April 1998 Bulletin

Practice expense

GAO urges HCFA to refine expense data, methodology

Agency suggests continued working with medical societies, using specialty specific data

Much work needs to be done before the Health Care Financing Administration (HCFA) implements the new resource-based practice expense system in 1999, the General Accounting Office (GAO) told the House Ways and Means Subcommittee on Health last month.

"Although HCFA worked closely with medical specialty societies before and after issuing its proposed rule, considerable controversy remains within the medical community over HCFA’s methods for developing direct and indirect expense data," GAO said.

"However, there is no need for HCFA to start over and utilize different methodologies for creating new practice expense RVUs (relative value units); doing so would needlessly increase costs and further delay implementation of the fee schedule revisions. HCFA will need to continue working with these societies as it refines its data and methodologies." GAO recommended a number of fine-tuning measures.

GAO said HCFA’s use of expert panels is an acceptable method to develop direct cost estimates, but collecting actual data on key procedures for a limited number of physician practices through surveys or on-site reviews during the three-year phase-in period would enable HCFA to check the reliability of the clinical practice expense panel (CPEP) data and test assumptions made for its adjustments. Alan Pearlman, MD, a Seattle cardiologist representing the Practice Expense Coalition, told the subcommittee that the "fundamental problems with CPEP was the lack of consistency across panels. HCFA tried to correct for these differences through its statistical manipulations of CPEP data, including ‘linking,’ ‘scaling’ and applying ‘data reasonableness’ edits. These efforts failed however, because they were neither based on input from clinicians, nor on any objective data." (The coalition represents 43 national medical organizations, including the Academy.)

The GAO report raised questions about HCFA’s method of adjusting for differences between estimates of expert panels. The GAO found "significant discrepancies" in some cases. HCFA disagreed, calling GAO discussions about HCFA’s "linking" methodology "overly negative."

Dr. Pearlman said the key element of GAO’s recommendation is the external validation of the original CPEP data, adding Congress should insist on the validation if the CPEP data remains in the practice expense database. However, the GAO said HCFA may eliminate "linking" in its proposed rule in May because it is complex, confusing and causing controversy. HCFA may use standard administrative labor estimates, such as the time it takes a receptionist to schedule a patient’s next appointment, across broad categories of codes. And it may shift administrative activities from direct expense to the indirect expense category.

The agency also noted that HCFA "appropriately" disallowed nearly all of the expenses related to staff who accompany physicians to the hospital, however, GAO said there may have been a shift in hospital and physician practices that Medicare has not recognized in its methods for reimbursing nonphysician clinical labor expenses. Hospitals may no longer be providing the same level of nursing support that they did when the payment method was established. HCFA was urged to determine whether changes in hospital staffing patterns and physicians’ use of their clinical staff warrants adjustments between Medicare reimbursements to hospitals and physicians.

Concerning indirect costs, the coalition concurred with GAOs comment that the use of specialty specific indirect expense data would be more consistent with the Balance Budget Act of 1977 requirement that HCFA utilize actual data for its key assumptions. Several medical organizations told GAO that HCFA should develop separate indirect expense ratios for each medical specialty and use the ratios when calculating indirect expense RVUs. GAO suggested HCFA could use the American Medical Association’s Socioeconomic Monitoring System (SMS) survey. GAO reported that HCFA will evaluate this method before issuing its next proposed rule.

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