among geographic areas that tend to compound the specialty redistributions, and (3) there will be wide variation within specialties as to how individual providers are affected. The majority of the redistributive impact of the Medicare Fee Schedule is attributable to implementation of a geographically adjusted system of standardized payments rather than to the particular work values developed by Hsiao et al in the Resource-Based Relative Value Scale.