Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 1999
Federal RegisterJun 5, 1998
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SUMMARY: This proposed rule would make several policy changes affecting
Medicare Part B payment. The changes that relate to physician services
include: resource-based practice expense relative value units, medical
direction rules for anesthesia services, and payment for abnormal Pap
smears. Also, we would rebase the Medicare Economic Index from a 1989
base year to a 1996 base year. Under the law, we are required to
develop a resource-based system for determining practice expense
relative value units. The Balanced Budget Act of 1997 (BBA 1997)
delayed, for 1 year, implementation of the resource-based practice
expense relative value units until January 1, 1999. Also, BBA 1997
revised our payment policy for nonphysician practitioners, for
outpatient rehabilitation services, and for drugs and biologicals not
paid on a cost or prospective payment basis. In addition, BBA 1997
permits certain physicians and practitioners to opt out of Medicare and
furnish covered services to Medicare beneficiaries through private
contracts. In addition, since we established the physician fee schedule
on January 1, 1992, our experience indicates that some of our Part B
payment policies need to be reconsidered. This proposed rule is
intended to correct inequities in physician payment and solicits public
comments on specific proposed policy changes.
DATES: Comments on the proposed resource-based practice expense policy
will be considered if we receive them at the appropriate address, as
provided below, no later than 5 p.m. on September 3, 1998. Comments on
all other issues will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on August
4, 1998.
ADDRESSES: Mail written comments (1 original and 3 copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-1006-P, P.O. Box 26688,
Baltimore, MD 21207-0488.
If you prefer, you may deliver your written comments (1 original
and 3 copies) to one of the following addresses:
Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850
Because of staffing and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-1006-P. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 309-G of
the Department's offices at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m.
(phone: (202) 690-7890).
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password required).
FOR FURTHER INFORMATION CONTACT: Roberta Epps, (410) 786-4503 (for
issues related to outpatient rehabilitation services, nurse
practitioners, clinical nurse specialists, and certified nurse-
midwives).
Stephen Heffler, (410) 786-1211 (for issues related to the Medicare
Economic Index).
Anita Heygster, (410) 786-4486 (for issues related to private
contracts).
Jim Menas, (410) 786-4507 (for issues related to Pap smears and
medical direction for anesthesia services).
Robert Niemann, (410) 786-4569 (for issues related to the drugs and
biologicals policy).
Regina Walker-Wren, (410) 786-9160 (for issues related to physician
assistants).
Stanley Weintraub, (410) 786-4498 (for issues related to practice
expense relative value units and all other issues).
SUPPLEMENTARY INFORMATION: To assist readers in referencing sections
contained in this preamble, we are providing the following table of
contents. Some of the issues discussed in this preamble affect the
payment policies but do not require changes to the regulations in the
Code of Federal Regulations. Information on the regulation's impact
appears throughout the preamble and not exclusively in part V.
Table of Contents
I. Background
A. Legislative History
B. Published Changes to the Fee Schedule
II. Specific Proposals for Calendar Year 1999
A. Resource-Based Practice Expense Relative Value Units
1. Current Practice Expense Relative Value Unit System
2. Criticism of Current Practice Expense Relative Value Unit
System
3. Resource-Based Practice Expense Legislation
4. Originally Proposed Methodology for Developing Resource-Based
Practice Expense Relative Value Units
5. Balanced Budget Act of 1997 Provisions Pertaining to
Resource-Based Practice Expense Relative Value Units
6. HCFA Response to BBA 1997 Requirements
7. Summary of General Input from the Medical Community and
Comments from the October 1997 Notice with Comment Period
8. Issues Considered in Developing New Practice Expense RVUs
9. Alternative Practice Expense Methodologies Considered
10. Description of the Proposed Methodology for Developing
Practice Expense Relative Value Units
a. Overview
b. Data Sources
c. Practice Expense Cost Pools
d. Cost Allocation Methodology
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11. Comments of the American Medical Association Regarding the
Use of the Socioeconomic Monitoring System Survey Data to Construct
Practice Expense Relative Value Units
12. Other Methodological Issues
a. Professional and Technical Component Services
b. Practice Expenses per Hour Adjustments and Specialty
Crosswalks
c. Time Associated with the Work Relative Value Units
13. Other Practice Expense Policies
a. Site-of-Service Payment Differential
b. Additional Relative Value Units for Additional Office-Based
Expenses for Certain Procedure Codes
c. Anesthesia Services
14. Refinement
a. Issues Involved in Refinement
b. Example of the Process for Reviewing and Commenting on
Practice Expense Relative Value Units
c. Information on Accessing Data Files on HCFA's Homepage
15. Reductions in Practice Expense Relative Value Units for
Multiple Procedures
16. Transition
17. Proposed Regulation Revisions
18. Response to GAO Recommendations
B. Medical Direction for Anesthesia Services
C. Separate Payment for Physician Interpretation of an Abnormal
Papanicolaou Smear
D. Rebasing and Revising the Medicare Economic Index
1. Background
a. History
b. Use of Current Data
2. Rebasing and Revising Expense Categories
a. American Medical Association Socioeconomic Monitoring System
Survey
b. Employment Cost Index Survey
c. Asset and Expenditure Survey
d. Current Population Survey
e. Medical Economics Continuing Survey
3. Selection of Price Proxies
a. Background
b. Expense Categories
(1) Physician's Time
(2) Nonphysician Employee Compensation
(3) Office Expense
(4) Medical Materials and Supplies
(5) Professional Liability Insurance
(6) Medical Equipment
(7) Other Professional Expenses
4. Summary of Changes
III. Implementation of the Balanced Budget Act of 1997
A. Payment for Drugs and Biologicals
B. Private Contracting with Medicare Beneficiaries
C. Payment for Outpatient Rehabilitation Services
1. Overview of Policies Before BBA 1997
a. Coverage
b. Providers of Outpatient Rehabilitation Services
c. Payment for Services
(1) Reasonable Cost-Based Payments
(2) Fee Schedule Payments
d. Financial Limitation
2. BBA Provisions Affecting Payment for Outpatient
Rehabilitation Services
a. Reasonable Cost-Based Payments
b. Prospective Payment System for Outpatient Rehabilitation
Services
(1) Overview
(2) Services Furnished by Skilled Nursing Facilities
(3) Services Furnished by Home Health Agencies
(4) Services Furnished by Comprehensive Outpatient
Rehabilitation Facilities
(5) Site-of-Service Differential
(6) Mandatory Assignment
3. Uniform Procedure Codes for Outpatient Rehabilitation
Services
4. Financial Limitation
5. Qualified Therapists
6. Plan of Treatment
D. Payment for Services of Certain Nonphysician Practitioners
and Services Furnished Incident to their Professional Services
1. Coverage and Payment for Nurse Practitioner Services Before
BBA 1997
2. Coverage and Payment for Nurse Practitioner Services
Subsequent to BBA 1997
3. Coverage and Payment for Clinical Nurse Specialist Services
Before BBA 1997
4. Coverage and Payment for Clinical Nurse Specialist Services
Subsequent to BBA 1997
5. Coverage and Payment for Certified Nurse-Midwife Services
6. Coverage and Payment for Physician Assistant Services Before
BBA 1997
7. Coverage and Payment for Physician Assistant Services
Subsequent to BBA 1997
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis
A. Regulatory Flexibility Act
B. Resource-Based Practice Expense Relative Value Units
C. Medical Direction for Anesthesia Services
D. Separate Payment for Physician Interpretation of an Abnormal
Papanicolaou Smear
E. Rebasing and Revising the Medicare Economic Index
F. Payment for Nurse Midwives' Services
F. Payment for Drugs and Biologicals
G. BBA 1997 Provisions Included in This Proposed Rule
1. Payment for Services of Certain Nonphysician Practitioners
and Services Furnished Incident to Their Professional Services
2. Payment for Outpatient Rehabilitation Services
3. Payment for Drugs and Biologicals
4. Private Contracting with Medicare Beneficiaries
H. Impact on Beneficiaries
Addendum A--Description of Clinical Practice Expert Panel Data and
Methodology
Addendum B--Technical Description of the Proposed Methodology for
Developing Practice Expense Relative Value Units
Addendum C--Relative Value Units (RVUs) and Related Information
In addition, because of the many organizations and terms to
which we refer by acronym in this proposed rule, we are listing
these acronyms and their corresponding terms in alphabetical order
below:
AANA--American Association of Nurse Anesthetists
ABC--Activity based costing
ABN--Advance Beneficiary Notice
AHE--Average Hourly Earnings
AMA--American Medical Association
ASA--American Society of Anesthesiologists
AWP--Average Wholesale Price
BBA--Balanced Budget Act of 1997
BLS--Bureau of Labor Statistics
CF--Conversion factor
CFR--Code of Federal Regulations
CMSAs--Consolidated Metropolitan Statistical Areas
CORF--Comprehensive outpatient rehabilitation facility
CPEPs--Clinical Practice Expert Panels
CPI--Consumer Price Index
CPI-U--Consumer Price Index for All Urban Consumers
CPS--Current Population Survey
CPT--[Physicians'] Current Procedural Terminology [4th Edition,
1997, copyrighted by the American Medical Association]
CRNA--Certified Registered Nurse Anesthetist
DME--Durable medical equipment
DMEPOS--Durable medical equipment, prosthetics, orthotics, and
supplies
DRG--Diagnosis-related group
EAC--Estimated Acquisition Cost
ECI--Employment Cost Index
ES-202--Data--Bureau of Labor Statistics from State unemployment
insurance agencies
ESRD--End-stage renal disease
FDA--Food and Drug Administration
FMR--Fair market rental
GAAP--Generally accepted accounting principles
GAF--Geographic adjustment factor
GPCI--Geographic practice cost index
HCFA--Health Care Financing Administration
HCPCS--HCFA Common Procedure Coding System
HHS--[Department of] Health and Human Services
HMO--Health maintenance organization
HUD--[Department of] Housing and Urban Development
MEDPAC--Medicare Payment Advisory Commission
MEI--Medicare Economic Index
MGMA--Medical Group Management Association
MSA--Metropolitan Statistical Area
NAIC--National Association of Insurance Commissioners
NPI--National provider identifier
OBRA--Omnibus Budget Reconciliation Act
OTIP--Occupational therapist in independent practice
PC--Professional component
PMSA--Primary Metropolitan Statistical Area
PPI--Producer Price Index
PPS--Prospective payment system
PTIP--Physical therapist in independent practice
RUC--[AMA's Specialty Society] Relative [Value] Update Committee
[[Page 30820]]
RVU--Relative value unit
SMS--Socioeconomic Monitoring System
SNF--Skilled nursing facility
TC--Technical component
TEFRA--Tax Equity and Fiscal Responsibility Act
UPIN--Uniform provider identifier number
I. Background
A. Legislative History
Since January 1, 1992, Medicare has paid for physician services
under section 1848 of the Social Security Act (the Act), ``Payment for
Physicians' Services.'' This section contains three major elements: (1)
A fee schedule for the payment of physician services; (2) a sustainable
growth rate for the rates of increase in Medicare expenditures for
physician services; and (3) limits on the amounts that nonparticipating
physicians can charge beneficiaries. The Act requires that payments
under the fee schedule be based on national uniform relative value
units (RVUs) based on the resources used in furnishing a service.
