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. AMA stated that the PEAC process was  concluded in March 2004 because the PEAC had completed its work of  reviewing most services. 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. 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. 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. In 2002, CMS also reviewed a  data submission to determine whether the reported values were  reasonable, as a test for accuracy. 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. 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. 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. 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. Data  sources CMS used to refine the fee schedule no longer exist or are  insufficient. 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. 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. 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. 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. Our concern with the precision requirement is that  in applying it CMS may reject data that are more representative than data  it currently uses. 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.
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.