Measuring Input Prices for Physicians: The Revised Medicare

Medicare payments for physician services under Part B were restrained historically by capping prevailing charges using the Medicare Economic Index (MEI). The MEI is an input price index for physician services that incorporates an adjustment for economywide labor productivity. It has not undergone a major revision since 1975. In 1987, the Health Care Financing Administration sponsored a conference in which modifications to the MEI were discussed. It was agreed that the following might be considered in any proposed recalculation of the index: 1. the adoption of a specific type of index for developing the MEI, 2. the use of more current data, 3. the revision of expenditure categories, 4. the selection of appropriate price proxies, and 5. the development of a more stable productivity adjustment.