The revisions would generally increase Medicare payments to physician specialties that provide more office-based services while decreasing payments to physician specialties that provide primarily hospital-based services. HCFA’s Method to Estimate Direct Expenses Was Reasonable

HCFA faced significant challenges in revising the practice expense component of the fee schedule—perhaps more challenging than the task of estimating the physician work associated with each procedure. However, they also believed that the CPEP estimates needed to be adjusted to convert them to a common scale, eliminate certain inappropriate expenses, and align the panels’ estimates with data on aggregate practice expenses. While we agree with the intent of these adjustments, we identified methodological weaknesses with some and a lack of supporting data with others. HCFA excluded these physician practice expenses from the panels’ estimates because, under current Medicare policy, those expenses are covered by payments to hospitals rather than to physicians. HCFA officials said that they will review that information to determine whether a change in their position is warranted. If additional data indicate that this practice occurs frequently, it would be appropriate for HCFA to determine whether Medicare reimbursements to hospitals and physicians warrant adjustment. Finally, HCFA adjusted the CPEP data so that it was consistent in the aggregate with national practice expense data developed from the American Medical Association’s (AMA) Socioeconomic Monitoring System (SMS) survey—a process that it called “scaling.” HCFA found that the aggregate CPEP estimates for labor, supplies, and equipment each accounted for a different portion of total direct expenses than the SMS data did. Impact on Access to Care Needs Continued Monitoring

It is not clear whether beneficiary access to care will be adversely affected by Medicare’s new fee schedule payments for physician practice expenses. This will depend upon such factors as the magnitude of the Medicare payment reductions experienced by different medical specialties, other health insurers’ use of the fee schedule, and fees paid by other purchasers of physician services. Therefore, there is a continuing need to monitor indicators of beneficiary access to care, focusing on services and procedures with the greatest reductions in Medicare payments. Furthermore, HCFA has done little in the way of conducting sensitivity analyses to determine which of its adjustments and assumptions have the greatest effects on the proposed fee schedule revisions. There is no need, however, for HCFA to abandon the work of the expert panels and start over using a different methodology; doing so would needlessly increase costs and further delay implementation of the fee schedule revisions. Additional copies are $2 each.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the efforts of the Health Care Financing Administration (HCFA) to revise the practice expense component of Medicare's physician fee schedule.

What GAO Found

GAO noted that: (1) HCFA's general approach for collecting information on physicians' practice expenses was reasonable; (2) HCFA convened 15 panels of experts to identify the resources associated with several thousand services and procedures; (3) HCFA made various adjustments to the expert panels' data that were intended to: (a) convert the panels' estimates to a common scale; (b) eliminate expenses reimbursed to hospitals rather than to physicians; (c) reduce potentially excessive estimates; and (d) ensure consistency with aggregate survey data on practice expenses for equipment, supplies, and nonphysician labor; (4) while GAO agrees with the intent of these adjustments, GAO believes that some have methodological weaknesses, and other adjustments and assumptions lack supporting data; (5) HCFA has done little in the way of performing sensitivity analyses that would enable it to determine the impact of the various adjustments, methodologies, and assumptions, either individually or collectively; (6) such sensitivity analyses could help determine whether the effects of the adjustments and assumptions warrant additional, focused data gathering to determine their validity; (7) GAO believes this additional work should not, however, delay phase-in of the fee schedule revisions; (8) since implementation of the physician fee schedule in 1992, Medicare beneficiaries have generally experienced very good access to physician services; (9) the eventual impact of the new practice expense revisions on Medicare payments to physicians is unknown at this time, but they should be considered in the context of other changes in payments to physicians by Medicare and by other payers; (10) recent successes in health care cost control are partially the result of purchasers and health plans aggressively seeking discounts from providers; (11) how Medicare payments to physicians relate to those of other payers will determine whether the changes in Medicare payments to physicians reduce Medicare beneficiaries' access to physician services; and (12) this issue warrants continued monitoring, and possible Medicare fee schedule adjustments, as the revisions are phased in.