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Updating Practice Expense Component' which was released on December 13, 
2004.

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Report to Congressional Committees:

United States Government Accountability Office:

GAO:

December 2004:

Medicare Physician Fee Schedule:

CMS Needs a Plan for Updating Practice Expense Component:

GAO-05-60:

GAO Highlights:

Highlights of GAO-05-60, a report to congressional committees

Why GAO Did This Study:

Medicare’s payments for the costs physicians incur in operating their 
practices are based on two sets of estimates: total practice expenses 
and resource estimates for individual services. Total practice expense 
estimates were derived from American Medical Association (AMA) 
physician surveys, which the Centers for Medicare & Medicaid Services 
(CMS) refines with supplemental data submitted by medical specialty 
societies. Resource estimates for individual services were developed by 
expert panels and refined by CMS with recommendations from another 
expert panel. In response to a mandate in the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000, GAO evaluated 
CMS’s processes for updating total practice expense and resource 
estimates and whether CMS will have the data necessary to update the 
fee schedule at least every 5 years as mandated by law.

What GAO Found:

CMS reviews supplemental data from medical specialties on total 
practice expenses to determine whether it should use the data, but 
aspects of CMS’s review may result in its not utilizing the best data. 
CMS’s review is necessary because it helps protect against perceived or 
actual bias in the estimates. Risk of bias exists because only 
specialties that believe their Medicare fees are too low are likely to 
submit supplemental data, and the data are not audited. CMS, however, 
may still use certain data submissions that are not representative of 
physician practices within a specialty. CMS also may reject some data 
that are more representative of a specialty’s total practice expenses 
than the data currently used for that specialty. In addition, CMS 
reviewed a 2002 data submission for accuracy, which is an important 
additional check, yet when the data did not meet the accuracy test, CMS 
did not reject the data. CMS has not stated whether it will review the 
accuracy of all supplemental data submissions. 

Stakeholders such as specialty societies and AMA said the expert panel 
improved resource estimates for individual services because of the 
rigor of its evaluation process. CMS and specialty societies generally 
accepted the panel’s estimates because the panel represented a broad 
range of specialties and its collaborative evaluation process became 
increasingly systematic. CMS implemented almost all of the panel’s 
estimates but appropriately changed some estimates that conflicted with 
Medicare coverage rules and changed others to make them consistent 
across services. In modifying other estimates, however, CMS did not 
always rely on adequate data or explain its rationale. Certain 
physician groups told GAO that this had diminished their confidence in 
the process for updating Medicare’s fees, and physicians’ confidence in 
the process is important to ensure their continued participation in 
Medicare. 

CMS does not have a plan for developing and using appropriate data for 
the mandated review of the fee schedule. CMS reported that it is in the 
process of obtaining a contract to collect practice expense data from 
the major physician and nonphysician specialties but did not provide 
specifics. A plan for the data collection is important for several 
reasons. Data sources that had been used no longer exist or are 
insufficient. The AMA physician survey that provided total practice 
expense data was last conducted in 1999 and was modified in 2000 such 
that it no longer collected the necessary data. Data submitted 
voluntarily by specialties to update these estimates are not an 
appropriate substitute for a systematic data collection effort. In 
addition, the expert panel that reviewed resource estimates for 
individual services completed its work in its final meeting in March 
2004. CMS indicated that an ongoing AMA committee would continue to 
develop estimates for new and revised services. While CMS officials 
told GAO they believe CMS can complete the review of the fee schedule 
as required by 2007, without a specific plan CMS cannot ensure that it 
will be able to collect the data and update the fee schedule in a 
timely manner.

What GAO Recommends:

GAO recommends that CMS modify its review of supplemental data 
submissions, base changes to the expert panel’s recommendations on data 
analysis and a documented, transparent process, and develop and 
implement a plan to develop data for the mandated updates. CMS said it 
had taken or planned to take most actions recommended, but its actions 
do not obviate the need for the recommendations. AMA agreed with the 
findings but not with all of GAO’s conclusions.

www.gao.gov/cgi-bin/getrpt?GAO-05-60.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Laura A. Dummit at (202) 
512-7119.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Certain Aspects of CMS's Review Are Problematic:

Updating Process Improved Resource Estimates for Individual Services, 
Although Certain CMS Changes Were Made without Adequate Justification:

CMS Has Not Specified a Plan for Developing Appropriate Data to Update 
the Fee Schedule:

Conclusions:

Recommendations for Executive Action:

Agency and Industry Comments and Our Evaluation:

Appendix I: Medical Specialty Societies Interviewed for This Report:

Appendix II: Scope and Methodology:

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services:

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: CMS Criteria for Evaluating Specialty Society Supplemental 
Data Submissions:

Table 2: Supplemental Data Submissions by Specialty, CMS Decision, and 
Reasons for Rejection, 2000 through 2002:

Abbreviations:

AMA: American Medical Association: 
AOA: American Optometric Association: 
ASCO: American Society of Clinical Oncology: 
BLS: Bureau of Labor Statistics: 
CMS: Centers for Medicare & Medicaid Services:
CPEP: clinical practice expert panels: 
HCFA: Health Care Financing Administration: 
OIG: Office of Inspector General: 
PEAC: Practice Expense Advisory Committee: 
RUC: RVS Update Committee: 
SMS: Socioeconomic Monitoring System:

United States Government Accountability Office:

Washington, DC 20548:

December 13, 2004:

Congressional Committees:

Medicare pays for physician services using a fee schedule based on the 
resources required to deliver each service. Under this fee schedule, a 
single fee is paid for each of the more than 7,000 services (such as 
office visits, surgical procedures, and tests) delivered by physicians 
and certain other health professionals, regardless of the medical 
specialty performing the service. The fee is made up of three parts 
that recognize different types of resources required to provide each 
service. The physician work component provides payment for the 
physician's time, skill, and training to perform the service. The 
malpractice component provides payment for the expenses of obtaining 
professional liability insurance. The practice expense component 
provides payment for the expenses incurred in operating a practice, 
such as nurses' salaries, space, and equipment.[Footnote 1] Almost half 
of the approximately $53 billion Medicare paid for services under the 
physician fee schedule in 2003 compensated physicians for practice 
expenses. The Centers for Medicare & Medicaid Services (CMS), the 
agency within the Department of Health and Human Services (HHS) that 
administers Medicare, is required to review and adjust the fees for all 
physician services at least every 5 years to account for a number of 
factors, including changes in medical practice.[Footnote 2]

Some medical specialty societies have raised concerns that Medicare's 
practice expense payments do not cover their physicians' practice 
expenses, in part because of inadequacies in the data used to establish 
the payments. We previously reported that although the data used were 
the best available at the time resource-based practice expense payments 
were developed, they needed refinements to correct potential 
weaknesses.[Footnote 3]

Practice expense payments are developed with (1) estimates of the total 
practice expenses that physicians in each specialty incur to operate 
their practices and (2) estimates of the resources required to perform 
each of the individual services provided by the physicians in each 
specialty. Total practice expenses were estimated originally using data 
from American Medical Association (AMA) surveys of physicians. To 
refine total practice expense estimates, CMS was required to establish 
a review process to accept data submitted voluntarily by medical 
specialty societies that were collected through a survey of physicians 
practicing in that specialty to supplement the AMA survey 
data.[Footnote 4] As of June 2004, six specialties had submitted 
supplemental data,[Footnote 5] and CMS had accepted three submissions. 
The resources required to perform individual services originally were 
estimated by panels of clinicians convened by the Health Care Financing 
Administration (HCFA).[Footnote 6] To refine these estimates, CMS made 
its own changes but largely relied on recommendations from the AMA-
sponsored Practice Expense Advisory Committee (PEAC), which comprised 
expert panels of physicians and other clinicians that developed 
service-specific resource estimates based on information from specialty 
societies.

The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000 directed that we review the processes and data used to 
refine practice expense payments for all specialties.[Footnote 7] As 
agreed with your offices, we (1) evaluated CMS's process for reviewing 
the supplemental data submitted by specialty societies on total 
practice expenses, (2) evaluated CMS's process for updating estimates 
of resources required to perform individual services, and (3) 
determined whether CMS will have the data necessary to review and 
adjust the physician fee schedule at least every 5 years, as required 
by law.

To conduct this work, we invited 50 medical specialty societies to meet 
with us to discuss their experiences with developing and submitting 
supplemental practice expense data and their views of the PEAC process. 
We met with representatives of the 32 specialty societies that 
responded and reviewed written materials they gave us. (App. I lists 
the 32 medical specialty societies that responded.) We evaluated CMS's 
review of the supplemental total practice expense data by examining 
specialty societies' submissions and reports from the contractor CMS 
hired to provide technical assistance to the specialty societies and 
CMS on the supplemental data submission process. We also interviewed 
CMS officials and the contractor about the process CMS uses to review 
submissions. To evaluate CMS's process for updating resource estimates 
for individual services, we interviewed the specialties' 
representatives, attended PEAC meetings, and examined supporting 
materials that specialties provided to the PEAC. To determine CMS's 
decisions on PEAC recommendations and CMS's rationale for other changes 
to resource estimates for individual services, we reviewed relevant 
documents published in the Federal Register[Footnote 8] and an HHS 
Office of Inspector General (OIG) report.[Footnote 9] We also discussed 
with CMS staff CMS's rationale for decisions regarding the refinement 
processes and its views about prospects for obtaining data to perform 
the mandated reviews. We performed our work from November 2001 through 
December 2004 in accordance with generally accepted government auditing 
standards. (App. II provides details of our scope and methodology.)