Section 1848(c) of the Act requires that national RVUs be established
for physician work, practice expense, and malpractice expense.
Section 1848(c)(2)(B)(ii)(II) of the Act provides that adjustments
in RVUs because of changes resulting from a review of those RVUs may
not cause total physician fee schedule payments to differ by more than
$20 million from what they would have been had the adjustments not been
made. If this tolerance is exceeded, we must make adjustments to the
conversion factors (CFs) to preserve budget neutrality.
B. Published Changes to the Fee Schedule
We published a final rule on November 25, 1991 (56 FR 59502) to
implement section 1848 of the Act by establishing a fee schedule for
physician services furnished on or after January 1, 1992. In the
November 1991 final rule (56 FR 59511), we stated our intention to
update RVUs for new and revised codes in the American Medical
Association's (AMA's) Physicians' Current Procedural Terminology (CPT)
through an ``interim RVU'' process every year. The updates to the RVUs
and fee schedule policies follow:
November 25, 1992, as a final notice with comment period
on new and revised RVUs only (57 FR 55914).
December 2, 1993, as a final rule with comment period (58
FR 63626) to revise the refinement process used to establish physician
work RVUs and to revise payment policies for specific physician
services and supplies. (We solicited comments on new and revised RVUs
only.)
December 8, 1994, as a final rule with comment period (59
FR 63410) to revise the geographic adjustment factor (GAF) values, fee
schedule payment areas, and payment policies for specific physician
services. The final rule also discussed the process for periodic review
and adjustment of RVUs not less frequently than every 5 years as
required by section 1848(c)(2)(B)(i) of the Act.
December 8, 1995, as a final rule with comment period (60
FR 63124) to revise various policies affecting payment for physician
services including Medicare payment for physician services in teaching
settings, the RVUs for certain existing procedure codes, and to
establish interim RVUs for new and revised procedure codes. The rule
also included the final revised 1996 geographic practice cost indices
(GPCIs).
November 22, 1996, as a final rule with comment period (61
FR 59490) to revise the policy for payment for diagnostic services,
transportation in connection with furnishing diagnostic tests, changes
in geographic payment areas (localities), and changes in the procedure
status codes for a variety of services.
October 31, 1997, as a final rule with comment period (62
FR 59048) to revise the geographic practice cost index (GPCI),
physician supervision of diagnostic tests, establishment of independent
diagnostic testing facilities, the methodology used to develop
reasonable compensation equivalent limits, payment to participating and
nonparticipating suppliers, global surgical services, caloric
vestibular testing, and clinical consultations. The final rule also
implemented certain provisions of the Balanced Budget Act of 1997 (BBA
1997) (Public Law 105-33), enacted on August 5, 1997, and implemented
the RVUs for certain existing procedure codes and established interim
RVUs for new and revised procedure codes.
This proposed rule would affect the regulations set forth at 42 CFR
part 405, which consists of regulations on Federal health insurance for
the aged and disabled; part 410, which consists of regulations on
supplementary medical insurance benefits; part 414, which consists of
regulations on the payment for Part B medical and other health
services; part 415, which pertains to services furnished by physicians
in providers, supervising physicians in teaching settings, and
residents in certain settings; part 424, which pertains to the
conditions for Medicare payment; and part 485, which pertains to
conditions of participation: specialized providers.
II. Specific Proposals for Calendar Year 1999
A. Resource-Based Practice Expense Relative Value Units
1. Current Practice Expense Relative Value Unit System
The Act details the types of services that are paid under the
physician fee schedule. These include physician services, services and
supplies incident to a physician service, diagnostic x-ray tests,
diagnostic laboratory tests (excluding clinical laboratory tests), and
x-ray, radium, and radioactive isotope therapy. BBA 1997 added other
services such as certain preventive services. While some of these
services do not have work RVUs, all of the services have practice
expense and malpractice expense RVUs. (Physician anesthesia services
are included under the physician fee schedule but are paid under a
different payment methodology that uses a separate CF and allowable
base and time units. Physician anesthesia services do not have practice
expense and malpractice expense RVUs.) Payments for practice expense
RVUs account for approximately 41 percent of total physician fee
schedule payments.
In most cases, the current practice expense RVUs are calculated
based on a statutory formula. They are derived from the product of
``base allowed charges'' and service-specific practice expense
percentages. The base allowed charge is the national allowed charge for
the service furnished during 1991. The service-specific practice
expense percentage is a weighted average of the practice expense
percentages of the specialties performing the service.
For services furnished beginning with calendar year 1994 and whose
practice expense RVUs exceed 1994 work RVUs and are performed in the
office setting less than 75 percent of the time, practice expense RVUs
in each of 1994, 1995, and 1996 were reduced by 25 percent of the
amount they exceed the 1994 work RVUs. (Before 1998, practice expense
RVUs were not reduced to less than 128 percent of 1994 work RVUs.)
For services furnished beginning with calendar year 1998 whose
practice expense RVUs (determined for 1998) exceeded 110 percent of the
work RVUs and which were provided less than 75 percent of the time in
an office setting, the 1998 practice expense RVUs were reduced to a
number equal to 110 percent of the work RVUs. This limitation did not
apply to services that had a proposed resource-based practice expense
RVU in the June 18, 1997 proposed rule (62 FR 33158), which was
[[Page 30821]]
an increase from its 1997 practice expense RVU. For office visit
procedure codes performed beginning calendar year 1998, the practice
expense RVUs were increased by a uniform percentage to equal the
aggregate decrease in the practice expense RVUs for other services.
2. Criticism of Current Practice Expense Relative Value Unit System
A common criticism of the current practice expense RVU system is
that for many services the RVUs, which are based on charges under the
reasonable charge system, are not based directly on the resources
involved with furnishing the service. Rather, the charge-based nature
of the current fee schedule practice expense retains historical charge
patterns that existed before the implementation of the physician fee
schedule on January 1, 1992. Those charge patterns favor procedures and
tests performed in hospitals rather than evaluation and management
services and other office-based services.
For example, a primary care physician would have to bill CPT code
99213 (level 3 office visit, established patient) approximately 80
times to collect the same amount of practice expense payments as a
cardiac surgeon would for performing one coronary artery bypass graft
with three coronary venous grafts (CPT code 33512), although the
practice expenses the surgeon typically incurs for the cardiac surgery
are primarily related to the pre- and postoperative services furnished
in the office, administrative costs, and overhead. The costs for
clinical staff, medical supplies, and medical equipment furnished to
hospital patients are included in the diagnosis-related group (DRG)
payment made to the hospital as required by section 1862(a)(14).
In their 1993 annual report to the Congress, the Physician Payment
Review Commission recommended that the Congress revise the practice
expense component of the physician fee schedule so that it is resource-
based. They further recommended that we collect data regarding the
direct cost incurred in delivering each service and that a formula-
based approach be used to allocate indirect costs. This recommendation
was instrumental in the Congress' legislating the resource-based
practice expense component.
3. Resource-Based Practice Expense Legislation
Section 121 of the Social Security Act Amendments of 1994 (Public
Law 103-432), enacted on October 31, 1994, requires us to develop a
methodology for a resource-based system for determining practice
expense RVUs for each physician service. In developing the methodology,
we must consider the staff, equipment, and supplies used in providing
medical and surgical services in various settings. The legislation
required the new payment methodology to be effective for services
furnished in 1998.
The legislation specifically requires that, in implementing the new
system of practice expense RVUs, we must apply the same budget-
neutrality provisions that we apply to other adjustments under the
physician fee schedule.
Before publication of the final rule in October 1997, section 4505
of the BBA 1997 delayed initial implementation of resource-based
practice expense RVUs until 1999. It also required that we do the
following:
Use, to the maximum extent practicable, generally accepted
cost accounting principles that recognize all staff, equipment,
supplies, and expenses, not solely those that can be linked to specific
procedures.
Consult with organizations representing physicians
regarding methodology and data to be used.
Develop a refinement method to be used during the
transition.
Consider impact projections that compare new proposed
payment amounts to data on actual physician practice expenses.
4. Originally Proposed Methodology for Developing Resource-Based
Practice Expense Relative Value Units
To implement the October 1994 legislation, we published a proposed
rule on June 18, 1997 (62 FR 33158). In the proposed rule, we
established a framework in which practice expenses were divided into
direct and indirect costs. Direct costs are those costs that can be
directly attributed to providing a service, such as the cost of a
nurse's time (salary), medical supplies and equipment, administrative
costs of billing, record maintenance, and the scheduling of office
patients. Direct costs also include the physician's costs of office
staff time for scheduling appointments and billing and collection
activities associated with a medical procedure furnished in a hospital.
Indirect costs cannot be directly attributed to a specific service, and
include costs such as rent, utilities, office equipment and supplies,
and accounting and legal fees. The allocation of indirect costs to
specific products or services is a classic accounting problem. The
indirect costs are difficult to relate directly to a specific service
because they are incurred by the practice as a whole.
The June 1997 proposed rule (62 FR 33172) described the following
methodology for calculating the proposed direct practice expense RVUs.
We calculated the total pool of practice expense RVUs for
1995 and divided it into direct and indirect practice expense pools
using the American Medical Association's (AMA's) Socioeconomic
Monitoring System (SMS) survey data and our 1995 national claims
history data. The national distribution of direct and indirect practice
expense RVUs was 55 percent direct practice expense RVUs and 45 percent
indirect practice expense RVUs.
The underpinning for the proposed direct components of the
practice expense RVUs was the data reported by the Clinical Practice
Expert Panels (CPEPs) for clinical and administrative labor, medical
supplies, and medical equipment inputs. There were 15 CPEPs,
corresponding to the major medical specialties, which were made up of
nominees from all major specialty societies. (A description of the
CPEPs is contained in the June 1997 proposed rule (62 FR 33161).) (See
Addendum A for a detailed description of the CPEP process.)
These data were edited to apply Medicare payment policy
rules to ensure that the reported data were consistent with our
national hospital and physician payment policies. The primary
adjustment was the removal of direct inputs recorded for clinical labor
staff, medical equipment, and medical supplies furnished to hospital
patients. Other adjustments were made for the professional component of
a service, the technical component of a service, and the combined
service, for codes that have an indicator of ZZZ under the physician
fee schedule, and for certain allergy and immunotherapy codes performed
on a per-test, per-dose, or per-vial basis.
