Implementation of a Resource-based
Practice Expense Methodology to Calculate Practice Expense Relative
Values for the Medicare Fee Schedule
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Related Resources
AAMC Documents
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Current Status as of March 29, 2000
These provisions are part of a final
rule that became effective January 1, 1999.
Background/Summary
By January 1, 1999 HCFA was required by Congress (Section
121 of the Social Security Act Amendments of 1994) to implement
a resource-based system for the practice expense component
of the Medicare physician fee schedule by January 1, 1999.
In 1997, as a result of intensive advocacy efforts by the
medical community, Congress adopted a four year transition
period to the new system as a provision of the Balanced Budget
Act (BBA) of 1997. Beginning January 1, 1999, practice expense
RVUs were based on a blend of 75 percent of the 1998 PE-RVUs
and 25 percent of the new resource-based values. Each year
thereafter, an additional 25 percent of the total PE-RVU were
resource-based until the end of the transition period in 2002
when 100% of the RVU will be resource-based. The practice
expense component accounts for approximately 44 percent of
the total fee schedule payment. This final rule implements
the proposed methodology and provisions of the June 5, 1998
proposed rule, with some minor changes.
Practice Expense Methodology
The new methodology adopted by HCFA is based on an assumption
that current aggregate specialty practice costs are a reasonable
way to establish initial estimates of relative resource costs
of physicians across specialties. This "top-down"
approach then allocates these aggregate specialty practice
costs to specific procedures.
Practice Expense Cost Pool
HCFA used actual practice expense data by specialty derived
from the 1995 - 1997 American Medical Association's Socioeconomic
Monitoring Survey (SMS) data base. These data are used to
create five cost pools: administrative labor, clinical (non-physician)
labor, medical supplies, medical equipment, office supplies,
and all other expenses. There were three steps in the creation
of the cost pools.
Step 1: HCFA used the SMS data of actual costs to determine
practice expenses per hour by cost category. The practice
expenses per hour for each physician respondent's practice
was calculated as the practice expenses for the practice
divided by the total number of hours spent in patient care
activities by the number of physicians in the practice.
The practice expense per hour for each specialty are an
average of the practice expenses per hour for the respondent
physicians in that specialty.
Step 2: HCFA determined the total number of physician hours
spent treating Medicare patients by specialty. This was
calculated from physician time data for each procedure code
and the Medicare claims data. The primary sources for the
physician time data were surveys submitted to the AMA's
Specialty Society Relative Value Update Committee (RUC)
and surveys done by Harvard for the initial establishment
of the physician work RVUs.
Step 3: HCFA then calculated the practice expense pools
by specialty and by cost category by multiplying the practice
expenses per hour for each category by the total physician
hours.
Cost Allocation Methodology by Specialty
For each specialty, HCFA separated the six practice expense
pools into two groups and used a different allocation for
each group.
For group one, which includes clinical labor, medical supplies,
and medical equipment expenses, HCFA used the Clinical Practice
Expert Panel (CPEP) data as the allocation basis. The CPEP
data for these costs were used to allocate the clinical
labor, medical supplies, and medical equipment cost pools,
respectively.
For group two, which includes administrative labor, office
expenses, and all other expenses, a combination of the group
one cost allocations and the physician fee schedule work
RVUs were used to allocate these cost pools.
For procedures performed by more than one specialty, the
final procedure code allocation was a weighted average of
allocations for the specialists that perform the procedures,
with the weights being the frequency with which each specialty
performs the procedure on Medicare patients. (The more a
given specialty performed a procedure, the greater the allocation
of each cost pool to that specialty.)
Other Methodological and Specialty Issues
- Specialty "crosswalks". Since certain
specialties did not correspond exactly to the specialties
included in the practice expense tabes from the SMS data,
it was necessary to crosswalk these specialties to the most
appropriate SMS specialty category.
- Practice expenses per hour adjustments. Medical
material and supply practice expenses per hour for oncology
and allergy and immunology have been adjusted to equal these
costs for "All Physicians". Drugs furnished by
these specialties will be payed separately.
- Emergency Medicine. HCFA will adjust the practice
expenses per hour for services provided by emergency medicine
physicians to account, in part, for the amount of patient
care hours spent on uncompensated care. HCFA will use the
average for "All Physicians" practice expenses
per hour to create practice expense cost pools for the categories
of "clerical payroll" and "other expenses".
