The federal government on Wednesday announced that it intends to remove the cost of prescription drugs from its formula for determining payments from the Medicare program to physicians.

The move is expected to help keep Medicare payment rates for physicians from dropping in future years. The White House budget for 2010 had suggested that the cost of physician-administered prescription drugs could be taken out of the formula as a way to stabilize payment rates, and the Centers for Medicare and Medicaid Services made the change official Wednesday.

CMS, in a statement, said the change "would reduce the number of years in which physicians are projected to experience a negative update" to their payment rates.

American Medical Association President J. James Rohack in a statement called the CMS announcement "a major victory for America's seniors and their physicians."

The proposed change, which won't take effect immediately, won't have an effect on next year's physician payment rate. Under current law, physician payment rates under Medicare are set to decline 21.5% in 2010 - but Congress is considered likely to take action to stop the cut from taking effect.

Physician payment rates under Medicare are determined by a formula created in 1997 to draw down the cost of medical services under the program. If medical spending exceeds a target generated by the formula, then physician payments are automatically reduced. If spending falls lower than the target, then payments are increased.

Physicians' groups for years have lobbied for Congress and CMS to remove physician-administered drugs from the formula, since the cost of drugs has risen faster than other medical services considered under the formula.

Senate Finance Chairman Max Baucus, D-Mont., voiced support for the removal of prescription drugs from the formula last year in a part of a broad-spanning health policy paper.

An increase in payment rates for physicians under the Medicare program could be welcome news for privately run Medicare plans, known as Medicare Advantage plans. Their growth rate -- and their payment rates from the federal government -- are determined in part by the federal government's payment rate to physicians.

The 2010 Medicare Advantage payment announced in February results in a 4% to 5% cut in payments to insurers, in part because of the projected cut in Medicare payments to doctors.

Medicare Advantage plans enroll more than 10 million elderly patients and are a major source of business for Medicare-focused insurers, such as Humana Inc. (HUM), Health Spring Inc. (HS) and Universal American Corp. (UAM).

CMS on Wednesday also said it would seek policy changes to steer larger payments toward primary-care physicians. One of those would increase the payment rate for a routine medical exam known as the "Welcome to Medicare" doctor's visit. It also said it would eliminate payments for specialists who currently bill Medicare under "consultation codes" and instead pay the specialists using a less-costly code.

Another proposed change would reduce payment for costly medical-imaging services. CMS said current payment rates are provided under the premise that imaging equipment is being used 50% of the time, a percentage which surveys say is too low.

-By Patrick Yoest, Dow Jones Newswires; 202-862-3554;