We believed that the relative relationships of the staff
time estimates within the individual CPEPs were generally correct but
that the absolute time estimates needed normalization. We placed the
codes from the different CPEPs on the same scale using a normalization
process that we call ``linking.'' Specifically, linking shifted an
entire CPEP's data relative to other CPEPs' data, based on the
relationship of the values assigned across panels for codes that had
been assigned to multiple CPEPs. We separately linked clinical and
administrative labor costs. Statistically, the linking was done using
regression methods.
[[Page 30822]]
After the data were edited and linked, our physicians and
clinical staff analyzed the direct practice expense RVUs to determine
if there were unexplainable variations in the underlying CPEP data.
This review resulted in the application of two general reasonableness
rules. First, a decision was made to cap the administrative time of
several categories of service (services without a global period and
procedures subject to global periods with zero follow-up days) at the
administrative time assigned to CPT code 99213 (midlevel office
visits). Second, we decided to cap the nonphysician clinical staff time
at 1.5 times the physician time, in minutes, for performing the
procedure. Additional more specific rules were applied to certain
supplies and supply costs and for certain codes, such as psychotherapy,
physical therapy, chemotherapy, and nerve block codes.
The aggregate percentage shares across all specialties of
labor and medical supplies and equipment from the CPEP data were scaled
to the percentage shares of these categories from the AMA's SMS survey
data. The CPEP expenses for labor, medical supplies, and medical
equipment were adjusted by scaling factors of 1.21, 1.06, and 0.39
respectively.
The direct practice expense dollar amounts were converted
into direct practice expense RVUs. An adjustment factor of 0.65 was
used to convert the aggregate direct practice expense dollars to the
available Medicare direct practice expense dollars.
Aggregate indirect practice expense RVUs were allocated to
individual codes based on the code-specific sum of the direct practice
expense, the malpractice expense, and the physician work RVU.
The direct and the indirect practice expense RVUs per code
were combined to produce a single practice expense RVU per code.
Other practice expense proposals in the June 1997 proposed rule (62
FR 33160) included:
Replacement of the current site-of-service differential
policy that systematically reduces the practice expense RVUs by 50
percent for certain procedures with a policy that would generally
identify two different levels (office or nonoffice) of practice expense
RVUs for each procedure code depending on the site of service.
Elimination of the current policy that allows additional
practice expense RVUs for supplies that are used incident to a
physician service but were not the type of routine supplies included in
the current practice expense RVUs for specific services. These supplies
were included in the CPEP data for the specific procedure code.
Reduction of the practice expenses for multiple
nonsurgical services performed at the same time as an evaluation and
management service.
The June 1997 proposed rule provided for a 60-day comment period
ending on August 18, 1997.
5. Balanced Budget Act of 1997 Provisions Pertaining to Resource-Based
Practice Expense Relative Value Units
On August 5, 1997, the President signed into law the Balanced
Budget Act of 1997 (BBA 1997). Section 4505(a) of BBA 1997 delayed the
effective date of the resource-based practice expense RVU system until
January 1, 1999. In addition, BBA 1997 provided for the following
revisions in the requirements to change from a charge-based practice
expense RVU system to a resource-based method.
Instead of paying for all services entirely under a resource-based
system in 1999, section 4505(b) of BBA 1997 provided for a 4-year
transition period. The practice expense RVUs for the year 1999 will be
the product of 75 percent of the previous year's RVUs (1998) and 25
percent of the resource-based RVUs. For the year 2000, the percentages
will be 50 percent charge-based and 50 percent resource-based. For the
year 2001, the percentages will be 25 percent charge-based and 75
percent resource-based. For subsequent years, the RVUs will be totally
resource-based.
Section 4505(c) of BBA 1997 required the Comptroller General to
review and evaluate our proposed rule and report to the Congress by
February 1998. The review was required to include an analysis of (1)
the adequacy of the data used in preparing the rule, (2) categories of
allowable costs, (3) methods for allocating direct and indirect
expenses, (4) the potential impact of the rule on beneficiary access to
services, and (5) any other matters related to the appropriateness of
resource-based methodology for practice expenses. The Comptroller
General was also to consult with representatives of physician
organizations with respect to matters of both data and methodology.
Section 4505(e) of BBA 1997 provided that, for 1998, the practice
expense RVUs be adjusted for certain services in anticipation of the
implementation of resource-based practice expenses beginning in 1999.
Practice expense RVUs for office visits were increased. For other
services whose practice expense RVUs (determined for 1998) exceeded 110
percent of the work RVUs and which were provided less than 75 percent
of the time in an office setting, the 1998 practice expense RVUs were
reduced to a number equal to 110 percent of the work RVUs. This
limitation did not apply to services that had a proposed resource-based
practice expense RVU in the June 1997 proposed rule that was an
increase from its 1997 practice expense RVU. The total of the
reductions was less than the statutory maximum of $390 million. The
procedure codes affected and the final RVUs for 1998 were published in
the October 31, 1997 final rule (62 FR 59103).
Section 4505(d)(2) of BBA 1997 required that the Secretary transmit
a report to the Congress by March 1, 1998, including a presentation of
data to be used in developing the practice expense RVUs and an
explanation of the methodology. A report was submitted to the Congress
in early March 1998. Section 4505(d)(3) requires that a proposed rule
be published by May 1, 1998, with a 90-day comment period. For the
transition to begin on January 1, 1999, a final rule must be published
by October 31, 1998.
BBA 1997 also required that we develop new resource-based practice
expense RVUs. In developing these new practice expense RVUs, section
4505(d)(1) required us to: (1) Utilize, to the maximum extent
practicable, generally accepted accounting principles that recognize
all staff, equipment, supplies, and expenses, not just those that can
be tied to specific procedures, and use actual data on equipment
utilization and other key assumptions; (2) consult with organizations
representing physicians regarding the methodology and data to be used;
and (3) develop a refinement process to be used during each of the 4
years of the transition period.
6. HCFA Response to BBA 1997 Requirements
BBA 1997 required us to develop new resource-based RVUs and to
consult with physician organizations regarding methodology and data. To
meet the BBA 1997 requirements and to promote input as we developed new
RVUs, we have sought and will continue to encourage maximum input from
those affected by this initiative. The following is a summary of
activities we have undertaken.
Validation Panel Meetings.
We hosted 17 medical specialty panels that were charged with
validating the CPEP direct cost data for the high-volume CPT codes for
each specialty. All the major medical specialty societies were
represented, including nonphysician organizations.
[[Page 30823]]
Each panel, consisting of about 12 to 15 members, was made up of the
appropriate specialists, two general surgeons, two primary care
physicians, and two Medicare carrier medical directors. The panel
members reviewed and, if they believed necessary, revised the clinical
and administrative times and the supplies and equipment involved for
each code. Consensus within panels was reached on about 200 codes.
Cross Specialty Panel.
Although the October validation panels were able to reach consensus
on many high-volume procedures within specific specialties, we were
concerned that there was not a uniform or consistent scale applied to
labor inputs across specialties. Therefore, in December, we convened a
multiple specialty panel of 37 panelists, including physicians,
nonphysicians, and administrators nominated by the specialty societies.
We expected the panel to help us achieve consistency across panels
on resource inputs, such as insurance billing and transcription times,
and to standardize the clinical staff types for similar classes of
services, whether they be registered nurses, medical assistants,
licensed practical nurses, or a mix of these staff types. The results
of the cross specialty panel were generally unsuccessful. While the
panel did provide the arena for panelists to furnish explanations of
times for activities that we believed to be excessive, the panelists
were generally reluctant to make any major modifications in the times
or staff they had assigned to their own services. The panelists could
not agree to any rules that would aid us in standardizing the data.
The panelists did recommend that we explore an option that treats
billing and insurance activities as indirect costs. Many panelists also
suggested that we proceed cautiously and try to minimize the magnitude
of redistribution.
Indirect Cost Symposium.
We convened a meeting on November 21, 1997 on indirect practice
expenses to provide a forum for participants to discuss their preferred
methodology for allocating indirect costs. We asked those organizations
that commented on our proposed indirect cost methodology to make a
formal presentation of their views. All major medical specialty groups
were invited to attend and join in the discussion.
Some groups endorsed the methodology we proposed in the June 1997
proposed rule (62 FR 33172) with some modifications. One modification
recommended was to eliminate malpractice RVUs as a factor in allocating
indirect costs. It was noted, even by some advocates for other
allocation methods, that our proposed methodology embodied traditional
accounting methods for allocating indirect costs.
Only two major alternatives to our proposed methodology were
presented. The first, the Activity Based Costing (ABC) method, was
described as a cutting edge approach to determining the cost of
individual products (CPT codes). Under the ABC method, the total costs
of a practice are collected and assigned to discrete processes or
activities. These costs are then assigned to products to which they are
related.
The ABC method was developed for industries in which direct labor
(the traditional cost accounting method for allocating indirect costs)
is not the dominant factor in the production of the good or service.
This method is in the early developmental stages in medical practice
use.
The second alternative methodology presented was the physician work
RVU method of allocating indirect practice expenses. This method would
allocate indirect costs using only the physician work RVUs. However,
there did not appear to be much support for this methodology at the
meeting. It would, for example, penalize physician practices that have
proportionately higher equipment costs.
October 31, 1997 Notice with Comment Period
To inform all interested parties of our plans to issue a
new proposed rule and to request additional data from the medical
community to assist us in meeting BBA 1997 requirements, on October 31,
1997, we published a notice (62 FR 59267).
In that notice, we requested that physicians, physician
organizations, or others provide us with the following information:
Generally accepted cost accounting principles--We
specifically requested information on the following: (1) Aspects of the
cost accounting methodology used in the June 1997 proposed rule that
were not consistent with the statutory guidance; and (2) complete
copies of studies of resource-based practice expense RVUs, including
any underlying surveys supporting these studies, performed by
physicians or physician groups or their contractors or consultants,
including pertinent details about the survey.
Equipment utilization--We specifically requested complete
copies of any studies or other data showing the actual utilization of
equipment by physician practices, including pertinent details about the
survey, such as response rates, sampling design, methodology,
directions, and definitions.
Other assumptions--We specifically requested information
regarding the useful life of equipment, the amount and percentage of
direct practice costs versus the amount and percentage of indirect
costs by specialty, and practice expense values for sites for which
values were not proposed in the June 1997 proposed rule (62 FR 33158).
Use of physician-employed staff in hospitals and other
facility settings--We specifically requested comments and information
about the extent to which a physician employee, such as a registered
nurse, accompanies the physician to the hospital, ambulatory surgical
center, or other facilities to provide services, such as acting as an
assistant at surgery or serving as a scrub nurse. We asked for names of
specific facilities so that we might contact them in order to more
fully understand the nature of the relationships.
Refinement process--We requested comments on how this
refinement process would operate including assigning practice expense
RVUs to new codes, who would be involved in the refinement process, and
how all of the users of the physician fee schedule would have access to
the process.
