Medicare Physician Payments

In 1992, Medicare began using a fee schedule to pay doctors for more than 7,000 procedures, from routine office visits to brain surgery. The intent of the new payment system was to base physicians' payments on the relative resources used to provide a procedure rather than on the physicians' charges. To develop the fee schedule, each medical procedure is ranked on a scale according to the amounts of three categories of resources used to perform the procedure -- physician work, practice expenses, and malpractice expenses. A fee schedule amount for each procedure is computed by multiplying the sum of the procedure's three rankings, known as relative value units, by a conversion factor that translates the units into dollars. This report discusses the Health Care Financing Administration's (HCFA) ongoing efforts to develop resource-based practice expenses relative value units. GAO (1) evaluates whether the new methodology is an acceptable approach for revising Medicare's fee schedule; (2) questions raised about the data, assumptions, and adjustments underlying the new methodology that need to be addressed during the three-year phase-in period; and (3) the need for future updates to the practice expense relative value units to reflect changes in health care delivery and for ongoing assessments of the fee schedule's effect on Medicare beneficiaries' access to physicians' care.

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.

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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