The Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that would update payment policies and rates for physicians and nonphysician practitioners (NPPs) for services paid under the Medicare Physician Fee Schedule (MPFS) in calendar year (CY) 2012.

Under current law, providers would face steep across-the-board reduction in payment rates, based on a formula—the Sustainable Growth Rate (SGR)—that was adopted in the Balanced Budget Act of 1997. If it goes into effect, Medicare payment rates are projected to be reduced by 29.5% for services in 2012. This is the eleventh time the SGR formula resulted in a payment cut, although the cuts have been averted through legislation in all but CY 2002. In 2010, three separate pieces of legislation were necessary to avert the payment cuts, followed by two additional enactments that authorized increases in the physician update, resulting in higher payment rates for physicians’ services performed between June 1, 2010 and December 31, 2011.

“This payment cut would have serious consequences and we cannot and will not allow it to happen,” said Dr Donald M. Berwick, CMS administrator. “We need a permanent SGR fix to solve this problem once and for all. That’s why the President’s budget and his fiscal framework call for averting these cuts and why we are determined to pass and implement a permanent and sustainable fix.”

In the 2012 proposed rule, CMS is significantly expanding the potentially misvalued code initiative, an effort to ensure Medicare is paying accurately for physician services and more closely managing the payment system. This year, CMS is focusing on the highest volume and dollar codes billed by physicians to determine whether these codes are overvalued and if evaluation and management codes are undervalued.

“We believe strong efforts are needed to evaluate Medicare’s fee schedule to ensure that it is paying accurately and ensuring that Medicare beneficiaries continue to have access to vital services, such as primary care services,” said Jonathan Blum, deputy administrator and director for the Center for Medicare.

CMS is also proposing some changes in how it adjusts payment for geographic variation in the cost of practice. The Affordable Care Act made some temporary adjustments that would be in place for 2 years while CMS and the Institute of Medicine study these issues. As part of this initiative, CMS is replacing some of the data sources—such as using data from the American Community Survey (ACS) in place of HUD rental data and also using ACS data in place of the data currently used for nonphysician employee compensation—as well as making other adjustments called for in prior year public comments. Although these proposals result in very little change to the indices, they show that the data Medicare has used in the past and is proposing to use in the future produce consistent results—suggesting past year adjustments have accurately reflected geographic variations in the cost of practice.