The remaining cost pools will continue to be calculated
using the SMS practice expenses per hour rate for emergency
medicine physicians. This change results in a 3 percent
lower reduction in payments to this specialty, going from
-13 percent to -10 percent.
- Anesthesia Services. Anesthesia services do not
have practice expense RVUs. To move anesthesia services
under the resource-based practice expense system, HCFA will
make a 3.0 percent adjustment to the anesthesia conversion
factor, to be phased-in over the transition period.
- Radiology Services. HCFA will break-out "radiology
oncology" practice expenses per hour from "all
other radiology" practice expenses per hour to create
a separate cost pool for this subspecialty. In addition,
HCFA will use current radiology practice expense RVUs for
radiology services, as an interim measure, to allocate radiology's
direct practice expense cost pools.
Refinement of Practice Expense RVUs
HCFA solicited recommendations in the June 5, 1998 proposed
rule for a long term refinement process beyond the transition
years. In the final rule HCFA is requesting additional suggestions
and comments on an appropriate refinement process. The rule
summarizes and asks for comments on an AMA proposed process
whereby a new AMA Practice Expense Advisory Committee would
be established to review the code-specific data used to develop
the RVUs for all services and to make recommendations for
updates to the RVUs periodically. This committee would include
representatives from all the major specialty societies. Until
such time that a formal process is established, HCFA intends
to:
- Consider and maintain the PE-RVUs for all codes as interim
for 1999 and for all years during the transition period.
- Begin an initial refinement process to include:
- independent (contractor) advisement, and assessments
of comments already received or will receive in the future
about technical issues;
- seeking advice from MedPAC, the Practicing Physicians
Advisory Council, AMA; and
- input from multi-disciplinary physician groups that
represent both winning and losing specialties.
- Seek additional comments and suggestions on:
- specific methods to validate key components of the data;
- specific approaches to ensure fairness among specialties;
- criteria for using alternative survey data; - allocation
methodologies for indirect expenses.
Impact on Fees
Based on the July 22, 1999 proposed PE-RVUs, AAMC staff completed
an impact analysis on total Medicare payments by specialty
of the proposed resource-based practice expense relative value
units (PE-RVUs) published by HCFA. The analysis was completed
using 1996 Medicare service volume data from a sample of 27
member practice plans.
The final methodology results in less dramatic payment reductions
to surgical and procedure-oriented medical specialties and
relatively small payment increases to primary care specialties.
While the differences in impact between academic physicians
as a subset of all physicians are difficult to explain, HCFA
states the impact on any given specialty will depend upon
the patient mix of services and delivery site. Double-digit
reductions in payments for some specialties are expected by
the end of the four year transition period:
Cardiac Surgery
Emergency Medicine
Gastroenterology
Neurosurgery
Pathology
Radiology
Thoracic Surgery
Vascular Surgery |
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Administration Action
Final
regulations were published November 2, 1998 (63 Federal
Register, text and PDF, 58814-59190).
AAMC Action
The AAMC continues to support the American College of Surgeons'
position that Congress delay the continued transition to resource-based
practice expense RVUs for one year to allow time for HCFA
to begin addressing the many outstanding refinement issues
not yet addressed. The General Accounting Office and other
physician organizations have identified several refinement
issues that must be addressed by HCFA. Under the Balanced
Budget Act of 1997, Congress mandated that HCFA develop a
refinement methodology to correct any anomalies identified
with specific CPT codes. HCFA has thus far failed to comply
with this mandate.
The AAMC is also an active member of the Fair Practice Expense
Coalition that was formed to mitigate the negative impact
on specialty intensive services from implementation of a resource-based
practice expense Medicare fee schedule. The AAMC, in concert
with the coalition, has met with members of Congress and their
staffs in support of legislative principles aimed at limiting
the variability experienced by any individual physician service
and improving the practice expense data collected by HCFA.
Following publication June 5, 1998 of the original proposed
rule the AAMC submitted formal comments
to HCFA The AAMC commented on the proposed rule, published
June 5, 1998.
Contacts
Denise Dodero, Associate Vice President
AAMC Health Care Affairs
ddodero@aamc.org
(202) 828-0493
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