Results in Brief:

CMS's review of supplemental data provided by medical specialties on 
total practice expenses is necessary to protect against the risk of 
bias inherent in a voluntary submission process, since only those 
specialties that believe their estimates are too low are likely to 
submit data. However, certain aspects of the review may result in CMS's 
not utilizing the best available data. First, in assessing whether the 
respondents to the supplemental data survey are representative of all 
physician practices within a specialty, CMS may not be examining 
physician practice characteristics that affect practice expenses. For 
example, CMS does not consider whether the respondents are in 
independent or hospital-based practices, which may have a greater 
bearing on practice expenses than some of the more general 
characteristics that are used, such as a physician's gender or number 
of years in practice. Second, CMS's assessment of the 
precision[Footnote 10] of the estimates based on the data from the 
supplemental survey has led the agency to reject submissions that might 
be more representative of a specialty's total practice expenses than 
the data CMS currently uses to establish practice expense estimates--
particularly for specialties that were not represented in the original 
AMA survey data, such as optometry. CMS also elected to assess the 
accuracy, or reasonableness, of a 2002 submission by comparing the data 
with benchmark data from other sources. Although specific expense items 
were much higher than comparable benchmark data, CMS ultimately 
accepted these data without revisions. These data were deemed 
representative, even though they were influenced by certain high-cost 
practices, indicating that CMS's test for representativeness is 
problematic. Assessing submissions for accuracy is important; however, 
CMS has not indicated whether it will assess the accuracy of all 
supplemental data submissions.[Footnote 11]

Stakeholders such as AMA and specialty societies stated that the PEAC 
recommendations CMS used to update resource estimates for individual 
services improved these estimates, but certain specialty societies told 
us that CMS modified estimates at times without adequate justification, 
and our review of CMS's changes indicated that this had occurred. CMS 
and specialty society officials expressed confidence in PEAC-
recommended estimates because the PEAC comprised representatives from 
multiple specialties and a cross section of providers, and the PEAC's 
collaborative process of developing estimates became increasingly 
systematic from its inception in 1999. CMS implemented almost all of 
the PEAC-recommended estimates for approximately 6,500 services but 
modified certain original estimates and PEAC-recommended estimates at 
times without adequate justification. For example, CMS decided to 
remove expenses for clinical staff that certain surgeons bring to help 
them in the operating room and elsewhere in the hospital before it 
requested and received a study from the HHS OIG on this issue and 
without evidence that other Medicare payments accounted for these 
expenses. Because CMS indicated that it would not reverse this policy 
decision, the PEAC did not have the opportunity to deliberate on this 
issue. The success of the PEAC process depended on physician 
participation and acceptance, and physicians told us that CMS's changes 
to estimates without adequate data or explanation lowered their 
confidence in the process and the resulting estimates.

CMS has not developed a plan for systematically acquiring and using 
data to update total practice expense estimates. CMS reported that it 
is in the process of obtaining a contract to collect practice expense 
data from the major physician and nonphysician specialties but did not 
provide specifics. A plan for the data collection is important for 
several reasons. Data sources that had been used no longer exist or are 
insufficient. AMA's Socioeconomic Monitoring System (SMS) survey, which 
was the source of total practice expense estimates for each specialty, 
was last conducted in 1999 and had been modified such that it no longer 
collected data detailed enough for this purpose. Data submissions from 
specialty societies are voluntary and therefore unlikely to be 
comprehensive. In addition, the PEAC process concluded in March 2004 
because, according to AMA representatives, it had successfully 
completed its work. CMS indicated that AMA's ongoing resource review 
committee would update estimates for new or revised services. While CMS 
officials told us they believe they can complete the review as required 
by 2007, they have not laid out a plan to ensure that the necessary 
practice expense data are available.

We are recommending that the CMS Administrator consistently assess the 
accuracy of all supplemental data submissions, modify the assessment of 
representativeness to ensure that supplemental data submissions better 
reflect the variation in practice expenses within a specialty, and 
adjust the precision requirement so that supplemental data submissions 
that would improve the information currently used to set fees are 
accepted; base changes to resource estimates for individual services on 
sufficient data analysis and a documented and transparent rationale; 
and develop and implement a plan to acquire representative data on 
total practice expenses and the resources required for individual 
services. In commenting on a draft of this report, CMS agreed with the 
need for a plan but said that it had substantial concerns with our 
report. CMS stated that the agency already conducted or planned to 
conduct most actions we recommended. We do not agree that CMS has taken 
actions that obviate the need for our recommendations; however, we have 
revised our report to reflect CMS's recent actions. AMA did not comment 
on our recommendations. It agreed that the PEAC process had improved 
resource estimates for individual services but objected to our 
conclusions that CMS had not always provided adequate justification for 
making changes and that this reduced physician confidence in the 
process.

Background:

Practice expense payments under Medicare's physician fee schedule are 
based on estimates of total practice expenses for each specialty and 
estimates of the resources required for individual services. The 
adequacy and appropriateness of fees are important to ensure Medicare 
beneficiary access to physician services. If fees for a particular 
service are too low, physicians may choose not to provide this service, 
which may limit Medicare beneficiary access. If fees are too high, the 
Medicare program will be wasting scarce resources. Determining the 
appropriateness of physician fees is particularly difficult with regard 
to practice expenses. The total expenses of operating a practice vary 
significantly, depending on the specialty, organization of the 
practice, and services provided. Further, these total expenses must be 
allocated to over 7,000 individual services, and the expenses 
associated with individual services cannot be easily identified because 
a large share of practice expenses, such as rent and office equipment, 
are not associated with the delivery of any given service but are 
incurred across all services provided by the practice. In addition, the 
resources involved in delivering certain services may be expected to 
shift over time with technological innovations or as wages change for 
clinical staff. Every year, approximately 200 to 300 service codes are 
added to the fee schedule, which could change resource allocations for 
other services. The uncertainty of these considerations underscores the 
importance of the method CMS employs to refine and update the estimates 
underlying practice expense payments.

SMS Survey Used to Estimate Specialties' Total Practice Expenses:

HCFA derived its original estimates of total practice expenses for each 
specialty using data from AMA's annual SMS surveys from 1995 through 
1997. The SMS survey, which was not specifically designed for this 
purpose, gathered a broad range of information about economic and other 
characteristics of physician practices and included questions on the 
number of patient visits, medical practice revenues, and professional 
expenses. The survey sample was randomly drawn from the AMA Physician 
Masterfile, the most comprehensive available listing of physicians 
practicing in the United States. Other health care professionals (such 
as physical therapists or optometrists) paid under the physician fee 
schedule were not included in the survey sample.

We have previously noted several potential problems with using SMS data 
to estimate total practice expenses across all specialties.[Footnote 
12] First, the reported practice expenses may not have been 
representative of all physicians in some specialties because of a 
limited number of respondents. Even though AMA adjusted the survey 
results to minimize the effects of responding physicians who may not 
have been representative of all physicians in a specialty, the number 
of respondents may have been too small to ensure representative 
estimates.[Footnote 13] For instance, the 1995 through 1997 SMS data 
HCFA used for oncologists were based on 27 respondents, and the data 
for allergists/immunologists were based on 31 respondents. Second, the 
SMS survey only distinguished among 26 major physician specialties, 
while Medicare recognizes over 65 physician and other health care 
professional specialties. Thus, HCFA had to use the practice expenses 
of the major physician specialties as proxies to represent the expenses 
of smaller specialties or other health care professionals, even though 
their practice expenses might not have been similar.[Footnote 14] 
Third, the reported expenses in the SMS survey included items that were 
not in Medicare's definition of practice expenses. For example, some 
oncology practice respondents included chemotherapy drugs in their 
supply expenses. Such expenses need to be excluded from estimates of 
practice expenses in setting Medicare fees because Medicare pays for 
them outside of the physician fee schedule; however, there was no way 
for CMS to do this accurately with available data.

Physician Specialty Societies May Submit Supplemental Data on Total 
Practice Expense Estimates:

As the physician fee schedule was implemented, Congress required CMS to 
establish a process to accept specialty-supplied total practice expense 
data that could supplement the SMS survey data. Any specialty society 
may submit data for CMS to consider in refining the physician fee 
schedule. CMS evaluates the supplemental data collection method and the 
survey respondents to ensure that they meet the criteria used in its 
review process for acceptance. If CMS accepts a specialty society's 
submission, the data are blended with the existing SMS data used to 
estimate that specialty's practice expense payments, although for some 
nonphysician specialties that were not represented in the original AMA 
survey, the supplemental data replace the existing SMS data.[Footnote 
15] To be considered for changes to the following year's fee schedule, 
supplemental data must be submitted by March 1 of the preceding year. 
The last year that CMS will accept such submissions is 2005.

CMS's criteria for acceptance of supplemental data govern the data 
collection method and the survey respondents (see table 1). To collect 
the data, a contractor experienced with the SMS survey (or other 
national survey of physicians) must use an instrument based on the SMS 
survey instrument and protocols.[Footnote 16] The surveyed physicians 
must be randomly selected from the AMA Masterfile or, for nonphysician 
specialties, from a nationally representative listing of 
practitioners.[Footnote 17] The names of the physicians contacted for 
the survey must be kept confidential so no interested parties can 
contact them about the survey.

Table 1: CMS Criteria for Evaluating Specialty Society Supplemental 
Data Submissions:

Data collection: Survey instrument; 
CMS criteria: Is based on SMS survey.

Data collection: Survey administration; 
CMS criteria: Is conducted by experienced contractor; 
Uses SMS protocols; 
Keeps sample member identity confidential.