Review of New Methodology by KPMG Peat Marwick LLP--Under
contract #500-97-0402, we requested that KPMG Peat Marwick LLP review
the practice expense per hour methodology. They concluded that the
methodology follows reasonable cost accounting principles. They made
this determination based on an examination of the available data
sources and a consideration of the cost and feasibility of acquiring
additional nationally representative data. As a future consideration,
they recommended sample validation of our cost allocation bases.
7. Summary of General Input From the Medical Community and Comments
From the October 1997 Notice With Comment Period
Some physicians, such as primary care physicians, expressed
satisfaction that the proposed methodology was generally sound. In
addition, the AMA was supportive of our panel process for direct
expenses and offered many helpful comments. However, many surgeons and
medical specialties argued that we should discard our current practice
expense data, and develop payments that reflect their ``actual costs.''
[[Page 30824]]
Both in written comments and in our meetings with the medical
community, we received much feedback on our methodology for indirect
practice expense. However, there was no consensus regarding methods for
allocating indirect costs to individual procedure codes.
In addition, we received 56 specific comments from individuals,
major organizations, and physician specialty groups on our October 1997
notice. The comments are summarized by the following categories:
Generally Accepted Accounting Principles.
Some of the groups expected to experience an increase in payment
under the June 1997 proposed rule thought our approach satisfied the
current statutory mandate that we utilize generally accepted accounting
principles (GAAP). Those physician groups that expected to experience a
decrease in payments based on the methodology described in the June
1997 proposed rule said the approach in the proposed rule was
inconsistent with GAAP. They argued that GAAP requires us to use actual
practice expense data and said the data from the CPEPs and validation
panels were based on erroneous assumptions, or were unverified
approximations. At least five commenters supported using the activity-
based accounting approach.
Equipment utilization.
Some groups furnished equipment-specific utilization levels for a
few services. Generally, the equipment and utilization levels were not
based on representative surveys of physicians performing the service.
Some suggestions were as follows:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Electroencephalography equipment........... 26
Electromyography........................... 36.5
Nerve Conduction Velocity.................. 36.5
Cystoscope................................. 5
Loop electrode excision procedure.......... 1
Colposcope................................. 1.6
YAG laser.................................. 12
ARGON laser................................ 5 to 6.4
Fundus camera.............................. 31.3
Spirometry and Ancillary Equipment......... 10 to 17
Bronchoscopy............................... 5 to 10
------------------------------------------------------------------------
Useful Life.
We did not receive specific comments on suggested useful lives for
specific medical equipment, which is an important factor in estimating
equipment costs.
Direct and Indirect Costs.
Some commenters pointed out that not all clinical labor can be
classified as direct costs. Tasks such as ordering supplies and
attending meetings or continuing education classes should be captured
as indirect costs. Some groups, including one primary care group, said
that billing costs should be an indirect expense, while others
supported maintaining them as direct costs. Many groups supported an
allocation process in which indirect costs are assigned based on a
specialty's specific indirect cost percentage. Only one group
specifically objected to this approach. Some physician groups provided
specific direct and indirect cost ratios based on limited surveys of
their membership.
Employed Staff.
According to an American Hospital Association survey, 63 percent of
respondents (from 573 hospitals) believed that a physician brought
staff to the hospital during the last 6 months of 1996. Of these
respondents, 82 percent said this was not a regular practice.
Therefore, the American Hospital Association commented it is not a
typical practice in the United States for physicians to bring their own
staff to a hospital.
Five surgical specialties and subspecialties--neurosurgery,
ophthalmology, general thoracic surgery, congenital thoracic surgery,
and adult cardiac surgery--indicated that at least 50 percent of
practices use employed clinical staff in nonoffice settings. General
surgery indicated that 31 percent of general surgery practices pay for
clinical staff working in nonoffice settings. The Society of Thoracic
Surgeons stated that they do not have data on the number of clinical
nurses who work with thoracic surgeons in hospitals. However, they
stated that a survey of physician assistants shows that 72 percent of
physician assistants employed in cardiovascular surgery were employed
by solo or group physician practices.
According to the American Academy of Ophthalmology, 51 percent of
ophthalmologists bring equipment, such as keratomes, diamond knives,
cataract trays, and muscle trays to furnish services to hospital
patients.
Refinement.
Most commenters support using the AMA's Specialty Society Relative
Value Update Committee's (RUC's) process to refine the practice expense
RVUs. (Currently the RUC recommends refinement of the physician work
RVUs.) Of these commenters, many recommended that the process include
nurses and practice managers, that there be established rules and
procedures for data collection, survey design, and response rates, and
that the process allows participation by subspecialties, such as
transplant surgeons and pediatric surgeons. One commenter suggested a
process using the AMA, Medical Group Management Association (MGMA), and
HCFA. Some commenters suggested using a RUC process only for new codes.
Transition.
Several commenters stated that the base year for the transition
should be the 1997 practice expense RVUs and not the 1998 practice
expense RVUs. They suggested that the 1998 adjustment required by BBA
1997 is not intended to be included in the base for purposes of the
practice expense transition. Some commenters recommended that we
explore using ceilings and floors during the transition period or use
caution so as to limit the amount of the redistribution.
Site-of-Service Differential.
Commenters from the American Academy of Orthopaedic Surgeons stated
that we need office practice expense RVUs for musculoskeletal system
surgery codes 25000, 25031, 26040, 26060, 26608, 29815 through 29848,
and 29870 through 29898. Some commenters believe we should develop
practice expense RVUs for all procedures at all sites and permit office
endoscopy only under very limited and clearly defined standards.
Data Quality.
The American College of Surgeons stated that the CPEP data are
based on erroneous assumptions, educated guesses, and unverified
approximations. They stated that the data from panels are unreliable
for the administrative times for chiropractic manipulation, level 3
office visits, inpatient consultations, balloon angioplasty, and
clinical times for allergy skin testing.
Validation.
The AMA stated that we should use AMA and MGMA data on full time
equivalent staff for each physician to assess how well various
methodological options account for total labor costs. The American
College of Physicians suggested we complete an impact analysis that
compares proposed practice expense payments to actual practice expenses
on a specialty by specialty basis, as well as sponsoring a study
requiring on-site visits to practices.
8. Issues Considered in Developing New Practice Expense RVUs
We faced the following major issues as we decided whether and how
to modify our original proposal for physician practice expense RVUs.
These issues arose from many sources: from concerns about the CPEP data
and our
[[Page 30825]]
original proposed methodology, from the requirements of BBA 1997, from
the findings and recommendations in the General Accounting Office's
Report to the Congress on physician practice expense, and from input we
received from the medical community.
Purpose.
Our original practice expense proposal was based on the 1994
legislation, which stated that the new practice expense methodology
must consider the staff, equipment, and supplies used in the provision
of various medical and surgical services in various settings. We
interpreted this to mean that Medicare payments for each service should
be based on the relative resources typically and reasonably involved
with performing the service. We believed we could best calculate these
resources by achieving clinical consensus on the actual inputs it would
typically take to perform a given service. However, surgeons and some
other specialties contended that the purpose of a resource-based
practice expense system should be to reimburse them based on their
total current expenditures for practice costs. Because the higher paid
specialties have more to spend on their practices as a result of
historic charging practices and insurance coverage, there is a concern
that adopting such a methodology would not achieve the desired equity.
The argument made by some outside groups is that physicians have been
increasingly forced to be more efficient and, as a result, differences
in practice expenses among specialties reflect ``real'' costs that
should then be reflected in the new practice expense RVUs.
With the passage of BBA in August 1997, the statute now requires us
to ``utilize, to the maximum extent practicable, generally accepted
cost accounting principles which recognize all staff, equipment,
supplies, and expenses, not just those which can be tied to specific
procedures. * * *'' Therefore, in developing and analyzing any new
alternative methods for computing practice expense RVUs, we have
evaluated how well each option recognizes all practice expense costs.
``Bottom-up'' versus ``Top-down'' Methodology.
In line with our original stated purpose and the 1994 legislation,
our practice expense methodology published in the June 1997 proposed
rule (62 FR 33172) used a ``bottom-up'' approach, which obtained expert
panel estimates of actual inputs--staff times, supplies, and
equipment--for each procedure and then used these estimates to build up
to the direct practice expense RVUs. Some groups complained that some
of the published relative values were too low and favored using studies
that actually measured the inputs onsite. Unfortunately, if any
reliable data exist at all, they are only for a few scattered
specialties, and it certainly is not practical for us to undertake such
a task (Medicare pays physicians for over 7,000 services). We
understand that even the few specialties that have attempted surveys
have had limited success obtaining complete practice expense data from
even limited selected practices.
Many of the specialty societies favored a ``top-down'' methodology,
which would start our calculations with their total current
expenditures and then allocate these costs down to the procedure level
by some method. Several groups supported using an Activity Based
Costing (ABC) methodology for calculating practice expenses. The
proponents of ABC maintain that it produces more accurate costs because
it measures the costs of processes (for example, servicing patients,
scheduling, and billing) as opposed to traditional costing systems,
which measure resources (for example, salaries and rent). However, ABC
is only in the experimental stages in medical practice use, and many
difficult questions about its utility in medical practices have not
been resolved, for example, its assumption that all medical practices
operate in the same manner. ABC still requires subjective estimations,
or some other algorithm, to allocate costs from ``processes'' to
individual CPT codes.
Available Data Sources.
Much of the debate about what would constitute the most accurate
practice expense methodology cannot be resolved in the short run. There
is no consensus about the best way to determine the most accurate
practice expense methodology. Furthermore, there are only limited data
sources available. CPEP data, along with the modifications made by our
subsequent panels, are the only source of estimates at the CPT code
level of resource inputs needed to provide each service. AMA's SMS
survey data are from a national survey of randomly selected self-
employed physicians that collects information on practice expense on an
aggregate level, and can be used to determine overall differences in
expenditures among specialties.
The only other relevant data sources of which we are presently
aware are a few other surveys of practice expense, such as those
performed by the MGMA, Medical Economics, and the American College of
Surgeons. Because of selective sampling and low response rates of these
three surveys, these data are not representative of the population of
physicians and cannot be used to derive code-specific RVUs, though the
data might prove useful in validating general impacts.
Specialty-Specific Differences.
Our June 1997 proposed rule did not explicitly recognize specialty-
specific differences. Differences across specialties were only
reflected implicitly to the extent that more indirect RVUs would be
allocated to those procedures with the greatest physician work and
direct costs. Under our June 1997 proposed approach, we allocated
indirect relative values based on the typical use of resources, that
is, the direct practice expense RVUs, the physician work RVUs, and the
malpractice RVUs per code.
The specialty groups, along with the AMA and even some primary care
groups, were almost unanimous in their view that we should use an
approach that explicitly recognizes specialty-specific differences in
the indirect cost of practice. It was pointed out, as an example, that
some specialties such as radiology or ophthalmology would have much
higher indirect equipment costs than other specialties. The specialty
groups believed that not recognizing such specialty differences would
be inherently unfair to some specialties. The AMA staff suggested that
we use their survey data to calculate the specialty-specific indirect
costs.
