Medicare:

HCFA Can Improve Methods for Revising Physician Practice Expense Payments

HEHS-98-79: Published: Feb 27, 1998. Publicly Released: Feb 27, 1998.

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Pursuant to a legislative requirement, GAO reviewed the Health Care Financing Administration's (HCFA) proposed practice expense revisions and its ongoing efforts to refine its data and methodologies, focusing on: (1) HCFA's approach for estimating the practice expenses directly associated with each medical service or procedure; (2) two methodologies HCFA used to adjust the direct expense estimates; (3) practice expenses excluded or limited by HCFA; (4) HCFA's method for assigning indirect practice expenses to each medical service or procedure; and (5) the potential impact of the new fee schedule allowances on beneficiary access to care.

GAO noted that: (1) HCFA used expert panels--consisting of physicians, administrators, and nonphysician clinicians--to estimate the direct labor and other direct practice expenses associated with medical service or procedures; (2) GAO explored alternative primary data gathering methods, such as mailing out surveys, using existing survey data, and gathering data on-site; (3) GAO concluded that each of those methods has practical limitations that preclude its use as a reasonable alternative to HCFA's use of expert panels; (4) gathering data directly from a limited number of physician practices would, however, be a useful external validity check on HCFA's practice expense rankings and would also help HCFA identify refinements needed during phase-in of the fee schedule revision; (5) the panels' estimates of direct practice expenses needed several types of adjustment; (6) GAO found problems, however, with one of HCFA's adjustment methods, which substantially altered the practice expense rankings; (7) specifically, HCFA used a statistical model to reconcile significant differences among various panels' estimates for the same procedure; (8) GAO identified technical weaknesses in the model that may have biased the estimates; (9) HCFA excluded some physician practice expenses from the panels' estimates because it believes that Medicare pays for those expenses through other mechanisms; (10) physician groups, however, argue that shifts in medical practices have resulted in physicians absorbing these expenses; (11) HCFA also placed upper limits on the panels' administrative and clinical labor estimates, and although these limits seem reasonable to HCFA, they are not supported by any data or analysis; (12) HCFA's method for assessing indirect expenses to medical procedures is acceptable--there is no single best way on the basis of each procedure's total relative value units (RVU) for physician work, direct practice expenses, and malpractice expenses, factors that likely reflect some of the variation on the ratio between direct and indirect expenses among physician specialties; (13) however, the survey data collected by a physician organization might provide more straightforward estimates of specialty--specific indirect cost ratios, and that organization is willing to expand its survey for HCFA's use; and (14) the 1992 implementation of the fee schedule resulted in lower Medicare payments to some medical specialties, but subsequent studies found that Medicare beneficiaries' access to care remained very good.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Center for Medicare and Medicaid Services (CMS) stated that the AMA is considering options for collecting further practice expense data. CMS will consider the use of any such data they may collect. Additionally, CMS is developing plans for the first 5-year review of practice expense values for 2007.

    Recommendation: The Administrator, HCFA, should work with physician groups and the American Medical Association to develop a process for collecting data from physician practices as a cross-check on the calculated practice expense RVUs, and to periodically refine and update the RVUs.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  2. Status: Closed - Implemented

    Comments: CMS has reviewed the work relative value units (RVU) as required by statute as part of a 5-year review of all work RVUs.

    Recommendation: The Administrator, HCFA, should determine whether physicians have shifted tasks to nonphysician clinical staff in a way that warrants reexamining the physician work RVUs.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  3. Status: Closed - Implemented

    Comments: CMS stated that the practice of utilizing the personal staff of a physician in the facility setting has been determined to be a replacement for the actual physician work and therefore would not warrant any changes to the current policy of not allowing additional payment for those physicians who bring their own staff to the facility setting. CMS concluded this after a detailed review of an OIG study of the thoracic surgery specialty, which is the only specialty in which physicians bring their own staff to the facility setting.