Data collection: Sample selection; 
CMS criteria: Is randomly drawn from the AMA Masterfile of physicians 
or from a nationally representative listing of practitioners for 
nonphysician specialties; 
May be a stratified sample with random selection within each stratum.

Survey respondents: Representativeness of responses; 
CMS criteria: Must have a high response rate, or respondents must have 
the same characteristics as all physicians in the specialty or 
responses must be weighted to reflect the overall composition of the 
specialty.

Survey respondents: Precision of responses; 
CMS criteria: Estimates must have an error rate of no more than plus or 
minus 15 percent of the mean. 

Sources: 67 Fed. Reg. 43,555 - 43,557 (2002) (interim final rule with 
comment period) and 67 Fed. Reg. 79,971 - 79,972 (2002) (final rule 
with comment period).

[End of table]

The supplemental data survey respondents must be representative of the 
entire specialty, as demonstrated by a high response rate or by the 
respondents' having the same characteristics as all physicians in the 
specialty.[Footnote 18] The number of respondents must be sufficient so 
that the estimated expenses comply with a precision criterion. 
Specifically, the estimates must have an error rate of no more than 
plus or minus 15 percent.[Footnote 19] The supplemental data from a 
typical specialty need about 140 usable responses for the estimates to 
meet the precision criterion.[Footnote 20]

Six specialties have submitted supplemental data, and CMS accepted 
three of these submissions (see table 2).[Footnote 21] The data from 
vascular surgery met the criteria and were accepted for use in 
establishing the practice expense payments. The data from physical 
therapy were initially rejected because they did not meet the precision 
criterion. That criterion was relaxed, however, in June 2002, and the 
physical therapy submission was accepted because the data met the new 
requirements. CMS deferred acceptance of data submitted by oncology in 
2002. After the agency resolved its concerns about the accuracy of the 
data, it accepted the submission.

Table 2: Supplemental Data Submissions by Specialty, CMS Decision, and 
Reasons for Rejection, 2000 through 2002:

2000 submissions: Specialty: Physical therapy; 
CMS decision: Rejected; 
Reason for rejection: Precision criterion not met.

2000 submissions: Specialty: Vascular surgery; 
CMS decision: Accepted.

2001 submissions: Specialty: Physical therapy; 
CMS decision: Rejected; 
Reason for rejection: Precision criterion not met.

2001 submissions: Specialty: Optometry; 
CMS decision: Rejected; 
Reason for rejection: Precision criterion not met.

2001 submissions: Specialty: Pediatrics; 
CMS decision: Rejected; 
Reason for rejection: SMS protocols and survey not used; sample was not 
representative.

2002 submissions[A]: Specialty: Physical therapy[B]; 
CMS decision: Accepted.

2002 submissions[A]: Specialty: Oncology; 
CMS decision: Accepted.

2002 submissions[A]: Specialty: Cardiology; 
CMS decision: Rejected; 
Reason for rejection: SMS protocols and survey not used.

2002 submissions[A]: Specialty: Pediatrics[C]; 
CMS decision: Rejected; 
Reason for rejection: SMS protocols and survey not used; sample was not 
representative. 

Sources: GAO analysis of the annual reports prepared by CMS's 
contractor: The Lewin Group, Recommendations Regarding Supplemental 
Practice Expense Data Submitted for 2001 (Falls Church, Va.: 2000); The 
Lewin Group, Recommendations Regarding Supplemental Practice Expense 
Data Submitted for 2002 (Falls Church, Va.: 2001); and The Lewin Group, 
Recommendations Regarding Supplemental Practice Expense Data Submitted 
for 2003 (Falls Church, Va.: 2002).

[A] The precision criterion was relaxed in June 2002.

[B] The American Physical Therapy Association resubmitted the data it 
had submitted in 2001. These data met the relaxed precision criterion.

[C] Pediatrics resubmitted the data it had submitted in 2001.

[End of table]

Expert Panels Establish and Refine Resource Estimates for Individual 
Services:

To develop the original estimates of the resources required for 
individual services, HCFA convened 15 specialty panels composed of 
physicians, nurses, and practice administrators. These clinical 
practice expert panels (CPEP) estimated the amount of direct expenses, 
such as clinical labor, medical equipment, and medical supplies, 
associated with providing each service to the typical patient.[Footnote 
22] In general, the panel for a particular specialty included 
clinicians from that specialty who reviewed the services that its 
physicians typically provided. AMA, some specialty societies, and some 
researchers who specialize in physician reimbursement issues supported 
using the panels' estimates of service-specific resources to establish 
the practice expense payments, but other specialty societies noted some 
concerns.[Footnote 23] They stated that panel members did not represent 
a cross section of physician practices (by size or urban and rural 
location) or all types of physicians who provided a particular service. 
They also stated that the panels used differing assumptions about and 
definitions of the resources required for providing similar services, 
resulting in inconsistent estimates across panels.

In 1999, AMA convened the PEAC as an expert panel to refine the 
resource estimates for individual services. The PEAC had representation 
from all major medical specialties and rotating membership for smaller 
subspecialties. CMS representatives also participated, as observers, in 
the PEAC meetings. The PEAC reviewed the resource estimates for 
approximately 6,500 services from 1999 through March 2004, which 
account for close to 90 percent of total Medicare physician payments. 
It initially focused on high-volume services for each specialty, 
"families" of similar services (for example, an endoscopy procedure 
without biopsy, with biopsy, with removal of a single tumor, or with 
removal of multiple tumors are considered a family of endoscopy 
services), and services that specialty societies believed had 
inaccurate estimates. After completing its review, the PEAC made 
recommendations to CMS, through AMA's ongoing physician payment review 
committee, about modifications to service resource estimates.[Footnote 
24]

The PEAC review relied on data from specialties on the resources 
required to provide the specialties' services. Once a service or family 
of related services was identified for refinement by the PEAC, 
specialties that normally provide these services gathered data on the 
resources needed to furnish each service to a typical patient, such as 
the time a nurse spends with a patient and the supplies and equipment 
used.[Footnote 25] AMA provided the specialty societies with background 
materials, such as the current resource estimates for the service and 
any estimates the PEAC had previously approved for individual tasks or 
supplies involved in performing the service.[Footnote 26] The specialty 
society then presented the PEAC with its proposed resource estimate for 
a service, a description of how the estimate was developed, and a list 
of the tasks included in the estimate.[Footnote 27]

The PEAC reviewed the resource estimate in a two-step process. First, a 
subgroup of the PEAC examined the data gathered by the specialty, 
assessed whether the resource estimate for a service was reasonable and 
comparable to those for similar services, and voted on whether to 
endorse the resource estimate. The subgroup recommended that the full 
PEAC approve the estimate, consider modifying it, or request additional 
data. Second, the full PEAC made its decision, either approving the 
specialty's estimate or a modified version of it or delaying its 
decision until it received additional data. Official recommendations to 
CMS required the approval of two-thirds of the PEAC members.

CMS made all final decisions about changes to the resource estimates 
that were used in calculating physician fees, including its own changes 
to original or existing resource estimates and those recommended by the 
PEAC. Its approach to reviewing PEAC recommendations varied: CMS staff 
made site visits to observe services being performed or consulted the 
medical directors of insurance companies to learn how other payers 
established payments for a service. CMS modified estimates for 
different reasons, including to make them consistent with estimates for 
other services and to remove expenses that were accounted for in other 
Medicare payments. For example, CMS changed the PEAC-recommended time 
spent by a nurse providing patient education and counseling for one 
service to be consistent with the time for this task already assigned 
to a comparable service. In the earlier years of the process, HCFA 
rejected or modified certain recommendations. In 2003, CMS accepted all 
of the PEAC's recommendations. AMA stated that the PEAC process was 
concluded in March 2004 because the PEAC had completed its work of 
reviewing most services. In May 2004, a representative from AMA told us 
that although the PEAC had been officially discontinued, a committee 
would be appointed to refine the resource estimates for the 
approximately 200 services that had not been reviewed by the PEAC.

Certain Aspects of CMS's Review Are Problematic:

Although a review of specialty-provided supplemental data from surveys 
on total practice expenses is necessary to protect against the risk of 
bias inherent in a voluntary submission process, because of certain 
aspects of its review, CMS may not be accepting the best available 
supplemental practice expense data. In assessing whether the 
respondents to the survey for supplemental data are representative of 
all physician practices within a specialty, CMS may not be examining 
practice characteristics that adequately reflect the range of practice 
expenses within a specialty, such as whether a practice is single-or 
multispecialty or hospital-based. In addition, CMS's precision 
requirement for estimates based on the submitted data has led the 
agency to reject some supplemental submissions that could improve upon 
the information it currently uses to establish estimates. CMS also 
elected to assess the accuracy, or reasonableness, of a recent 
submission by comparing it with data from other sources but has not 
indicated whether it will consistently assess the accuracy of all 
supplemental data submissions. Moreover, CMS ultimately accepted 
practice expense data in this submission that were much higher than 
comparable benchmark data, which is problematic. The data were deemed 
representative, yet were influenced by high-cost practices, raising 
concerns about CMS's test for representativeness.

Review of Supplemental Data Is Necessary:

A review of supplemental data submissions is necessary because medical 
specialty societies voluntarily gather and submit these data, and the 
data are not audited or verified before being used to establish fees. 
In addition, because the specialty societies have an incentive to 
engage in this endeavor only if they believe the practice expense 
estimates used to establish their Medicare fees are too low, the 
supplemental submission could be biased if a disproportionate share of 
those who complete the survey represent high-cost practices. CMS has 
established review criteria regarding the data collection method and 
the respondents to help guard against any perceived or actual bias in 
the estimates based on these data.