In developing our options for a new practice expense methodology,
we, therefore, needed to decide whether we would maintain specialty-
neutral methods, use specialty differentials to help allocate only
indirect RVUs, or use specialty-specific data to establish the total
redistributive pools for each specialty.
Administrative Costs.
Another decision we had to make as we developed new practice
expense RVUs was how a new proposal would treat administrative costs.
The June 1997 proposed rule (62 FR 33167) methodology treated
administrative labor cost as a direct expense, and the administrative
cost RVUs were derived from the CPEP data. On first reviewing the raw
CPEP inputs for administrative staff times, it appeared that there were
some problems with the data. First, some of the suggested
administrative staff times appeared excessively high, particularly for
the billing staff. Second, there was variation in staff times for the
same CPT code between the different panels. In the June 1997 proposed
rule (62 FR 33166), we dealt with these problems through our linking
[[Page 30826]]
methodology and by capping administrative times. Both of these methods
were strongly opposed by many specialty groups, largely because our
adjustments had dramatic effects on the raw data. For example, the
linking coefficient for thoracic surgery reduced their administrative
inputs by 76 percent. There were also comments claiming that many
administrative duties are of a general nature that cannot be fully
captured on a code-specific basis.
As a result of these concerns, many outside groups have suggested
that we treat administrative cost as an indirect practice expense. The
advantages of adopting this suggestion would be that we could get
around the mentioned data discrepancies, avoid the controversial use of
linking for administrative labor, and be more certain that we had
captured all administrative costs. The main disadvantage would be that
it would greatly increase the percentage of RVUs that would have to be
allocated by a formula.
Clinical Costs.
Although the problems were on a lesser scale, we observed many of
the same difficulties with the raw CPEP inputs for clinical costs as
there were for the administrative costs discussed above. There was some
lack of standardization of clinical staff types between the CPEP
panels, and some staff times appeared excessive. In the June 1997
proposed rule, these problems were addressed by linking and by capping
the clinical times; both of these methods caused considerable
controversy in the medical community. We had hoped that the validation
and cross-specialty panels would have resolved the inconsistencies
across specialties, but they were unable to accomplish this task. It
was clear, therefore, that any new proposal would still have to address
a method of standardizing the data between the various specialty
panels.
The General Accounting Office (GAO) Report to Congress on
Physician Practice Expense.
As already mentioned, BBA 1997 required the GAO to review and
evaluate our June 1997 proposed rule on a resource-based methodology
for practice expenses. This report was issued in February 1998 and
concluded that both our use of expert panels to develop direct cost
estimates and our original allocation methodology for indirect costs
were acceptable options. However, the GAO raised questions about the
validity of some specifics of the linking regression model and about
the appropriateness of capping administrative and clinical labor time
estimates. In addition, the report suggested that using specialty-
specific indirect expense ratios, based on the SMS survey data, would
be more clearly consistent with BBA 1997. Also, the report recommended
that we consider classifying administrative labor costs as indirect
expenses. (See section 18 for a more detailed discussion of the
report's recommendations.)
9. Alternative Practice Expense Methodologies Considered
We carefully considered two alternative approaches to developing
new practice expense RVUs: the first maintained the ``bottom-up''
methodology of our original proposal, while the second adopted a ``top-
down'' methodology.
``Bottom-up'' Option.
We regard our original ``bottom-up'' proposal as a viable method of
developing practice expense RVUs. It clearly fulfilled the requirement
of the Social Security Amendments of 1994, which states that practice
expense relative values should be based on the relative practice
expense resources involved in furnishing the service. Both the GAO and
the Physician Payment Review Commission, as well as many researchers in
the field, supported our use of expert panels to estimate direct
practice expenses. Therefore, we developed a method that was similar to
our original proposal.
Like our proposal in the June 1997 proposed rule, this option based
its calculation for all direct inputs on the data reported by the
CPEPs. As before, both clinical and administrative labor were linked,
and all direct cost estimates were scaled as in the original proposed
rule. However, in a significant departure from our original proposal,
the caps on clinical and administrative staff times were eliminated.
For indirect costs, this option continued not to recognize a specialty-
specific method of cost allocation to specific procedures. It did,
however, have a different indirect allocation formula from our original
proposal; under this option, 50 percent would be allocated on the basis
of direct costs and 50 percent on the basis of physician time. Of the
latter 50 percent, physician time in the office would get a weight 50
percent higher than physician time out of the office. If there was no
physician involvement, as is the case with technical component
services, the maximum clinical staff time would be used.
The ``Top-Down'' Option.
This option is a departure from our original proposal and is an
effort to balance the requirements of the 1994 Social Security
Amendments with the 1997 BBA requirements. It uses the two significant
sources of actual practice expense data we have available: the CPEP
data and the AMA's SMS survey data. It allocates current aggregate
specialty practice costs to specific procedures and, thus, can be seen
as a ``top-down'' approach.
This option is based on an assumption that current aggregate
specialty practice costs are a reasonable way to establish initial
estimates of relative resource costs of physician services across
specialties. The specialty practice cost data are derived from the
AMA's SMS survey data on actual practice expenses. The survey data are
used to calculate the practice expenses generated for every hour worked
by a physician. The average practice expense per hour for the
physicians in a given specialty is then multiplied by the total number
of physician hours worked by that specialty as reflected in the
Medicare claims data. This determines the total pool of practice
expense payments for that specialty. We then allocated this pool to the
procedures performed by that specialty using the CPEP data (excluding
the administrative staff time associated with specific procedures) and
the physician work RVUs. We calculated a weighted average of the
practice expense payments for procedures performed by more than one
specialty.
After much analysis and discussion, we have decided to propose the
``top-down'' methodology. We believe the ``top-down'' methodology is
more responsive than the ``bottom-up'' approach to both BBA 1997
requirements and to many of the concerns of the medical community. By
using aggregate specialty practice costs as the basis for establishing
the practice expense pools, we are recognizing all of a specialty's
costs, not just those linked with a specific procedure. By basing the
redistributions of the practice expense system on physician-reported
actual practice expense data, by using a specialty-specific allocation
method, and by treating administrative costs as an indirect expense, we
avoid many of the criticisms leveled at our original proposal.
We also believe this option is responsive to the short-term
recommendations in the GAO Report to Congress on physician practice
expense payments relating to the June 1997 proposed rule's limits on
clinical and administrative staff time and possible changes in the
linking algorithm. Our recommended methodology would make these
recommendations moot by eliminating the limits and linking algorithm
that were part of our previous
[[Page 30827]]
proposal. Finally, based on our experiences with the validation panels
we held in October and December 1997, we believe the ``top-down''
approach will be less difficult to refine.
10. Description of the Proposed Methodology for Developing Practice
Expense Relative Value Units
(See Addendum B for a detailed technical description of the proposed
methodology.)
a. Overview. We used actual practice expense data by specialty to
create six cost pools (administrative labor, clinical labor, medical
supplies, medical equipment, office supplies, and all other). We then
allocated these cost pools to individual procedure codes. An overview
of this approach is presented in Exhibit 1.
Exhibit 1. Overall Allocation Approach
[GRAPHIC] [TIFF OMITTED] TP05JN98.019
b. Data Sources. We used the 1995 through 1997 AMA's SMS survey
data to develop the cost pools and the CPEP data to allocate these cost
pools to procedure codes.
The AMA originally developed the SMS in 1981. It covers a broad
range of economic and practice characteristics. The annual SMS survey
is designed to provide representative information on the population of
all non-federal physicians who spend the greatest proportion of their
time in patient care activities. The survey is sent to both office and
hospital-based physicians, but excludes residents. The recipients of
the survey are randomly selected from the AMA's physician master file,
which contains current and historical information on every physician in
the United States, including nonmembers of the AMA.
The SMS survey consists of three distinct sections:
Screening questions to verify the physician's self-
designated practice specialty and eligibility for the survey.
A main questionnaire to collect information on practice
characteristics, hours worked, volume of services, fees for selected
procedures, income, and expenses.
Special topic questions to provide information on key
socioeconomic issues.
The SMS survey is a computer-assisted telephone survey that checks
the consistency of responses during the survey and automatically skips
questions that are not relevant to the physician. To prepare the
physician, the AMA mails a practice expense summary in advance. The
physician may designate a proxy such as a practice manager or an
accountant to answer the practice expense questions. The AMA makes
vigorous efforts to achieve a high response rate despite the short
field period of surveys. Each interviewer's work is monitored by
supervisory staff for both production and quality. AMA staff also
monitors interviews to ensure that a high level of quality is
maintained throughout the survey.
The CPEP data were collected from panels of physicians, practice
administrators, and nonphysicians (for example, registered nurses) who
were nominated by physician specialty societies and other groups. There
were 15 CPEPs consisting of 180 members from more than 61 specialties
and subspecialties. Approximately 50 percent of the panelists were
physicians. The CPEPs identified the direct inputs involved in each
physician service for procedure codes in an office setting and out-of-
office setting. (See Addendum A for a detailed description of the CPEP
process.)
c. Practice Expense Cost Pools. We created practice expense cost
pools by physician specialty for clinical labor, administrative labor,
medical supplies, medical equipment, office supplies, and all other
expenses. There are three steps in the creation of the cost pools.
Step 1: Use the AMA's SMS survey data of actual cost data, by
physician specialty, for 1995 through 1997 to determine practice
expenses per hour by cost category.
Step 2: Determine the total number of physician hours, by
specialty, spent treating Medicare patients as reflected in the
Medicare claims data.
Step 3: Calculate the practice expense pools by specialty and by
cost category using the results from step 1 and step 2.
A short description of each step follows.
Step 1: Determine practice expenses per hour by cost category.
Based on the AMA's SMS survey data for each physician respondent,
we calculated practice expenses per hour spent in patient care
activities by cost pool. We made the following assumptions in this
calculation:
The physician respondent shares practice expense equally
with all other physician owners in the practice.
The physician respondent works the same number of hours as
all other physician owners in the practice.
For any employee physician in the practice, the hours
spent in patient care activities are the average hours spent in patient
care activities for employee physicians in the specialty of the
physician respondent.
Using the above assumptions, 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
[[Page 30828]]
of hours spent in patient care activities by the physicians in the
practice. The practice expenses per hour for the specialty are an
average of the practice expenses per hour for the respondent physicians
in that specialty.
Step 2: Determine the number of physician hours spent treating
Medicare patients.
For each specialty, the total number of physician hours spent
treating Medicare patients was calculated from physician time data for
each procedure code and the Medicare claims data. The primary sources
for the physician time data are surveys submitted to the AMA's RUC and
surveys done by Harvard for the initial establishment of the work RVUs.
Step 3: Determine the practice expense pools by specialty and by
cost category.
