HCFA’s New Methodology Is Acceptable for Establishing Practice Expense Relative Values

HCFA’s new methodology is an acceptable approach for revising Medicare’s practice expense payments. The new methodology has much in common with HCFA’s original methodology. Further, the new methodology explicitly recognizes differences in practice expenses among specialties. Both used the CPEP data to identify the specific resources associated with individual procedures. Concerns About Data and Methodological Issues Can Be Addressed During the Phase-in Period

Even though HCFA used the best available data and developed a generally acceptable methodology for establishing practice expense RVUs, specific questions about both the data and methodology need to be reviewed and addressed, a position supported by virtually all the physicians’ groups we contacted. The data contain certain weaknesses such as small sample sizes. Assumptions and Adjustments in HCFA’s Methodology Need to Be Validated During Refinement

HCFA’s revised methodology includes certain assumptions and adjustments that were prompted by limitations in the available data relative to the difficult task of estimating and ranking practice expenses for thousands of medical procedures. HCFA found that the drug reimbursement significantly exceeded the supply costs that oncologists reported on the SMS. However, more data are needed to determine the appropriate adjustment. The Most Critical Issues Need to Be Identified and Addressed During the Phase-in Period

It is important that HCFA develop a plan for ensuring that the most critical issues associated with the new methodology and data are addressed first. HCFA has done little in the way of conducting such analyses and therefore does not know where to most effectively target its refinement efforts. Finally, it is essential that HCFA continue monitoring indicators of beneficiaries’ access to physicians’ care to determine whether access is compromised by changes to Medicare’s physician fee schedule payments. HCFA does not yet have a plan for identifying the issues that have the greatest effect on the new RVUs. Such monitoring is crucial to ensure that Medicare’s payments to physicians are adequate to maintain beneficiaries’ access to care. Recommendations

We recommend that the Administrator of HCFA
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. 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. The legislation also required the adjustment of each component of the fee schedule to reflect geographic differences in costs, the elimination of specialty-specific payment differentials for providing the same procedure, the implementation of a process for calculating the annual payment update, and the establishment of volume performance standards to track changes in the volume or intensity of procedures Medicare pays for. Process to Refine the RVUs and Create New RVUs

Before the phase-in of the physician work RVUs could begin in 1992, HCFA had to create a process to both refine the existing values and create values for new procedure codes in the future. 2. Step 3.
Why GAO Did This Study

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.

What GAO Found

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.