CMS's review of the data collection method--the survey instrument, 
survey administration, and sample selection--helps ensure that 
supplemental data can be used to update practice expense estimates. For 
example, by requiring that the survey instrument be based on the SMS 
survey instrument, CMS ensures that the definitions of the various 
categories of expenses between supplemental and previously used data 
are consistent.[Footnote 28] CMS's requirement that the supplemental 
data submissions be based on the same survey administration protocols 
as the SMS survey increases the comparability of the supplemental data 
to the SMS data.

CMS's review of respondent characteristics is necessary to ensure that 
the data are representative of the average practice expenses within a 
specialty and are not distorted by a disproportionate share of 
respondents of one type or another. If the response rate is high, and 
the sample is randomly drawn from a nationwide listing of the physician 
specialty, the submissions are assumed to be representative of the 
entire specialty. If the response rate is low, CMS evaluates whether 
the respondents are representative of the specialty by comparing 
respondent characteristics with characteristics of the entire 
specialty.[Footnote 29] In 2002, CMS also reviewed a data submission to 
determine whether the reported values were reasonable, as a test for 
accuracy. Assessing the accuracy of the data, by comparing them with 
other benchmarks or norms, is important because establishing the 
representativeness of the respondents and the precision of the data do 
not guarantee that the responses themselves are accurate.

Certain Aspects of Review Process Are Problematic:

In evaluating whether supplemental data submissions are representative 
of the entire specialty, CMS examines practice characteristics of the 
respondents that do not necessarily reflect the variation in the 
specialty's practice expenses. CMS compares its survey respondents with 
all physician practices within a specialty using characteristics that 
AMA used, such as physician gender, years in practice, and membership 
in a medical specialty organization, to adjust responses to produce 
published reports on the nation's physicians. CMS uses these 
characteristics to ensure that supplemental data submissions are 
consistent with SMS data already collected, but other characteristics 
may better reflect the potential range and distribution of practice 
expenses for the specialty. For example, hospital-based practices may 
have lower practice expenses than independent practices because 
hospitals may pay for clinical staff, supplies, and equipment needed to 
provide a service, while in an independent practice the physician bears 
these expenses.[Footnote 30] For some specialties, expenses for 
practices that are independent can be as much as 50 percent higher than 
those for practices that are hospital-based. If a supplemental data 
submission includes a disproportionate share of hospital-based 
practices compared to the specialty as a whole, then the total practice 
expense estimates for the specialty may be too low; if the submission 
includes a disproportionate share of independent practices, the total 
practice expense estimates for the specialty may be too high. Thus, 
practice expense payments, which are based in part on these total 
practice expense estimates, may also be correspondingly either too low 
or too high.[Footnote 31]

In addition, CMS may be rejecting data that could improve estimates. In 
rejecting data that do not meet the agency's precision criterion, even 
though they are deemed representative, CMS ignores data that could 
provide a better estimate of the specialty's practice expense data than 
the data it currently uses, particularly the proxy data used for 
nonphysician specialties. For example, in 2001, the American Optometric 
Association (AOA) collected supplemental practice expense information 
from optometrists. CMS rejected the data because they did not meet the 
precision criterion, although its contractor recommended that the data 
be accepted because they were valid and the best available information 
on practice expenses of optometry practices.[Footnote 32] Optometrists' 
practice expenses were originally established with the practice 
expenses of the average physician because optometrists were not 
included in the SMS survey. Supplemental data submitted by the 
specialty would be likely to improve the estimates because they are 
specific to the specialty, whereas the practice expenses of the average 
physician would be less likely to closely match optometrists' practice 
expenses. Supplemental data also could improve the estimates for those 
specialties with few respondents in the SMS survey, as long as the data 
were from a representative sample of practices.

In addition to assessing representativeness and precision, CMS assessed 
the accuracy of a 2002 submission, although it has not indicated 
whether it will consistently assess the accuracy of all 
submissions.[Footnote 33] CMS delayed accepting the 2002 submission 
from the American Society of Clinical Oncology (ASCO) because ASCO's 
estimates appeared to be too high. CMS assessed the accuracy of this 
submission by comparing the supplemental data with data for similar 
specialties and from other sources to see whether the submitted data 
appeared reasonable. The comparison with benchmark data enabled CMS to 
evaluate aberrant data that had passed the representativeness and 
precision tests. Salaries in the supplemental data were more than four 
times higher for clerical staff than salaries reported in Bureau of 
Labor Statistics data; and salaries for clerical staff in the oncology 
submission were even higher than some of the salaries for clinical 
staff that ASCO reported. These comparisons indicated that the 
supplemental data might not accurately represent oncologists' practice 
expenses. CMS later accepted the submission for use in setting 2004 
payments without revisions after ASCO explained that the differences 
were due to certain high-cost practices among the respondents in the 
sample.

CMS's acceptance of the ASCO data raises concerns about the review 
process. First, the respondents in the ASCO survey were deemed 
representative, yet the reported costs were much higher than benchmark 
data, underscoring the concern that CMS's assessment of 
representativeness is problematic. Second, the basis on which CMS 
accepted the ASCO data after assessing its accuracy is problematic 
because the explanation that the estimates were influenced by high-cost 
practices should have increased, not alleviated, CMS's concerns about 
the representativeness of the data. Our replication of the hourly 
practice expense calculations and discussions with CMS's contractor led 
us to conclude that the average hourly practice expense estimates were 
higher when the few practices with high costs were included.

Updating Process Improved Resource Estimates for Individual Services, 
Although Certain CMS Changes Were Made without Adequate Justification:

Stakeholders agree that the PEAC improved resource estimates for 
individual services, and although CMS used almost all of the PEAC-
recommended estimates, it at times used estimates that differed from 
PEAC recommendations and made other changes to estimates without 
adequate justification. CMS relied on the PEAC's recommendations to 
update the estimates. The PEAC's process for developing estimates 
became increasingly systematic from its inception in 1999, and its 
recommendations were widely accepted by specialty societies and AMA as 
leading to improved resource estimates for individual services. This 
acceptance stemmed in part from the broad representation on the PEAC of 
multiple specialties and a cross section of physicians and from the 
PEAC's standardization of estimates for tasks that are common to many 
services. CMS implemented almost all of the PEAC-recommended estimates, 
but it has modified certain original estimates and PEAC-recommended 
estimates. However, CMS did not always use adequate supporting data or 
explain the rationale for its changes, which has reduced some physician 
specialties' confidence in the PEAC process and the resulting 
estimates.

Stakeholders Agree that PEAC Improved Estimates:

AMA and CMS officials, as well as representatives from specialties told 
us that they believe the PEAC improved the estimates of the resources 
required to furnish individual services. These stakeholders said the 
PEAC process for developing estimates became more systematic from its 
inception in 1999. The PEAC established standard estimates for the 
clinical staff time, equipment, and supplies needed to perform certain 
activities or tasks common to many services, such as taking vital 
signs, whereas previously estimates for the same task may have varied 
by type of service or specialty. The PEAC's multispecialty 
representation further standardized estimates because many of the 
tasks, such as administration of an injection, are performed by 
multiple specialties. A specialty could receive PEAC approval to 
deviate from an estimate for a service only if the specialty satisfied 
the PEAC that the existing estimate was not appropriate for that 
service because the service the specialty provided was different from 
other services that appeared comparable. In addition, the PEAC adopted 
rules about how estimates were to be established. For example, the PEAC 
provided guidance to specialty societies on how to gather data, such as 
through expert panels or a survey, and on the information that had to 
accompany any recommendation to change a resource estimate, such as a 
detailed listing of tasks performed by nurses in providing a service. 
As a result of these changes in the PEAC process, CMS accepted most of 
the PEAC's recommended estimates without modification in recent years.

CMS Changed Certain Estimates without Adequate Justification:

Although CMS implemented almost all of the PEAC's recommended resource 
estimates for individual services, it at times made changes to PEAC-
recommended estimates and to the original physician panel estimates. 
Some of these changes were to estimates that conflicted with Medicare 
coverage rules or to make estimates consistent across services. For 
other changes, however, CMS did not always use adequate supporting 
evidence. For example, CMS removed from the original resource estimates 
the cost of clinical staff time associated with certain procedures 
performed by specific surgical specialties, basing its decision to do 
so on inadequate data. Certain surgical specialties, primarily thoracic 
surgeons, provided CMS data showing that they routinely bring their own 
clinical staff to the hospital to help in the operating room and 
provide other assistance on patient floors and stated that these 
expenses should be reflected in their resource estimates for individual 
services.[Footnote 34] CMS rejected these claims and removed the 
expense of clinical staff time from these surgical specialties' 
resource estimates for all services provided in the hospital. CMS 
officials claimed that Medicare paid for these expenses through other 
payment mechanisms. CMS also stated that it removed this expense on the 
basis of evidence that most physicians across all specialties combined 
did not bring staff with them to the hospital. Although CMS later asked 
the HHS OIG to assess whether specific specialties typically brought 
clinical staff to the hospital, it did not reverse its decision in the 
meantime. The OIG subsequently issued a report indicating that it was a 
typical practice for certain surgical specialties to bring clinical 
staff to the hospital.[Footnote 35] However, the OIG did not analyze 
whether other Medicare payments account for the expenses associated 
with clinical staff accompanying physicians in the hospital setting.

