Medicare

The Medicare physician fee schedule sets forth payments to doctors for more than 7,000 services and procedures, ranging from routine office visits to surgery. Medicare's physician fee schedule payments, which totaled $43 billion in 1997, also influence physicians' non-Medicare income because many other insurers base their payments on Medicare's. The fee schedule was instituted in 1992 to link payments to the resources physicians use to provide a service, rather than to physicians' charges for a service. In June 1997, the Health Care Financing Administration (HCFA) published a notice of proposed rulemaking in the Federal Register describing proposed revisions to the fee schedule. HCFA estimated that the revision would generally increase Medicare payments to physician specialties that provide more office-based services. Some physician groups argued that HCFA based its proposed revisions on invalid data and that the reallocations of Medicare payments would be too severe. This report evaluates HCFA's proposed practice expense revisions and presents information on HCFA's ongoing efforts to refine its data and methodologies. GAO discusses (1) HCFA's approach to estimating the practice expenses directly associated with each medical service or procedure, (2) two methodologies HCFA used to adjust the direct expense estimates, (3) practice expenses excluded or limited by HCFA, (4) HCFA's method for assigning indirect practice expenses to each medical service or procedure, and (5) the potential impact of the new fee schedule allowances on beneficiary access to care.

GAO noted that: (1) HCFA used expert panels--consisting of physicians, administrators, and nonphysician clinicians--to estimate the direct labor and other direct practice expenses associated with medical service or procedures; (2) GAO explored alternative primary data gathering methods, such as mailing out surveys, using existing survey data, and gathering data on-site; (3) GAO concluded that each of those methods has practical limitations that preclude its use as a reasonable alternative to HCFA's use of expert panels; (4) gathering data directly from a limited number of physician practices would, however, be a useful external validity check on HCFA's practice expense rankings and would also help HCFA identify refinements needed during phase-in of the fee schedule revision; (5) the panels' estimates of direct practice expenses needed several types of adjustment; (6) GAO found problems, however, with one of HCFA's adjustment methods, which substantially altered the practice expense rankings; (7) specifically, HCFA used a statistical model to reconcile significant differences among various panels' estimates for the same procedure; (8) GAO identified technical weaknesses in the model that may have biased the estimates; (9) HCFA excluded some physician practice expenses from the panels' estimates because it believes that Medicare pays for those expenses through other mechanisms; (10) physician groups, however, argue that shifts in medical practices have resulted in physicians absorbing these expenses; (11) HCFA also placed upper limits on the panels' administrative and clinical labor estimates, and although these limits seem reasonable to HCFA, they are not supported by any data or analysis; (12) HCFA's method for assessing indirect expenses to medical procedures is acceptable--there is no single best way on the basis of each procedure's total relative value units (RVU) for physician work, direct practice expenses, and malpractice expenses, factors that likely reflect some of the variation on the ratio between direct and indirect expenses among physician specialties; (13) however, the survey data collected by a physician organization might provide more straightforward estimates of specialty--specific indirect cost ratios, and that organization is willing to expand its survey for HCFA's use; and (14) the 1992 implementation of the fee schedule resulted in lower Medicare payments to some medical specialties, but subsequent studies found that Medicare beneficiaries' access to care remained very good.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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