The practice expense cost pools for clinical labor, administrative
labor, medical supplies, medical equipment, office expenses, and all
other expenses are determined by multiplying the practice expenses per
hour for these categories (calculated in step 1) by the total physician
hours (calculated in step 2).
d. Cost Allocation Methodology
We allocated by specialty each practice expense cost pool to
individual procedure codes either using the CPEP data for clinical
labor, medical supplies, and medical equipment, or using a combination
of the CPEP data for clinical labor, medical supplies, and medical
equipment and the physician fee schedule work RVUs.
Exhibit 2 depicts our cost allocation methodology. For each
specialty, the six cost pools and their respective cost allocation
bases are used to determine costs for each procedure code.
Exhibit 2. Cost Allocation Methodology
[GRAPHIC] [TIFF OMITTED] TP05JN98.020
Step 4: Allocate the practice expense pools by specialty to
individual procedures.
For each specialty, we separated the six practice expense pools
(clinical labor, administrative labor, medical supplies, medical
equipment, office expenses, and all other expenses) created in Step 3
into two groups and used a different allocation basis for each group.
Group one includes clinical labor, medical supplies, and medical
equipment, and group two includes administrative labor, office
expenses, and all other expenses.
Group one: clinical labor, medical supplies, and medical equipment.
We used the CPEP data as the allocation basis for the group one
pools (clinical labor, medical supplies, and medical equipment). The
CPEP data for clinical labor were used to allocate the clinical labor
cost pool, the CPEP data for medical supplies were used to allocate the
medical supplies cost pool, and the CPEP data for medical equipment
were used to allocate the medical equipment cost pool.
Group two: administrative, labor, office expenses, and other
expenses.
For the allocation of administrative labor, office expenses, and
other expenses, a combination of the group one cost allocations and the
physician fee schedule work RVUs was used to allocate the cost pools.
Step 5: Weight average allocations for procedures performed by more
than one specialty.
For procedures performed by more than one specialty, the final
procedure code allocation was a weighted average of allocations for the
specialties that perform the procedure, with the weights being the
frequency with which each specialty performs the procedure on Medicare
patients.
11. Comments of the American Medical Association Regarding the Use of
the Socioeconomic Monitoring System Survey Data to Construct Practice
Expense Relative Value Units
At our request, the AMA sent two tables summarizing practice
expense information by physician specialty. Additionally, the AMA
supplied us with SMS background information and comments regarding its
use to construct resource-based practice expense RVUs.
The following are the AMA's comments as well as two tables derived
from the SMS data:
The SMS survey is an annual nationally representative survey of
physicians drawn randomly from the AMA's Physician Masterfile (a
listing of all member and nonmember physicians in the United
States). The survey was conducted by an external contractor--the
Rand Corporation was the survey contractor for the 1995 through 1997
SMS surveys. Unit response rates to SMS have been roughly 60 percent
in recent years, which is as high or higher than comparable
physician surveys. It is a computer-assisted telephone survey which
allows checks to be made for the consistency of responses during the
survey and to automatically skip questions that are not relevant to
particular physicians. On the practice expense questions, special
effort is made to obtain accurate information. A practice expense
summary is mailed to all physicians that are to be surveyed to allow
them to obtain the information before being contacted. The physician
may designate a proxy such as a
[[Page 30829]]
practice manager or accountant to answer the practice expense
questions if they do not have the information.
However, it is important to stress that the SMS data were never
collected for the purpose of developing relative values. We feel
that there are several potential problems with using SMS data to
construct practice expense RVUs. These concerns were first raised in
a letter from the AMA to HCFA in November 1996. In particular, we
are concerned that:
--Sample sizes for some specialties will be too small to permit
separate calculation of expense data from SMS. Even among the larger
specialties, the inherent variability of the expense data will mean
that the average expense figures provided will be subject to
significant sampling error.
--Response rates for the expense items tend to be low relative to
other questions on the survey leading to potential non-response
bias.
--SMS is a physician-level survey, and physicians in groups are
asked for their share of expenses rather than the practice's
expenses. Practice-level data may provide a better basis for
constructing practice expense RVUs.
Despite these problems, we recognize your need to use the best
available information. The tables that you requested show the means
and standard errors of practice expenses per direct patient care
hour from the 1995 through 1997 SMS surveys. Since SMS collects
practice expense data for the prior year, these tables summarize SMS
respondents' hourly expenses for the years 1994 through 1996. Only
non-federal, non-resident, patient care physicians are surveyed on
SMS. In addition, only physicians who are full or part-owners of
their practices are asked the practice expense questions. The
following records were excluded prior to tabulating the data as you
requested:
--Physicians practicing fewer than 26 weeks the prior year
(including cases where weeks worked the previous year were missing);
--Cases with a missing response to the question on typical hours in
direct patient care per week (3 cases where the response to this
question was 168 hours were also excluded);
--Cases where any of the individual expense items (total non-
physician personnel expense; clerical non-physician personnel
expense; office expenses; medical supplies expenses; medical
equipment expenses; and other or miscellaneous practice expenses)
were missing; and
--Cases where total expenses (excluding professional liability
insurance premiums and employee physician payroll expense) were
zero.
Expenses per hour were calculated as you requested (and as
described in the notes to the tables). All results were weighted for
unit non-response. It will not be possible to replicate these
figures exactly from the AMA's Physician Marketplace Statistics or
Socioeconomic Characteristics of Medical Practice publications due,
in part, to the exclusions mentioned above.
[[Page 30830]]
Table 1.--Mean Practice Expenses Per Hour Spent in Patient Care Activities, Hours and Expenses Adjusted for Practice Size
[In dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-phys Clerical Office Supplies Equipment Other Total
Specialty Number of payroll per payroll per expense per expense per expense per expense per expense per
cases hour hour* hour hour hour hour hour**
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PHYSICIANS.................................. 3910 27.0 15.0 19.1 7.2 3.2 11.0 67.5
GENERAL/FAMILY PRACTICE......................... 409 30.2 15.1 18.2 8.1 3.6 8.6 68.6
GENERAL INTERNAL MEDICINE....................... 430 22.4 13.3 17.0 6.4 2.1 6.2 54.2
CARDIOVASCULAR DISEASE.......................... 94 30.2 14.9 19.9 5.8 6.4 20.7 82.9
GASTROENTEROLOGY................................ 84 23.2 15.4 17.9 2.7 1.8 11.0 56.6
ALLERGY/IMMUNOLOGY.............................. 31 66.2 27.0 33.3 17.5 3.3 16.4 136.6
PULMONARY DISEASE............................... 49 20.0 12.2 15.0 2.8 1.6 6.4 45.8
ONCOLOGY........................................ 27 44.7 22.7 25.7 87.2 5.5 10.3 173.4
GENERAL SURGERY................................. 257 22.5 15.7 17.2 3.1 2.0 9.4 54.1
OTOLARYNGOLOGY.................................. 103 44.8 27.3 33.4 7.7 5.8 18.3 110.1
ORTHOPEDIC SURGERY.............................. 203 42.9 26.0 30.8 10.3 3.6 18.1 105.6
OPHTHALMOLOGY................................... 210 52.9 27.8 35.9 11.3 9.0 22.7 131.8
UROLOGICAL SURGERY.............................. 118 29.6 18.6 22.8 24.5 6.0 11.6 94.6
PLASTIC SURGERY................................. 85 28.6 18.3 30.2 16.3 4.6 23.3 103.0
NEUROLOGICAL SURGERY............................ 42 33.5 24.3 31.7 1.8 1.1 15.7 83.9
CARD/THOR/VASC SURGERY.......................... 44 30.1 16.2 18.3 1.4 3.1 11.0 63.8
PEDIATRICS...................................... 249 26.1 13.3 20.0 10.8 1.6 8.4 66.9
OBSTETRICS/GYNECOLOGY........................... 266 32.3 16.9 21.2 7.3 3.4 11.7 75.9
RADIOLOGY....................................... 214 19.0 9.6 12.5 4.8 8.3 13.6 58.2
PSYCHIATRY...................................... 351 7.3 5.3 10.1 0.4 0.3 7.5 25.6
ANESTHESIOLOGY.................................. 232 14.4 3.7 5.9 0.3 0.4 5.7 26.7
PATHOLOGY....................................... 82 16.7 8.4 6.7 4.0 1.6 17.7 46.7
DERMATOLOGY..................................... 96 49.5 26.7 33.1 12.5 4.8 15.2 115.0
EMERGENCY MEDICINE.............................. 61 5.3 1.9 1.6 0.5 0.1 5.5 13.0
NEUROLOGY....................................... 61 26.2 21.6 15.8 5.0 4.2 7.7 58.8
PHYS MED/RHEUMATOLOGY........................... 75 38.6 23.2 28.5 4.9 3.9 12.0 88.0
OTHER SPECIALTY................................. 37 21.1 12.4 19.7 3.6 1.3 9.7 55.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: American Medical Association, 1995-1997 Socioeconomic Monitoring System (SMS) surveys.
* Clerical payroll is included in total non-physician payroll.
** Total expenses exclude professional liability insurance premiums and employee physician payroll.
Notes:
(1) Only self-employed non-federal non-resident patient care physicians who responded to all relevant expense questions are included.
Self-employed physician respondents with no practice expenses for the year are excluded.
(2) Physicians whose typical number of hours worked in patient care activities per week is missing, less than 20, or equal to 168 (3 cases) are
excluded. Physicians whose number of weeks worked the previous year is missing or less than 26 are excluded.
(3) For each respondent, total practice expense and expense components per hour are calculated as (4)/(5) below.
(4) Expenses adjusted for practice size = self-employed respondent expenses* # physician owners.
(5) Hours adjusted for practice size = (respondent hours* # physician owners) + (employee physician hours (see (6) below)* # employee physicians).
6) The typical number of hours worked in patient care activities for the employee physician(s) of a self-employed physician's practice is not known.
Mean hours worked in patient care activities for employee physicians of each specialty are used as an estimate of employee physician hours.