In addition, CMS did not always make public its reasons for making 
changes to PEAC recommendations. In our meetings with specialty 
representatives, some noted that CMS did not provide adequate 
explanations for some of its changes to PEAC recommendations. For 
example, in reducing the time established by the PEAC for radiation 
therapists to deliver a specific radiation therapy, CMS stated that the 
service commonly takes less than the recommended time and requires 
fewer therapists to perform. CMS officials told us that they based 
their conclusion on interviews with practicing physicians and a site 
visit to witness the procedure being performed, neither of which was 
mentioned in the public notice.[Footnote 36] Physicians told us that 
they did not understand why CMS did not explain these decisions, since 
CMS representatives participated in all of the PEAC meetings and had 
the opportunity to raise concerns there. Moreover, they said that CMS's 
inadequate explanation for certain decisions lessened their confidence 
in the process used to develop the estimates.

CMS Has Not Specified a Plan for Developing Appropriate Data to Update 
the Fee Schedule:

CMS has not outlined a plan for obtaining and using the necessary data 
to update practice expense resource estimates for all specialties. Such 
a plan would include data collection, evaluation, and incorporation. 
CMS officials told us they are in the process of obtaining a contract 
to collect total practice expense data from the major physician and 
nonphysician specialties, although it has not provided specifics. CMS 
has indicated that the ongoing AMA committee--the RUC--will develop 
resource estimates for new and revised services. Although CMS officials 
told us that they believe they can complete data collection and review 
by 2007 as required, they did not identify nor outline a plan to 
implement the actions needed to ensure that CMS will be able to comply 
with the mandate to update the fee schedule at least every 5 years.

CMS cannot rely on its previous approaches to complete this review. 
Data sources CMS used to refine the fee schedule no longer exist or are 
insufficient. The SMS survey, which was the source of total practice 
expense data for all major specialties, was last conducted in 1999, and 
a modified version of that survey fielded in 2001, called the Patient 
Care Physician Survey, did not collect data detailed enough for this 
purpose. Data submissions from specialty societies are voluntary and 
therefore unlikely to be comprehensive. In March 2004, AMA discontinued 
its sponsorship of PEAC after it had concluded its review of over 6,500 
physician services. AMA told us that the RUC would review resource 
estimates for new and revised services and that there would be no need 
for a detailed review of the services that had been reviewed by the 
PEAC.

Updating estimates of total practice expenses and resource estimates 
for individual services is increasingly important given the ongoing 
introduction of new medical services and technologies, and changes in 
wages. The attendant resource requirements for individual services can 
change significantly when, for example, a new procedure augments or 
replaces a traditional procedure, resulting in changes to the staff or 
equipment needed to provide the service. Similarly, a new 
pharmaceutical can change the treatment for a condition, resulting in 
different resource requirements for caring for the typical patient.

Conclusions:

CMS's collaboration with physician specialty societies to update total 
practice expense estimates and resource estimates for individual 
services has helped ensure the appropriateness of fees and physician 
acceptance of Medicare's payment approach. However, CMS's updates to 
estimates of total practice expenses using supplemental survey data 
that do not always represent the range of practices within a specialty 
may result in Medicare payments that either overcompensate practices 
for their costs or undercompensate practices, which could discourage 
physician participation. In addition, CMS's deviation from its own 
process in evaluating resource estimates for individual services has 
caused some physician and specialty societies to question the soundness 
of the process and CMS's decision making.

Congress recognized the importance of continually updating the fee 
schedule by mandating that CMS review the fee schedule at least every 5 
years. The processes CMS had in place to update total practice expense 
estimates and estimates of the resources required for individual 
services were not suitable for the comprehensive update required for 
this review. While CMS has taken a first step at collecting data for 
this review, without a detailed plan, CMS may not be able to gather and 
refine representative data necessary to update the fee schedule in a 
timely manner and ensure its integrity over time.

Recommendations for Executive Action:

To improve and update the physician fee schedule, we recommend that the 
CMS Administrator take the following three actions:

* Consistently assess the accuracy of all supplemental data submissions 
on total practice expenses, modify the assessment of representativeness 
such that the data submitted by specialties better reflect the 
variation in practice expenses within a specialty, and adjust the 
precision requirement so that supplemental data submissions that would 
improve the information currently used to set fees are accepted.

* Base any revisions to the resource estimates for individual services 
on sufficient data analysis and a documented and transparent rationale.

* Develop and implement a plan to update the fee schedule in a timely 
manner with representative data on total practice expenses and the 
resources for individual services so that the fees appropriately 
reflect changes in medical services and the costs of their delivery.

Agency and Industry Comments and Our Evaluation:

We received comments on a draft of our report from CMS and AMA. CMS 
indicated that it routinely conducted, or was in the process of 
conducting, most of the actions we recommended. However, it stated that 
it had substantial concerns with our report. AMA agreed in general with 
our findings but took issue with some of our conclusions. AMA also 
conveyed comments from ASCO, which disagreed with our conclusion 
regarding CMS's acceptance of ASCO's supplemental survey data. CMS and 
AMA also provided technical comments, which we incorporated as 
appropriate. (We have reprinted CMS's comments in app. III but have not 
included the attachment pages reprinting statements from specialty 
societies and detailing technical comments, nor have we reprinted the 
technical comments submitted by AMA.)

To address our first recommendation, that CMS make revisions to its 
assessment of supplemental data submissions, CMS responded that its 
contractor consistently assessed the representativeness of 
supplemental data submissions. CMS noted that its contractor's 
assessments of surveys submitted in 2004 from three specialties 
included as "a fundamental feature" a review of whether a physician 
practice was hospital-or office-based. The contractor's report was made 
available on CMS's Web site after our report went to CMS for comment. 
While we applaud CMS's use of the practice location characteristic in 
its assessment of recent surveys, we believe that CMS should conduct an 
analysis to determine whether there are other characteristics that 
could be used to better describe the potential variation in practice 
expenses within a specialty.

CMS said it rejected AOA's data on the basis of the precision 
requirement, noting that (1) the data's representativeness was 
questionable because the data did not include responses from non-AOA 
members and (2) the inclusion of the data would have made little 
difference to the final practice expenses because the AOA per hour data 
were very similar to the data currently used. We note that CMS's 
contractor had recommended that CMS accept the AOA data because they 
were "valid and the best available information on practice expenses for 
optometry practices," and we have added this information to the report. 
We believe that including the data from the specialty, rather than 
relying on the use of proxy data, would improve the estimates. Our 
concern with the precision requirement is that in applying it CMS may 
reject data that are more representative than data it currently uses. 
If data were deemed representative on the basis of characteristics that 
describe the variation in practice expenses across practices, a 
precision requirement might not be needed.

In assessing ASCO's 2002 submission for accuracy, CMS stated that its 
acceptance of the data complied with requirements in the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 that CMS 
use supplemental survey data meeting certain requirements, which CMS 
says these data met. CMS added that it was satisfied with ASCO's 
explanation that the anomalous results were caused by a few extreme 
survey responses and that elimination of these extreme responses had 
little effect on the hourly practice expense estimates. We were able to 
obtain the ASCO survey data only after our draft report went to CMS and 
AMA for comment. Our own analysis of the ASCO data and discussions with 
CMS's contractor led us to conclude that elimination of the extreme 
values would have had a significant effect on the hourly practice 
expense calculations, and we have revised the report to reflect this. 
Although CMS considered the data "anomalous," CMS accepted them because 
they met the representativeness criterion as required by law. CMS's 
acceptance of these data raises issues about the review process. We are 
concerned that the practice characteristics CMS uses to assess 
representativeness may not describe the range and distribution of 
practice expenses. CMS was silent regarding our recommendation that it 
consistently assess supplemental data submissions for accuracy.

In response to our second recommendation, that CMS base revisions to 
resource estimates for individual services on sufficient data analysis 
and a documented and transparent rationale, CMS stated that the vast 
majority of these revisions had been based on PEAC recommendations and 
that on the rare occasions when it disagreed with the PEAC, CMS 
documented its rationale in the proposed or final rules. As we noted in 
the draft report, CMS implemented almost all of the PEAC-recommended 
estimates without change and it generally documented its rationale in 
instances in which it did make changes to PEAC-recommended or original 
estimates. Also as noted in the draft report, however, CMS did not 
always use adequate justification when it made changes. For example, 
CMS based its decision to remove from the original estimates the cost 
of clinical staff for all services provided in the hospital on data 
from the American Hospital Association survey pertaining to all 
specialties, rather than on evidence pertaining to certain surgical 
specialties that claim that they routinely bring their own staff to the 
hospital. CMS took issue with our statement that its lack of supporting 
data or rationale in these cases has reduced physician confidence in 
the PEAC process and in the resulting estimates, and provided comments 
from six specialty organizations as evidence of support for CMS's 
decision making regarding PEAC data revisions. As we noted in the draft 
report, specialty societies and AMA told us they supported the PEAC 
process. Nevertheless, other specialties conveyed their concerns to us 
regarding the PEAC process.

CMS agreed with our recommendation that it needs to develop and 
implement a plan to acquire representative data on an ongoing basis to 
update the fee schedule. CMS indicated that it was in the process of 
obtaining a contract to collect data for future updates to the practice 
expense portion of the physician fee schedule and that the RUC would 
continue to be involved in developing practice expense resource 
estimates for new or revised individual services. We are encouraged by 
this new information from CMS and have revised our finding and 
recommendation accordingly. However, contracting for data collection, 
collecting and reviewing the data, using the data in developing the 
fees, and addressing public comments take time, making it imperative 
that CMS expedite these actions. CMS needs to develop a plan to ensure 
that it can comply with the congressional mandate to update the 
physician fee schedule at least every 5 years.

