July 1995 Bulletin

RBRVS practice cost study underway

Component is more than 40% of Medicare payments

The Health Care Financing Administration (HCFA) has just begun a comprehensive study of physician practice costs in preparation for establishing "resource-based" practice expense payments under Medicare. HCFA is doing this study because of a congressional mandate to establish resource-based relative values for medical services by January 1998.

Currently, only the physician work component of the resource-based relative value scale (RBRVS) payment system is actually resource-based. Relative values for physician work are based on the Harvard School of Public Health studies, also known as the "Hsiao Studies," of the late '80s and early '90s. The practice cost component, which makes up more than 40 percent of Medicare payments, is still based on the old charge-based system, as is the medical malpractice insurance component.

The practice cost study will take place in two phases over a 21-month time frame. The first phase will consist of a data collection effort, using surveys and consensus panels. Physicians, including orthopaedists and practice managers, will be involved in this data collection effort. Medical equipment and supply manufacturers also will be involved.

The second phase will consist of analyses of the practice cost data to determine how to establish procedure-specific practice cost relative values.

The study will involve magnitude estimation techniques similar to those used in establishing relative values for physician work. Using these techniques, a sampling of several hundred procedures will be studied in depth, at first. Then, the values established for these procedures will be used as reference points to assign values to all other procedures.

Contract for data

HCFA has contracted with Abt Associates, a health services research firm, to conduct the data collection phase. During the summer, HCFA and Abt researchers will meet with other technical experts and physicians representing the American Medical Association, American College of Surgeons, American College of Physicians, and American College of Radiology to discuss the research protocols. Practice managers also are involved in these meetings.

Once the technical aspects of the data collection effort are finalized, other panels of physicians and practice managers will meet to consider the practice costs in actual procedures. Surveys involving up to several thousand physician practices also will be conducted to augment the panel activities.

Several years ago, the Physician Payment Review Commission (PPRC) studied how to analyze practice costs, in anticipation of HCFA's current effort. The PPRC study seemed to assume that practice cost payments to surgical specialists were too high and that practice cost payments to primary care specialists and generalists were too low, without substantiating whether or not this reflects reality. The PPRC study also discussed whether or not some judgments could be made about the elements of the so-called "efficient practice."

In response to the PPRC study, the Academy commissioned its own study on how practice costs should be analyzed. The Academy's Committee on Health Care Financing, chaired by Alan H. Morris, MD, supervised the study. This study concluded that while practice cost payments to surgical specialists under the current payment system may be too high, in some cases, they should not be lowered to the extent that the PPRC study suggested.

Practices vary

More importantly, the Academy study concluded that judgment calls cannot be made about practice efficiency because the practice of medicine, and the ways in which physicians organize their practices, is extremely variable and cannot yet be correlated to quality and outcomes. The Academy study suggested that any practice cost study conducted by the federal government for the RBRVS payment system should seek to reflect practice costs as they actually exist without pre-conceived notions about efficiency and about surgery vs. primary care. The Academy study also suggested that physicians and their practice managers should have significant input, and that every type of practice arrangement, from solo to large group, should be considered.

The Academy-commissioned study was shared with HCFA officials, as well as the PPRC, and it may have influenced some of the design elements in the current HCFA study. However, the Academy's Committee on Health Care Financing will be looking to see if the HCFA study contains biases related to surgery vs. primary care and the issue of efficiency. The committee also will seek to ensure that orthopaedists and the various forms of orthopaedic practice are adequately represented in the study.

—Reported by Robert C. Fine, JD,
director, department of health policy.

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