[[Page 30831]]
Table 2.--Standard Errors of Mean Practice Expenses per Hour Spent in Patient Care Activities, Hours and Expenses Adjusted for Practice Size
[In dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Non-phys Clerical Office Supplies Equipment Other Total
Specialty Number of payroll per payroll per expense per expense per expense per expense per expenses
cases hour hour hour hour hour hour per hour **
--------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PHYSICIANS.................................. 3910 0.5 0.3 0.4 0.3 0.2 0.3 1.1
GENERAL/FAMILY PRACTICE......................... 409 1.3 0.6 1.2 0.5 0.7 0.6 3.0
GENERAL INTERNAL MEDICINE....................... 430 1.2 0.6 1.0 0.6 0.3 0.6 2.6
CARDIOVASCULAR DISEASE.......................... 94 2.9 1.4 1.9 0.8 1.3 5.2 8.0
GASTROENTEROLOGY................................ 84 1.6 1.1 1.9 0.3 0.3 2.2 4.1
ALLERGY/IMMUNOLOGY.............................. 31 7.9 3.8 3.8 4.2 1.5 2.9 11.2
PULMONARY DISEASE............................... 49 1.6 1.4 2.2 0.6 0.5 0.9 3.5
ONCOLOGY........................................ 27 7.5 3.8 5.7 16.4 1.4 3.8 23.2
GENERAL SURGERY................................. 257 1.4 0.9 0.9 0.3 0.3 0.8 2.5
OTOLARYNGOLOGY.................................. 103 3.0 2.3 3.5 0.9 1.1 2.1 6.8
ORTHOPEDIC SURGERY.............................. 203 1.7 1.2 2.1 0.8 0.4 2.0 4.7
OPHTHALMOLOGY................................... 210 2.9 1.4 2.6 1.3 1.1 2.1 6.3
UROLOGICAL SURGERY.............................. 118 1.4 1.0 2.1 1.8 1.0 1.4 4.4
PLASTIC SURGERY................................. 85 2.3 1.4 3.5 2.8 1.0 3.4 8.1
NEUROLOGICAL SURGERY............................ 42 4.0 2.5 5.7 0.7 0.4 2.1 9.4
CARD/THOR/VASC SURGERY.......................... 44 4.2 2.0 2.9 0.3 1.7 2.2 8.0
PEDIATRICS...................................... 249 1.6 0.7 1.7 1.0 0.3 1.2 3.8
OBSTETRICS/GYNECOLOGY........................... 266 1.7 0.9 1.3 0.7 0.3 1.0 3.3
RADIOLOGY....................................... 214 2.0 0.9 2.0 0.8 1.9 1.3 5.7
PSYCHIATRY...................................... 351 0.7 0.5 0.6 0.2 0.1 0.6 1.5
ANESTHESIOLOGY.................................. 232 1.8 0.6 0.8 0.1 0.1 0.7 2.4
PATHOLOGY....................................... 82 2.7 1.8 1.7 0.8 0.5 2.9 6.4
DERMATOLOGY..................................... 96 4.8 2.0 5.2 2.0 1.2 1.8 10.4
EMERGENCY MEDICINE.............................. 61 1.4 0.6 0.5 0.3 0.1 0.9 2.1
NEUROLOGY....................................... 61 3.1 3.1 1.4 1.5 1.1 2.2 6.4
PHYS MED/RHEUMATOLOGY........................... 75 5.1 2.5 6.1 0.7 1.4 2.9 12.1
OTHER SPECIALTY................................. 37 4.4 2.4 5.1 1.1 0.6 2.1 9.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: American Medical Association, 1995-1997 Socioeconomic Monitoring System (SMS) surveys.
* Clerical payroll is included in total non-physician payroll.
** Total expenses exclude professional liability insurance premiums and employee physician payroll.
Notes:
(1) Only self-employed non-federal non-resident patient care physicians who responded to all relevant expense questions are included. Self-employed
physician respondents with no practice expenses for the year are excluded.
(2) Physicians whose typical number of hours worked in patient care activities per week is missing, less than 20, or equal to 168 (3 cases) are
excluded. Physicians whose number of weeks worked the previous year is missing or less than 26 are excluded.
(3) For each respondent, total practice expense and expense components per hour are calculated as (4)/(5) below.
(4) Expenses adjusted for practice size = self-employed respondent expenses * # physician owners.
(5) Hours adjusted for practice size = (respondent hours * # physician owners) + (employee physician hours (see (6) below) * # employee physicians).
(6) The typical number of hours worked in patient care activities for the employee physician(s) of a self-employed physician's practice is not known.
Mean hours worked in patient care activities for employee physicians of each specialty are used as an estimate of employee physician hours.
12. Other Methodological Issues
a. Professional and Technical Component Services. Using the
methodology described above, the professional and technical components
of the resource-based practice expense relative value units do not
necessarily sum to the global resource-based practice expense relative
value units since specialties with different practice expenses per hour
provide the components of these services in different proportions. For
example, emergency medicine physicians have proportionately more
professional component chest x-ray billings than global billings
relative to radiologists. We used the following methodologies so that
the professional and technical component resource-based practice
expense relative value units for a service sum to the global resource-
based relative value units.
For codes with professional and technical components excluding
HCPCS codes 70010 through 79440, G0030 through G0047, G0050, G0062,
G0063, G0106, G0120, G0122, G0125, and G0126, we used the following
methodology:
After we determined the practice expense RVUs using the practice
expense per hour methodology, we budget neutrally distributed the total
(global, professional, and technical) practice expense payments for
each code between the global, professional, and technical components as
follows:
Step 1: Calculate a weighted average resource-based practice
expense RVU across the facility and nonfacility settings using the
allowed utilization from the Medicare claims data.
Step 2: Using the RVUs calculated in Step 1 for the global,
professional, and
[[Page 30832]]
technical components of each code and the Medicare utilization data,
calculate the total new resource-based practice expense payments for
each code.
Step 3: Set the global resource-based practice expense RVUs for
each code equal to the sum of the resource-based practice expense RVUs
for the professional and technical components calculated in Step 2.
Step 4: Using the global RVUs calculated in Step 3, the
professional and technical component RVUs calculated in Step 1, and the
Medicare utilization data, calculate practice expense payments for each
code.
Step 5: Multiply the global relative value units calculated in Step
3 and the professional and technical component RVUs calculated in Step
1 by the ratio of the practice expense payments for each code
calculated in Step 2 to the practice expense payments for each code
calculated in Step 4.
For HCPCS codes 70010 through 79440, G0030 through G0047, G0050,
G0062, G0063, G0106, G0120, G0122, G0125, and G0126, we used the
following methodology:
We used the current 1998 practice expense RVUs for this set of
codes, which are based primarily on the original radiology fee
schedule, to determine the relatives between the new resource-based
practice expense relative value units as follows:
Step 1: Using the current 1998 practice expense RVUs, calculate the
current aggregate practice expense payments for this set of codes.
Step 2: Using the resource-based practice expense RVUs determined
from the methodology described above, calculate the aggregate practice
expense payments for this set of codes.
Step 3: Uniformly multiply the current practice expense RVUs by the
ratio of the aggregate resource-based practice expense payments
calculated in Step 2 to the aggregate practice expense payments
calculated in Step 1.
For HCPCS codes Q0092, R0070, and R0075, we used the following
methodology:
The practice expense RVUs for HCPCS code Q0092 was determined by
applying the ratio described in Step 3 above to the existing practice
expense RVUs. The practice expense RVUs for HCPCS codes R0070 and R0075
were determined by applying the ratio described above to practice
expense RVUs for these codes calculated from the average allowed charge
in the Medicare claims data.
b. Practice Expenses per Hour Adjustments and Specialty Crosswalks.
We have one general comment on our use of the SMS practice expense per
hour data. Some practices employ midlevel providers such as nurse
practitioners and optometrists. The practice expenses per hour from the
SMS survey are calculated in terms of hours spent in patient care
activities by physicians in a practice. These practice expenses per
hour are greater than practice expenses per hour spent in patient care
activities by the physicians and midlevel providers in a practice. As a
result, the practice expense per hour methodology is potentially biased
in favor of specialties who use more, relative to other specialties,
midlevel providers as physician extenders to create billable services
under the Medicare fee schedule. Although we made no adjustment to the
practice expenses per hour for this due to a lack of data, we believe
the issue should be examined as part of the refinement of the resource-
based practice expense RVUs.
Below are the adjustments we made to the practice expense per hour
data and the crosswalks we used to assign the specialties reflected in
our claims data to those found in the practice expense tables from the
SMS survey data.
We set the medical materials and supplies practice
expenses per hour for the specialties of ``Oncology'' and ``Allergy and
Immunology'' equal to the medical materials and supplies practice
expenses per hour for ``All Physicians'' since we make separate payment
for the drugs furnished by these specialties.
With regard to oncology, while Medicare does not have an expansive
outpatient drug benefit, it does cover outpatient drugs that are
furnished by a physician, oral cancer drugs, and certain other specific
drugs. In addition to paying for the costs of these drugs (outside the
physician fee schedule), Medicare also makes a separate payment to
physicians for the ``administration'' of cancer drugs (under the
physician fee schedule). This separate payment for chemotherapy
administration recognizes the expenses involved with ordering, storing
and handling, and performing other tasks associated with administering
such drugs. These expenses are practice expenses and are treated as
part of resource-based practice expenses; they are not part of the
costs of the drug and are not included in Medicare payments for
chemotherapy drugs.
We believe that physicians' expenses for the administration of
cancer drugs, as well as the costs of the drugs themselves, are
included in their responses to the AMA survey. Therefore, to avoid a
duplicate payment (that is, paying for the drug separately and also
including the costs of the drug in practice expenses), we need to
separate the costs of the drug from the practice expenses for the
administration of the chemotherapy drugs.
We are proposing to use the ``All Physician'' practice expenses per
hour for medical materials and supplies to reflect, in a relative
sense, all the practice expenses for administration of chemotherapy.
The difference between the practice expense per hour for medical
material and supplies for oncologists and for all physicians would be
the costs of the drugs themselves. We invite comments about our
approach or alternative ways to separate the costs of the drugs from
the costs of their administration.
We based the administrative payroll, office, and other
practice expenses per hour for the specialties of ``Physical Therapy''
and ``Occupational Therapy'' on data used to develop the salary
equivalency guidelines for these specialties. (Since speech and
language pathologists are not identified as Medicare specialties in our
claims data, we could not explicitly use their salary equivalency
guideline data.) The data used to calculate the salary equivalency
practice expenses per hour for these categories of expenses includes an
allowance for 250 square feet of space per therapist, and the utilities
and other overhead to run the practice, including administrative costs.
We set the remaining practice expense per hour categories equal to the
``All Physicians'' practice expenses per hour from the SMS survey data.
We used the clinical payroll expenses for ``All Physicians'' instead of
the salary equivalency data for physical therapy assistants and aides
since we are concerned that there may be an overlap between the cost of
therapy assistants and aides reflected in the practice expenses and the
amount of work allocated to services provided by occupational and
physical therapists.
The following are the crosswalks we used to assign the
specialties reflected in our claims data to those found in the practice
expense tables from the SMS survey data. Note that we refer to the
difference between the nonphysician payroll expenses per hour and the
clerical payroll expenses per hour as the clinical payroll expenses per
hour.