In its other comments, CMS took issue with our draft report's reference 
to updating estimates of total practice expenses with data that are not 
representative of the range of practices within a specialty, which, as 
we stated in the draft report, either "overcompensate practices for 
their costs and waste taxpayer dollars or undercompensate practices and 
discourage physician participation." CMS stated that because the system 
is budget neutral, any alternative would reduce payments to the 
overcompensated specialty and raise payments to all other specialties. 
Even within a budget neutral system it is wasteful to overcompensate 
for some services. However, it was not our intention to imply that the 
system was not budget neutral, and we have revised the report to avoid 
misinterpretation.

AMA's comments covered the method for establishing total practice 
expense estimates and resource estimates for individual services and 
included specific comments it had received from ASCO. AMA commented 
that it had advised CMS in the past that CMS's criteria for 
supplemental practice expense data appeared to be appropriate. AMA also 
stated that it would be inappropriate to use supplemental data that 
were significantly less reliable and valid than the original SMS data. 
We concur with this statement. AMA agreed with our conclusion that the 
PEAC process has improved resource estimates for individual services. 
It objected to the draft report's statement that AMA had discontinued 
sponsoring the PEAC as a result of resource constraints and stated 
rather that the PEAC process had concluded in March 2004 because it had 
successfully completed its work. It also reported that it would 
continue to review, through the RUC, the resource estimates for new or 
revised codes. Although AMA representatives of the PEAC had told us 
that resource constraints had contributed to their decision to 
discontinue the PEAC, we have modified the report to indicate that the 
PEAC concluded its initial review of the codes as of March 2004 and 
that the RUC will continue this review for new or revised codes. AMA 
also objected to our conclusion that certain CMS revisions to the PEAC 
recommendations were made without adequate information, stating that 
this was unfair criticism of the process. As we noted in the draft 
report, CMS accepted the majority of PEAC recommendations, although 
there were instances in which it modified earlier resource 
recommendations without using adequate information or providing 
adequate explanation. Finally, AMA noted that CMS's collaboration with 
physician specialty societies to update the practice expense estimates 
does not help ensure the appropriateness of the fees because the level 
of Medicare payments largely depends on other components of the payment 
methodology. While it is true that other parts of the payment method 
affect the final payment amounts, the practice expense estimates remain 
an important determinant.

ASCO disagreed with our concerns about its supplemental survey data. It 
reiterated that it had discussions with CMS regarding the few practices 
with high costs for certain items that had no significant effect on the 
average hourly practice expense estimates used in CMS's methodology. As 
noted earlier, our replication of the hourly practice expense 
calculations and discussions with CMS's contractor led us to conclude 
that including the few practices with high costs did in fact raise the 
average hourly practice expense estimates. We have revised the report 
to include this information.

We are sending copies of this report to the Administrator of CMS and 
other interested parties. We will make copies available to others upon 
request. This report also is available at no charge on GAO's Web site 
at http://www.gao.gov.

Please call me at (202) 512-7119 if you or your staffs have any 
questions. Major contributors to this report are listed in appendix IV.

Signed by: 

Laura A. Dummit: 
Director, Health Care--Medicare Payment Issues:

List of Committees:

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate:

The Honorable Joe Barton: 
Chairman:
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives:

The Honorable Bill Thomas: 
Chairman: 
The Honorable Charles B. Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives:

[End of section]

Appendix I: Medical Specialty Societies Interviewed for This Report:

We interviewed representatives from the following 32 medical specialty 
societies:


American Academy of Dermatology: 
American Academy of Family Physicians: 
American Academy of Neurology: 
American Academy of Ophthalmology: 
American Academy of Otolaryngology - Head and Neck Surgery: 
American Association of Neurological Surgeons & The Congress of 
Neurological Surgeons: 
American Association of Vascular Surgery: 
American College of Cardiology: 
American College of Emergency Physicians: 
American College of Obstetricians and Gynecologists: 
American College of Physicians-American Society of Internal Medicine: 
American College of Radiation Oncology: 
American College of Radiology: 
American College of Rheumatology: 
American College of Surgeons: 
American Optometric Association: 
American Osteopathic Association: 
American Physical Therapy Association: 
American Podiatric Medical Association: 
American Psychiatric Association: 
American Society for Gastroenterology: 
American Society for General Surgery: 
American Society of Anesthesiologists: 
American Society of Clinical Oncology: 
American Society of Plastic Surgeons: 
American Thyroid Association: 
American Urology Association: 
College of American Pathologists: 
Joint College of Asthma, Allergy and Immunology: 
Renal Physicians Association: 
Society of Thoracic Surgeons: 
The Endocrine Society:

[End of section]

Appendix II: Scope and Methodology:

To evaluate the process that CMS uses to review specialty-submitted 
supplemental practice expense data, we interviewed representatives from 
medical specialty societies. We identified 50 medical specialty 
societies by searching the Internet using AMA's categories of major 
specialties. We contacted each group and met with representatives from 
the 32 specialty societies that responded (listed in app. I). Using 
structured interviews, we asked the specialty society representatives 
whether they were satisfied that AMA Socioeconomic Monitoring System 
(SMS) survey data used to estimate their specialty's total practice 
expenses were representative. We obtained their views about whether the 
supplemental data submissions improved the practice expense estimates 
and about CMS's process for evaluating the data. We reviewed written 
materials provided by specialty societies and followed up by telephone 
when necessary. We reviewed relevant Federal Register documents to 
determine how CMS evaluated the supplemental data submissions and 
reviewed CMS's decisions about whether to accept the data. We 
interviewed CMS staff about the supplemental data submission process 
and interviewed the contractor that CMS hired to provide technical 
assistance to the specialty societies. We also reviewed the 
contractor's report on the oncology data submitted by the American 
Society of Clinical Oncology.[Footnote 37]

To evaluate the process that CMS uses to update resource estimates for 
individual services, we asked the specialty society representatives 
about the resource estimates developed by the clinical practice expert 
panels (CPEP) and the refinement process used by the Practice Expense 
Advisory Committee (PEAC). We asked for their views about the role CMS 
played in the PEAC and any changes CMS made to the estimates. We also 
met with representatives of AMA to determine AMA's views on the PEAC 
process. We attended PEAC meetings and reviewed supporting materials 
provided by specialties. To better understand the issue of physicians' 
use of clinical staff in the inpatient hospital setting, we reviewed 
survey data and other materials provided by the Society of Thoracic 
Surgeons. To determine whether clinical staff time was included in the 
physician work component, we analyzed detailed estimates from AMA's RVS 
Update Committee (RUC). We reviewed the Department of Health and Human 
Services Office of Inspector General (OIG) report, Medicare Payment for 
Nonphysician Clinical Staff in Cardiothoracic Surgery, including 
analyzing the raw survey data upon which the report was based, and 
discussed it with OIG staff. OIG indicated that its data reliability 
checks were performed in accordance with generally accepted government 
auditing standards. We interviewed CMS staff about the bases for their 
decisions relating to changes to PEAC resource estimates. We attended 
CMS's "Open Door Forum Meetings," during which physicians and other 
clinicians discussed their concerns about fees and other issues related 
to services provided to Medicare beneficiaries. We conducted a review 
of relevant Federal Register documents to identify any decisions CMS 
had made with regard to resource estimates.

To determine whether CMS will have the data needed for the mandated 
review of the physician fee schedule at least every 5 years, we held 
discussions with CMS staff.

We performed our work from November 2001 through December 2004 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix III: Comments from the Centers for Medicare & Medicaid 
Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Services:

Administrator: 
Washington. DC 20201:

DATE: SEP 15 2004:

TO: Laura A. Dummit:
Director, Health Care-Medicare Payment Issues: 
General Accountability Office:

[Initialed by]

FROM: Mark B. McClellan, M.D., Ph.D.: 
Administrator:

SUBJECT: General Accountability Office's Draft Report: MEDICARE 
PHYSICIAN FEE SCHEDULE: CMS Needs to Plan to Refine and Update Practice 
Expense Component (GAO-04-289):

Thank you for the opportunity to review the General Accountability 
Office's (GAO) draft report entitled, MEDICARE PHYSICIAN FEE SCHEDULE. 
CMS Needs to Refine and Update Practice Expense Component, (GAO-04-
289).

Section 121 of the Social Security Act Amendments of 1994 (Pub. L. 103-
432) enacted on October 31, 1994, required us to develop a methodology 
for a resource-based system for determining practice expense relative 
value units (RVUs) for each physician's service beginning in 1998. In 
developing the methodology, we were to consider the staff, equipment, 
and supplies used in providing medical and surgical services in various 
settings.

In response to a mandate in the Medicare, Medicaid, and SCRIP Benefits 
Improvement:

and Protection Act of 2000, GAO evaluated the Centers for Medicare & 
Medicaid Services' (CMS) processes for updating total practice expense 
and resource estimates and whether CMS will have the data necessary to 
update the fee schedule at least every 5 years, as mandated by law.

We have substantial concerns with the GAO report. Our specific comments 
to the report are attached. We ask that our comments be included in 
their entirety in the GAO report.

