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Highlights

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.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Centers for Medicare and Medicaid Services To improve and update the physician fee schedule, the CMS Administrator should 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.
Closed - Implemented
Consistent with our recommendation, CMS has modified its review process to accept supplemental data submissions that improve the accuracy of CY 2007 fees. Specifically, CMS has now accepted data from 10 additional specialties, and has consistently assessed the accuracy of all these submissions by comparing them with other available benchmark data. CMS has modified its assessment of representativeness to examine variation in practice expenses within a specialty based on practice size, geography or other characteristics for all 10 submissions. CMS has also adjusted the precision criterion resulting in acceptance of two supplemental data submissions that would otherwise have been rejected because they did not meet the precision criterion. CMS accepted these data because they were an improvement on the data currently used to set fees.
Centers for Medicare and Medicaid Services To improve and update the physician fee schedule, the CMS Administrator should base any revisions to the resource estimates for individual services on sufficient data analysis and a documented and transparent rationale.
Closed - Not Implemented
We cannot determine whether CMS has consistently based any revisions to the resource estimates for individual services on sufficient data analysis and a documented and transparent rationale.
Centers for Medicare and Medicaid Services To improve and update the physician fee schedule, the CMS Administrator should 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.
Closed - Implemented
Consistent with our recommendation, CMS has formulated a plan to update practice expense estimates. Specifically, to refine total practice expense estimates, CMS plans to use a new AMA-sponsored multi-specialty survey in which over 40 physician and nonphysician specialties have agreed to participate. CMS supports the survey, has offered comments on its design, and plans to consider such data as soon as it becomes available?most likely for the CY 2009 fee schedule. Furthermore, the PEAC has now been replaced by the Practice Expense Review Committee (PERC) which acts to assist in updating resource estimates for individual services. The refinement to the original panel estimates has now been completed, and, according to CMS, the refined estimates more accurately capture the relative direct costs of providing services. As a result, CMS has modified its overall methodology such that greater reliance is now placed on these individual service resource estimates, instead of data from the AMA surveys. This change is expected to lead to greater stability and accuracy in the practice expense portion of fees. Thus, although the new AMA-sponsored multi-specialty survey will not be available before CY 2009, its effect on updates to practice expense estimates is less critical under CMS's modified methodology. GAO therefore concludes that CMS has developed a plan that will enable the agency to conduct the on-going 5-year reviews required by law.

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