Medicare Physician Payments:

Need to Refine Practice Expense Values During Transition and Long Term

HEHS-99-30: Published: Feb 24, 1999. Publicly Released: Feb 24, 1999.

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Pursuant to a congressional request, GAO reviewed the Health Care Financing Administration's (HCFA) ongoing efforts to develop resource-based practice expense relative value units (RVUs), focusing on: (1) whether the new methodology is an acceptable approach for revising Medicare's fee schedule; (2) questions about the data, assumptions, and adjustments underlying the new methodology that need to be addressed during the 3-year phase-in period; and (3) the need for future updates to the practice expense RVUs to reflect changes in health care delivery and for ongoing assessments of the fee schedule's effect on Medicare beneficiaries' access to physicians' care.

GAO noted that: (1) HCFA's new methodology represents an acceptable approach for calculating RVUs; (2) HCFA relied on the best data available for creating the new values: (a) a nationally representative survey of physicians' practice costs; and (b) data developed by panels of experts that identify the specific resources associated with individual procedures; (3) HCFA's original and new proposals use these data in similar ways to create the new RVUs; (4) a critical difference is that the new methodology more directly recognizes the variation in practice expenses among physicians' specialities in computing the RVUs; (5) additionally, this methodology responds to several concerns GAO had with the original one; (6) while HCFA's new methodology is acceptable overall, certain questions about the data and underlying methodology need to be addressed before the new RVUs are completely phased in; (7) for example, the national practice expense survey database contains limited data for some specialties and may lead to imprecise estimates of their practice expenses; (8) for other specialities not included in the survey database, HCFA had to use proxy information, the appropriateness of which needs to be verified; (9) also, HCFA made certain assumptions and adjustments without confirming their reasonableness; (10) for example, HCFA adjusted the supply cost estimates for oncologists to avoid paying them twice for chemotherapy drugs but HCFA has not yet collected data to determine the appropriate size of the adjustment; (11) to address these issues, HCFA needs a strategy for refining the practice expense RVUs during the 3-year phase-in period that focuses on the data and methodology weaknesses that have the greatest effect on the RVUs; (12) however, HCFA has done little in the way of sensitivity analysis to effectively target its refinement efforts; (13) additionally, HCFA has not developed permanent processes for future updates and revisions to the practice expense RVUs as new procedures are developed or methods of performing existing procedures shift; and (14) finally, HCFA needs to continue monitoring beneficiaries' access to physicians' care to ensure that access is not compromised by past and ongoing changes to Medicare's payments to physicians.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: CMS contracted with the Lewin Group to review the practice expense methodology and make recommendations, many of which have been adopted. Furthermore, CMS reported that it completed refinement of practice expense RVUs representing 85 percent of allowed charges. Regarding indirect expenses, the Lewin Group indicated that CMS' approach was reasonable, based upon which CMS plans to take no further action on this issue. GAO continues to believe, however, that further study of indirect allocation methods is warranted.

    Recommendation: The Administrator, HCFA, should use sensitivity analysis to identify issues with the methodology that have the greatest effect on the new practice expense RVUs and to target additional data collection and analysis efforts. One clear example of where HCFA should evaluate different policy options for revising the methodology is in the use of physician time, instead of physician work, to allocate indirect expenses.

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

  2. Status: Closed - Implemented

    Comments: CMS has developed a process to obtain physician input on development and refinement of practice expense relative values through the AMA's Relative Value Update Committee (RVUC) and the Practice Expense Advisory Committee (PEAC). CMS will further develop plans for the first 5-year review of practice expense values for 2007.

    Recommendation: The Administrator, HCFA, should develop plans for updating the practice expense RVUs that address how to: (1) assign practice expense RVUs to new codes; (2) revise the RVUs for existing codes; and (3) meet the legislative requirement for a comprehensive 5-year review of the resource-based practice expense RVUs.

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

  3. Status: Closed - Not Implemented

    Comments: CMS stated that although it is not aware of any barriers to access that are a result of the current resource-based practice expense methodology, its Office of Research and Demonstrations Information is currently studying any access to care issues that might have arisen as a result of the resource-based practice expense methodology.

    Recommendation: The Administrator, HCFA, should monitor indicators of beneficiaries' access to care, focusing on procedures with the greatest cumulative reductions in Medicare payments, and consider access problems when evaluating the physicians' payment system.

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


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