Attachment:

Centers for Medicare & Medicaid Services' Comments to the GAO Draft 
Report: MEDICARE PHYSICIAN FEE SCHEDULE: CMS Needs to Refine and Update 
Practice Expense Component (GAO-04-289):

GAO Recommendation:

CMS needs to consistently assess the accuracy of all supplemental data 
submissions on total practice expense data, modify the assessment of 
representativeness such that the data submitted by specialties better 
reflect the variations in practice expense within a specialty, and 
adjust the precision requirement so that supplemental data submissions 
that would improve the information currently used to set, fees are 
accepted:

CMS Response:

Our contractor, the Lewin Group, has consistently assessed the survey 
methodology and representativeness of the supplemental data 
submissions. They have provided us with detailed reports that we have 
made public on the CMS Web site. For example, the GAO report discusses 
the hospital or office-based nature of the survey respondents as a 
potential issue. We note that this was a fundamental feature of Lewin's 
review of three surveys that were submitted to us in 2004 by radiology, 
radiation oncology, and cardiology. With respect to the precision 
requirement, we request that the GAO indicate any flaws it perceives in 
the current methodology. This would assist us in evaluating the 
recommendation.

GAO Recommendation:

CMS should base any revisions to the resource estimates for individual 
services on sufficient data analysis and a documented and transparent 
rationale.

CMS Response:

The vast majority of revisions to the resource estimates have been 
based on the recommendations of the multi-specialty Practice Expense 
Advisory Committee (PEAC) process. As described in greater detail 
below, the rare occasions where we have differed with the PEAC have 
been well-documented each year in the physician fee schedule proposed 
and final rules. We have included as an attachment comments from some 
of the major specialty organizations supporting CMS' work as it relates 
to PEAC data revisions.

GAO Recommendation:

CMS needs to develop and implement a plan to acquire representative 
data on total practice expenses and the resources for individual 
services on an ongoing basis to update the fee schedule so that it 
appropriately reflects changes in the nature of medical services and 
the costs of their delivery.

CMS Response:

We agree with this recommendation and are taking the appropriate steps 
to acquire practice expense data for potential future revisions.

Additional Comments:

Page 6:

The report states that although we implemented the vast majority of 
PEAC recommendations, we also "modified certain original estimates and 
PEAC-recommended estimates at times without using adequate supporting 
data or explaining its rationale." The report also states that 
'physicians told us that CMS' changes to estimates without adequate 
data or explanation lowered their confidence in the process and the 
resulting estimates." However, the majority of feedback CMS has 
received through the regulatory process has been overwhelmingly 
supportive of both our participation in the PEAC and our decision-
making capability with regard to the PEAC recommended values (See p. 7 
of attachment).

Below we review the Physician Fee Schedule rules in which we discussed 
our acceptance or modification of the PEAC recommendations.

* In the November 2, 1999, Physician Fee Schedule final rule, we 
discussed our review of the recommendations on 65 codes from the first 
PEAC meeting (we note that CMS is not a voting member of the PEAC). 
This meeting was a learning experience for all involved, standards had 
not yet been developed, and there was confusion among the presenters 
regarding the technical and policy requirements of our methodology. 
Therefore, although we accepted most of the recommendations, it was 
necessary to make several, mostly minor, revisions. For example: we 
deleted supplies that were difficult to allocate to a single procedure, 
as well as separately billable drugs and casting supplies; we matched 
the quantities of patient gowns, table paper, and pillow cases to the 
number of visits; we deleted items that were office supplies or 
equipment because these were considered indirect costs and deleted 
equipment costing less than $500; and we eliminated duplicated 
supplies. We explained this in the rule.

* In the November 1, 2000, Physician Fee Schedule final rule, we stated, 
"We have reviewed the submitted.. recommendations and have accepted 
all of them with only two minor revisions.. we have deleted the 
marking pen when it appears in a recommended supply list because it is 
not practical to allocate its use to individual procedures. In 
addition, for the ophthalmology codes that were refined before the 
supply packages were adopted, we have substituted the ophthalmology 
visit supply package as appropriate." In addition, in this same rule we 
positively responded to the majority of comments we received on our 
previous actions on the 1999 PEAC recommendations.

* In the November 1, 2001, final rule, we again stated that we have 
accepted most of the PEAC recommendations with only minor technical 
revisions. The only significant changes from the PEAC recommendations 
were for the therapy codes where we deleted assistant time for 
obtaining vital signs and measurements, patient education, and phone 
calls because, we explained, we believed that these tasks are done by 
the therapist and are captured in the work RVIJs. We did, however, add 
in extra time for the therapy aide to ensure that the total times 
appeared accurate. In this rule, we also responded to comments from 
specialty societies representing osteopaths, rheumatologists, 
neurologists, ophthalmologists, obstetricians, and gynecologists 
commending us for implementing the refinements submitted by the PEAC 
and relative value update committee (RUC) as part of the on-going 
refinement process. Other commenters had also praised CMS staff for 
being helpful in responding to the PEAC members' questions .. as well 
as for our willingness to work with physician specialty societies 
toward establishing fair and appropriate reimbursement values.

* In the December 31, 2002, final rule, we stated that we had received 
recommendations from the PEAC on the refinement to the clinical 
practice expense panel (CPEP) direct practice expense inputs for over 
1,200 codes and that we were able to accept all of the recommendations 
without any revision. We also responded to the argument presented in a 
comment from the specialty societies representing therapists by 
reinstating the time we had previously deleted. In addition, we 
responded to comments from societies representing radiology, orthopedic 
surgery, general surgery, family practice, and dermatology thanking us 
for our implementation of PEAC recommendations.

* In the August 15, 2003, proposed rule, we discussed the PEAC 
recommendations we had received on over 4,000 codes. We reviewed these 
recommendations and proposed acceptance of all of them without change. 
In the November 7, 2003, final rule, we responded positively to the 
majority of specialty comments we received on the CPEP changes. Once 
again, we received comments from many diverse specialty societies 
expressing appreciation for our acceptance of the PEAC recommendations 
and our commitment to the PEAC process.

With respect to the time that had been assigned by the CPEP panels for 
physicians' clinical staff brought into the hospital and our removal of 
that time, we note the following points.

* In our Notice of Intent to Regulate published on October 31, 1997, we 
solicited detailed information regarding the issue of clinical staff 
used in the facility setting, along with the name of any facility where 
the practice occurs. We received only 16 responses, most of them 
anecdotal. Two specialties submitted the results of the surveys. The 
society representing ophthalmologists submitted results that indicated 
that while the practice does occur, it is not typical. The society 
representing cardiothoracic surgery submitted a survey done by a 
physician assistants (PAs) association that indicated that PAs 
frequently assist in the operating room. However, because PAs are 
physician extenders and we pay for assistants at surgery, we believe 
that the costs for these services are not practice expense, but would 
be captured in the work RVUs.

* After the issue of clinical staff time in the hospital setting was 
raised by the primary care specialties at the first PEAC meeting, no 
code that included such time was passed by the PEAC.

* In the July 22, 1999, proposed rule, where we proposed eliminating 
the clinical staff intra time in the facility setting, we laid out a 
lengthy and detailed statutory, regulatory, and policy rationale for 
this proposal and also requested data "regarding situations where the 
recognition of costs associated with the use of a physician's clinical 
staff in a facility would be appropriate." In that year's final rule, 
we discussed the data that we had received. Although many specialties 
asserted that it was a common practice to bring staff to the hospital, 
the American Hospital Association submitted data from a national survey 
of 1,459 hospitals that refuted these assertions. We also examined the 
1996 Socioeconomic Monitoring System (SMS) survey and did not find 
support for the specialties' assertions. Only two specialties provided 
any extensive information on the issue. The society representing 
anesthesia submitted a survey that actually indicated that it was not a 
typical practice for the specialty, and the society representing 
thoracic surgeons resubmitted the PA survey discussed above.

Page 17:

* GAO raises concerns about CMS' decision on the American Optometric 
Association (AOA) survey. The AOA survey was not used because of its 
failure to meet the precision requirements and the questionable 
representativeness of the data. We note that the data did not include 
responses from non-AOA members. We also note that the use of the AOA 
data would make little difference to the final practice expense RVUs 
since the survey practice expense per hour is very similar to the 
crosswalk we are using.

Page IS:

GAO expresses concern that CMS accepted oncology data that was much 
higher than benchmark data from other sources. The CMS and the Lewin 
Group met with the American Society of Clinical Oncology (ASCO) and its 
contractor to discuss what appeared to be anomalous results in the 
data. ASCO explained to both CMS' and Lewin's satisfaction, that the 
anomalous results were explained by a few extreme survey responses and 
that CMS' policy was not to eliminate any data from either the SMS or 
supplemental surveys. Further, while elimination of these extreme 
responses made the salary per employee data comparable to what GAO 
refers to as "benchmark" data, it actually had little effect on the 
practice expense per hour.

Page 5 - Attachment:

* The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 requires the use of supplemental survey data meeting certain 
requirements. The ASCO survey data meet these requirements.

Pages 20-21:

The GAO Report states that, "The OIG subsequently issued a report 
indicating that it was a typical practice for certain surgical 
specialties to bring clinical staff to the hospital." The conclusion of 
the OIG report was, "Medicare pays for nonphysician clinical staff even 
though surgeons do not receive additional payments for some of the 
staff they bring to the hospital. Instead, services of these staff are 
paid either to physicians through the work relative value units, to the 
mid-level practitioners directly, or to the hospital through Part A or 
the Ambulatory Payment Classification system for outpatient 
services.."

Page 21:

The report indicates that CMS has no plan in place for future updates 
to the practice expense portion of a fee schedule payment. However, CMS 
is currently in the process of obtaining a contract that would collect 
practice expense data from the major specialties, both physician and 
nonphysician. This survey instrument would include additional questions 
that would improve the current precision associated with the practice 
expense inputs. Also, we are proposing updated costs for all the 
equipment in our CPEP database in the upcoming proposed rule.