    Recommendation: The Administrator, HCFA, should determine whether changes in hospital staffing patterns and physicians' use of their clinical staff in hospital settings warrants adjustments between Medicare reimbursements to hospitals and physicians.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  4. Status: Closed - Not Implemented

    Comments: The Centers for Medicare and Medicaid Services' (CMS) methodology classifies administrative costs as indirect expenses. CMS contracted with the Lewin Group to analyze alternative issues regarding indirect expenses. The Lewin Group analyzed alternative allocation methods and confirmed that the CMS approach is reasonable. CMS plans no further action on this issue. GAO believes that further study of indirect allocation methods is needed given that the Lewin study did not consider the effect of different allocation methods on nonphysician services and across individual specialties and services. Alternative specifications of the regression model to link panels' estimates are no longer relevant since CMS abandoned this methodology.

    Recommendation: The Administrator, HCFA, should evaluate: (1) classifying the administrative labor associated with billing and other administrative expenses as indirect expenses; (2) alternative methods for assigning indirect expenses; and (3) alternative specifications of the regression model used to link panels' estimates. Since these three aspects of HCFA's methodology are interrelated, HCFA should determine how changes in one aspect of the methodology, such as reclassifying some labor from direct to indirect expenses, affect other aspects of the methodology, such as the specification of the regression model to link the panels' estimates of administrative labor and the method used to allocate indirect expenses.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  5. Status: Closed - Not Implemented

    Comments: HCFA's revised methodology for creating resource-based practice expense payments, contained in its November 2, 1998 final rule, no longer includes limits on clinical and administrative labor estimates nor does it rely on assumptions about equipment utilization.

    Recommendation: Where HCFA's adjustments or assumptions substantially alter the rankings and RVUs of specific procedures, the Administrator, HCFA, should collect additional data to assess the validity of its adjustments and assumptions, focusing on the procedures most affected.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  6. Status: Closed - Not Implemented

    Comments: As contained in its November 2, 1998 final rule, HCFA revised its methodology for creating resource-based practice expense payments. HCFA's revised methodology no longer contains limits on clinical and administrative labor estimates nor does it rely on assumptions about equipment utilization.

    Recommendation: The Administrator, HCFA, should use sensitivity analyses to test the effects of: (1) the limits HCFA placed on the panels' estimates of clinical and administrative labor; and (2) HCFA's assumptions about equipment utilization.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

  7. Status: Closed - Not Implemented

    Comments: Although CMS previously stated that its Office of Research and Demonstrations Information was studying any access to care issues that might have arisen as a result of the resource-based practice expense methodology, it has not updated this status in several years. However, in the meantime, GAO-06-704 found that Medicare's efforts to control spending on physician services by limiting physician fees did not result in beneficiary access problems. Specifically, from 2000 through 2004, among beneficiaries who needed access to physician services, the percentages reporting major difficulties--that is, "having a big problem" finding a personal provider or specialist or never being able to schedule an appointment promptly--remained relatively constant. Nationwide, no more than about 7 percent of beneficiaries reported a major access difficulty. We identified certain beneficiary characteristics--including health status, age, and race--that were associated with beneficiaries' reporting major access difficulties. In general, from April 2000 to April 2005, an increasing proportion of beneficiaries received physician services and an increasing number of physician services were provided to beneficiaries who were treated. This trend was evident in every state's urban areas and nearly every state's rural areas. Two other access related indicators--the number of physicians billing Medicare for services and the proportion of services for which Medicare's fees were accepted as payment in full--increased from April 2000 to April 2005. These increases suggest that there was no reduction in the predominant tendency of physicians to accept Medicare patients and payments. The increases in utilization and complexity of services GAO observed demonstrate that beneficiaries were able to access physician services.

    Recommendation: The Administrator, HCFA, should monitor indicators of beneficiary access to care, focusing on those services with the greatest cumulative reductions in Medicare fee schedule allowances, and consider any access problems when making refinements to the practice expense RVUs.

    Agency Affected: Department of Health and Human Services: Health Care Financing Administration

 

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