To amend title XVIII of the Social Security Act to eliminate mandated caps on physicians' fees, and to eliminate the reimbursement differential between hospitals in different areas.

Amends part B (Supplementary Medical Insurance) of title XVIII (Medicare) of the Social Security Act to eliminate limitations on physician charges and effectively eliminate the distinction between participating and nonparticipating physicians.

Requires that by April 1, 1989, both the Secretary of Health and Human Services and the Prospective Payment Assessment Commission submit a report to the Congress recommending a methodology for eliminating the differences in average standardized Medicare payments to large urban, other urban, and rural hospitals by October 1, 1991. Directs the Congressional Budget Office (CBO) to submit an analysis of such reports to the Congress by May 1, 1989. Requires the Secretary to promulgate final regulations by August 30, 1989, for the implementation of such recommendations.

Requires that by April 1, 1990, both the Secretary and the Commission submit a report to the Congress specifying the manner in which average standardized payments to hospitals should be adjusted to reflect legitimate differences in operating costs for different categories of hospitals. Directs the CBO to submit an analysis of such reports to the Congress by May 1, 1990. Requires the Secretary to promulgate final regulations by August 30, 1991, for the implementation of such recommendations.