Although the PEAL will no longer exist for future updates, the RUC will 
continue to be involved with the development of practice expense RVU 
recommendations. The RUC is more than capable of providing CMS with 
recommendations on practice expense inputs as the majority of the RUC 
members have already been involved in recommending the practice expense 
inputs for new and revised codes. The RUC has also indicated 
willingness to take part in the 5-year review of practice expense.

Page 23 & last paragraph of page 6:

* The report makes reference to overcompensating practices and wasting 
taxpayer dollars. However, the system is budget neutral and any 
alternative would reduce payments to the overcompensated specialty and 
raise payments to all other specialties.

* The GAO makes a general recommendation that adjustments be made to the 
precision requirements. In order to assist us in evaluating this 
recommendation, we request that the GAO indicate what the flaws are in 
the current precision requirement.

* The GAO recommends that CMS consistently assess the accuracy of all 
supplemental data and modify the assessment of representativeness to 
better reflect the variation in practice expenses within a specialty. 
Our contractor, the Lewin Group, has consistently assessed whether a 
survey's respondents are representative of the population and has 
provided us with detailed reports that we have made public on the CMS 
Web site. With respect to modifying the assessment of 
representativeness to consider whether a specialty is hospital or 
office-based, we note that this was a fundamental feature of their 
review of three surveys that were submitted to us in 2004 by radiology, 
radiation oncology, and cardiology.

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Laura A. Dummit, (202) 512-7119:

Acknowledgments:

Major contributors were Iola D'Souza, Elizabeth T. Morrison, and 
Gerardine Brennan.

FOOTNOTES

[1] This report refers to the practice expense component of payments as 
"practice expense payments."

[2] See 42 U.S.C. 1395w-4(c)(2)(B)(i), (ii). 

[3] GAO, Medicare Physician Payments: Need to Refine Practice Expense 
Values During Transition and Long Term, GAO/HEHS-99-30 (Washington, 
D.C.: Feb. 24, 1999) and GAO, Medicare Physician Fee Schedule: Practice 
Expense Payments to Oncologists Indicate Need for Overall Refinement, 
GAO/HEHS-02-53 (Washington, D.C.: Oct. 31, 2001).

[4] See Section 212 of the Medicare, Medicaid and SCHIP Balanced Budget 
Refinement Act of 1999, Pub. L. No. 106-113, App. F, 113 Stat. 1501A-
321, 1501A-350.

[5] Since we sent our report to CMS for comment on June 15, 2004, CMS 
posted information on its Web site about four additional supplemental 
data submissions. 

[6] On July 1, 2001, the agency that administers the Medicare program 
was renamed from HCFA to the Centers for Medicare & Medicaid Services 
(CMS). In this report, we will refer to HCFA where our findings apply 
to operations that took place before July 1, 2001.

[7] Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000, Pub. L. 106-554, Appendix F, Section 411, 114, Stat. 
2763A-463, 2763A-508. 

[8] See 64 Fed. Reg. 59,380, 59,399 - 59,403, (1999); 65 Fed. Reg. 
65,376, 65,390 - 65,399 (2000); 66 Fed. Reg. 55,246, 55,255 - 55,262 
(2001); 67 Fed. Reg. 79,966, 79,973 - 79,976 (2002).

[9] HHS, OIG, Medicare Payment for Nonphysician Clinical Staff in 
Cardiothoracic Surgery, OEI-09-01-00130 (Washington, D.C.: HHS, April 
2002).

[10] Precision measures how far the estimate may be from the true 
value; for example, there is a 95 percent chance an estimate is +/-2 
percent from the true value. 

[11] CMS assessed the accuracy of three of the four recently posted 
data submissions.

[12] GAO/HEHS-99-30 and GAO/HEHS-02-53.

[13] In making these adjustments, AMA considers characteristics such as 
AMA membership, physician gender, years since the physician graduated 
from medical school, physician membership in a medical specialty 
organization, and board certification status.

[14] Total practice expense estimates for smaller specialties or 
subspecialties were based on practice expense data from the major 
specialty that was the "closest fit." For example, data from internal 
medicine practices were used to estimate the expenses for practices 
from the subspecialties of internal medicine, such as nephrology (the 
medical specialty concerned with kidney function and disease) or 
infectious diseases. 

[15] The supplemental data have also replaced the original SMS data for 
two physician specialties--oncology and cardiothoracic surgery. 

[16] For example, the instrument must request expense data for the 
categories that CMS uses in establishing Medicare's practice expense 
payments and must use SMS definitions of expenses and hours worked. 

[17] CMS allows specialties to use a stratified sample (that is, a 
specialty's practices may be divided into subgroups from which random 
samples are drawn) to help ensure that the responding practices are 
representative. Stratification allows more follow-up to encourage 
participation among subgroups with low response rates. 

[18] A specialty may show that the physicians who did not respond were 
not different from those who responded with regard to factors affecting 
practice expenses. Alternatively, the estimates could be adjusted to 
reflect the differences between the respondents and all practitioners 
in that specialty. For example, if solo practitioners represent 20 
percent of all physicians within a specialty but represent 40 percent 
of the physicians responding to the survey, responses from the solo 
practitioners would be weighted according to their representation in 
the specialty. 

[19] The estimated average practice expenses from the supplemental 
surveys must have a margin of error not greater than 15 percent of the 
estimated average, at a 90 percent confidence level. A 90 percent 
confidence level means that there is a 90 percent probability that the 
actual average falls within plus or minus 15 percent of the estimated 
average. The precision criterion had originally required a margin of 
error of no more than plus or minus 10 percent of the estimated 
average, but this was relaxed in June 2002. As a result, the number of 
responses needed to meet this criterion was reduced by about half. 

[20] This estimate is based on the amount of total practice expense 
variation exhibited across all the practices included in the SMS 
survey. Small, homogeneous specialties with less variation across their 
practices will require fewer survey responses, whereas specialties with 
wide variation in their practice expenses will require more. 

[21] Since we sent this report to CMS for comment on June 15, 2004, CMS 
has posted information on its Web site about four additional 
supplemental data submissions. Three specialties' data met the 
criteria: CMS indicated that it would accept the data from pathology 
for use in the 2005 practice expense methodology and stated that it 
would wait to accept the data from cardiology and radiology, at the 
specialties' request, until technical issues about the practice expense 
methodology have been resolved. CMS rejected data from the fourth 
specialty, radiation oncology, because they did not meet the precision 
criterion.

[22] Indirect expenses, or overhead--administrative labor, office 
expenses, and other expenses--are allocated to specific services in 
proportion to the direct expenses and physician work involved in 
providing that service. 

[23] GAO, Medicare: HCFA Can Improve Methods for Revising Physician 
Practice Expense Payments, GAO/HEHS-98-79 (Washington, D.C.: Feb. 27, 
1998).

[24] This committee is known as the RVS Update Committee (RUC).

[25] A specialty society can gather these data using a panel of experts 
or a survey of the specialty's practitioners. If data are collected 
through a survey, the survey sample size, response rate, and 
distribution of respondents by geographic setting and type of practice 
(single-specialty, multispecialty, independent, or hospital-based) 
have to be submitted with the proposed resource estimates. 

[26] For example, the PEAC established 3 minutes as the standard time 
for clinical staff to obtain between one and three patient vital signs 
before the physician sees the patient for an office visit. 

[27] The tasks included might be completing paperwork, explaining the 
procedure to the patient, obtaining the patient's consent, calling in 
prescriptions to a pharmacy, and arranging follow-up visits.

[28] Supplemental data surveys may include questions not included in 
the SMS that are designed to provide previously unavailable information 
needed for the practice expense estimates. For example, the 
supplemental data survey might ask for information on the cost of 
separately reimbursed supplies, such as drugs for oncology and optical 
materials and supplies for optometry, which should be excluded from the 
practice expense estimates. CMS must approve these additions. 

[29] Most of the specialty societies' supplemental data submissions 
have been based on surveys with response rates below 20 percent. 

[30] In a 2000 report, CMS's contractor acknowledged that the 
characteristics used to make the data representative of all physicians 
in a specialty did not necessarily relate to practice expenses because 
the SMS survey was not designed to calculate practice expense payments. 
The contractor suggested that characteristics such as the size of a 
practice and whether it is a single-or multispecialty practice would be 
more relevant to consider. The Lewin Group, An Evaluation of the Health 
Care Financing Administration's Resource Based Practice Expense 
Methodology (Falls Church, Va.: 2000).

[31] CMS examined whether practices were independent or hospital-based 
to determine representativeness in one of the four recent submissions, 
and used other characteristics, such as the type of services provided, 
for another two of the four submissions.

[32] The Lewin Group, Recommendations Regarding Supplemental Practice 
Expense Data Submitted for 2002 (Falls Church, Va.: 2002).

[33] CMS also assessed the accuracy of three of the four recent 
submissions.

[34] PEAC representatives told us that the thoracic surgeons did not 
formally present to the PEAC their resource estimates for services that 
include the costs of clinical staff they bring to the hospital because 
CMS officials said the agency would not accept resource estimates that 
included these expenses.

[35] Medicare Payment for Nonphysician Clinical Staff in Cardiothoracic 
Surgery, April 2002.

[36] See 66 Fed. Reg. 55,310 (2001).

[37] The Lewin Group, Recommendations Regarding Supplemental Practice 
Expense Data Submitted for 2002 (Falls Church, Va.: 2001), and The 
Lewin Group, Recommendations Regarding Supplemental Practice Expense 
Data Submitted for 2003 (Falls Church, Va.: 2002). 

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