[[Page 30833]]
Table 3.--Practice Expense per Hour Crosswalks
----------------------------------------------------------------------------------------------------------------
Medical Medical Cler.,
HCFA specialty code and AMA specialty Clinical supplies PE/ equipment office, and
description labor PE/Hr Hr PE/Hr other PE/Hr
----------------------------------------------------------------------------------------------------------------
01--General Practice............. General/Family Practice.. $15.10 $8.10 $3.60 $41.90
02--General Surgery.............. General Surgery.......... 6.80 3.10 2.00 42.30
03--Allergy/Immunology........... Allergy And Immunology*.. 39.20 7.20 3.30 76.70
04--Otology, Laryn., Rhino....... Otolaryngology........... 17.50 7.70 5.80 79.00
05--Anesthesiology............... Anesthesiology........... 10.70 0.30 0.40 15.30
06--Cardiology................... Cardiovascular Disease... 15.30 5.80 6.40 55.50
07--Dermatology.................. Dermatology.............. 22.80 12.50 4.80 75.00
08--Family Practice.............. General/Family Practice.. 15.10 8.10 3.60 41.90
10--Gastroenterology............. Gastroenterology......... 7.80 2.70 1.80 44.30
11--Internal Medicine............ General Internal Medicine 9.10 6.40 2.10 36.50
12--Manip. Therapy............... All Physicians........... 12.00 7.20 3.20 45.10
13--Neurology.................... Neurology................ 4.60 5.00 4.20 45.10
14--Neurosurgery................. Neurological Surgery..... 9.20 1.80 1.10 71.70
16--OB-GYN....................... Obstetrics/Gynecology.... 15.40 7.30 3.40 49.80
18--Ophthalmology................ Ophthalmology............ 25.10 11.30 9.00 86.40
19--Oral Surgery................. All Physicians........... 12.00 7.20 3.20 45.10
20--Orthopedic Surgery........... Orthopedic Surgery....... 16.90 10.30 3.60 74.90
22--Pathology.................... Pathology................ 8.30 4.00 1.60 32.80
24--Plastic Surgery.............. Plastic Surgery.......... 10.30 16.30 4.60 71.80
25--Physical Medicine............ Physical Medicine/ 15.40 4.90 3.90 63.70
Rheumatology.
26--Psychiatry................... Psychiatry............... 2.00 0.40 0.30 22.90
28--Colorectal Surgery........... General Surgery.......... 6.80 3.10 2.00 42.30
29--Pulmonary Disease............ Pulmonary Disease........ 7.80 2.80 1.60 33.60
30--Radiology.................... Radiology................ 9.40 4.80 8.30 35.70
33--Thoracic Surgery............. Cardiac/Thoracic/Vascular 13.90 1.40 3.10 45.50
Surgery.
34--Urology...................... Urological Surgery....... 11.00 24.50 6.00 53.00
35--Chiropractor, Licensed....... General Internal Medicine 9.10 6.40 2.10 36.50
36--Nuclear Medicine............. Radiology................ 9.40 4.80 8.30 35.70
37--Pediatrics................... Pediatrics............... 12.80 10.80 1.60 41.70
38--Geriatrics................... General Internal Medicine 9.10 6.40 2.10 36.50
39--Nephrology................... General Internal Medicine 9.10 6.40 2.10 36.50
40--Hand Surgery................. Orthopedic Surgery....... 16.90 10.30 3.60 74.90
41--Optometrist.................. All Physicians........... 12.00 7.20 3.20 45.10
43--CRNA/AA...................... Anesthesiology........... 10.70 0.30 0.40 15.30
44--Infectious Disease........... General Internal Medicine 9.10 6.40 2.10 36.50
46--Endocrinology................ General Internal Medicine 9.10 6.40 2.10 36.50
48--Podiatry..................... General Surgery.......... 6.80 3.10 2.00 42.30
50--Nurse Practitioners.......... General Internal Medicine 9.10 6.40 2.10 36.50
62--Psychologist (Billing Psychiatry............... 2.00 0.40 0.30 22.90
Independently).
65--Physical Therapist (Indep. All Physicians*.......... 12.00 7.20 3.20 10.90
Practice).
66--Rheumatology................. Physical Medicine/ 15.40 4.90 3.90 63.70
Rheumatology.
67--Occupational Therapist....... All Physicians*.......... 12.00 7.20 3.20 10.90
68--Clinical Psychologist........ Psychiatry............... 2.00 0.40 0.30 22.90
69--Independent Laboratory....... All Physicians........... 12.00 7.20 3.20 45.10
70--Clinic Or Other Group........ All Physicians........... 12.00 7.20 3.20 45.10
76--Periperal Vascular Disease... All Physicians........... 12.00 7.20 3.20 45.10
77--Vascular Surgery............. Cardiac/Thoracic/Vascular 13.90 1.40 3.10 45.50
Surgery.
78--Cardiac Surgery.............. Cardiac/Thoracic/Vascular 13.90 1.40 3.10 45.50
Surgery.
79--Addiction Medicine........... Psychiatry............... 2.00 0.40 0.30 22.90
80--Clinical Social Worker....... Psychiatry............... 2.00 0.40 0.30 22.90
81--Critical Care (Intensivists). All Physicians........... 12.00 7.20 3.20 45.10
82--Hematology................... General Internal Medicine 9.10 6.40 2.10 36.50
83--Hematology/Oncology.......... Oncology*................ 22.00 7.20 5.50 58.70
84--Preventive Medicine.......... General Internal Medicine 9.10 6.40 2.10 36.50
85--Maxillofacial Surgery........ All Physicians........... 12.00 7.20 3.20 45.10
86--Neuropsychiatry.............. Psychiatry............... 2.00 0.40 0.30 22.90
89--Clinical Nurse Practitioner.. General Internal Medicine 9.10 6.40 2.10 36.50
90--Medical Oncology............. Oncology................. 22.00 7.20 5.50 58.70
91--Surgical Oncology............ All Physicians........... 12.00 7.20 3.20 45.10
92--Radiation Oncology........... Radiology................ 9.40 4.80 8.30 35.70
93--Emergency Medicine........... Emergency Medicine....... 3.40 0.50 0.10 9.00
94--Interventional Radiology..... Radiology................ 9.40 4.80 8.30 35.70
95--Indep. Physiological Lab..... All Physicians........... 12.00 7.20 3.20 45.10
97--Physician Assistants......... General/Family Practice.. 15.10 8.10 3.60 41.90
98--Gynecology/Oncology.......... Obstetrics/Gynecology.... 15.40 7.30 3.40 49.80
----------------------------------------------------------------------------------------------------------------
* Practice expense per hour were adjusted as follows:
(1) Allergy & Immunology and Oncology use supplies for All Physicians.
(2) Physical Therapy and Occupational Therapy use salary equivalency data for clerical, office and other
practice expenses per hour.
[[Page 30834]]
Due to uncertainty concerning the appropriate crosswalk
and time data for the nonphysician specialty ``Audiologist'' and the
fact that the relatively few codes performed by audiologists are also
performed by other specialties, we did not crosswalk this specialty.
Until we can obtain more data, we derived the resource-based practice
expense RVUs for codes performed by audiologists from the practice
expenses per hour of the other specialties which perform these codes.
Because we have no reason to assume that the distribution
of radiologists by equipment ownership reflected in the SMS survey data
differs from the distribution found in our claims data, we did not
attempt to differentiate the practice expenses per hour for
radiologists by equipment ownership. The use of the average practice
expenses per hour should create the appropriate practice expense pool
for radiology. We invite comments on this issue. We realize that
practice expenses vary by equipment ownership; however, the appropriate
recognition of this is through the differential allocation of the
practice expense pool to the professional, technical, and global
services performed by radiologists.
c. Time Associated with the Work Relative Value Units. As a
general comment on the time data, we are concerned that any imprecision
in the time estimates for high volume services which have relatively
little time associated with them may potentially bias the practice
expense methodology in favor of the specialties which perform these
services. For example, if a high volume procedure which typically takes
four minutes to perform has a surveyed time of 5 minutes, this
procedure's contribution to the practice expense pool for that
specialty is inflated by 25 percent. In contrast, if a procedure which
typically takes 100 minutes to perform has a surveyed time of 101
minutes, its contribution is only inflated by 1 percent. We believe
this issue should be examined as part of the refinement of the
resource-based practice expense RVUs.
The time data from the Harvard study performed for the
initial establishment of the work relative value units were collected
over a number of years using primarily surveys of practicing
physicians. The time data submitted to the RUC for the refinement of
the work relative value units were also collected over a number of
years using primarily physician surveys. The time data resulting from
the refinement of the work relative value units have been
systematically greater than the time data obtained by the Harvard study
for the same services. On average, this difference is approximately 25
percent. We increased the Harvard time data in order to ensure
consistency between these data sources.
We calculated the total physician time for CPT codes 70010
through 79440 using the work RVUs and the work per unit time for CPT
99213, except for codes in the range of CPT codes 78000 through 78891
for which we had Harvard survey data and codes for which we had data
from surveys done for the AMA RUC.
Based on the judgment of our clinical staff, we calculated
the total physician time for CPT codes 90918 through 90921 using the
work RVUs and the work per unit time for CPT code 99213.
Based on the judgment of our clinical staff, we set the
total time associated with the work RVUs for CPT 97001 through 97770 as
follows:
------------------------------------------------------------------------
Time
HCPCS (min)
------------------------------------------------------------------------
97001.......................................................... 30
97002.......................................................... 20
97003.......................................................... 45
97004.......................................................... 30
97010.......................................................... 5
97012.......................................................... 15
97014.......................................................... 13
97016.......................................................... 18
97018.......................................................... 13
97020.......................................................... 14
97022.......................................................... 15
97024.......................................................... 15
97026.......................................................... 10
97028.......................................................... 9
97032.......................................................... 18
97033.......................................................... 14
97034.......................................................... 16
97035.......................................................... 12
97036.......................................................... 15
97039.......................................................... 10
97110.......................................................... 15
97112.......................................................... 15
97113.......................................................... 15
97116.......................................................... 15
97122.......................................................... 15
97124.......................................................... 15
97139.......................................................... 15
97150.......................................................... 15
97250.......................................................... 15
97260.......................................................... 15
97261.......................................................... 15
97265.......................................................... 15
97504.......................................................... 15
97520.......................................................... 15
97530.......................................................... 15
97535.......................................................... 15
97537.......................................................... 15
97542.......................................................... 15
97703.......................................................... 15
97750.......................................................... 15
97770.......................................................... 15
------------------------------------------------------------------------
A high percentage of codes performed by the nonphysician
specialties of Independent Physiological Lab, Clinical Psychologist,
and Psychologist (Independent Billing) do not have work RVUs and,
therefore, time data. Because the practice expenses per hour for these
specialties were crosswalked from SMS specialties, when calculating
their practice expense pools we used the maximum clinical staff time
from the CPEP data for the codes that lack work RVUs.
We calculated the time for CPT codes 00100 through 01996
using the base and time units from the anesthesia fee schedule and the
Medicare allowed claims data.
13. Other Practice Expense Policies
a. Site-of-Service Payment Differential. Under the physician fee
schedule, if a physician service of the type routinely furnished in
physician offices is furnished in facility settings, our current policy
is that the fee schedule amount for the service is determined by
reducing the practice expense RVUs for the service by 50 percent.
Certain services are excluded from the regulation including rural
health clinic services, surgical services not on the ambulatory
surgical center covered list that are furnished in an ambulatory
surgical center, anesthesia services, and diagnostic and therapeutic
radiology services (see Sec. 414.32 (Determining payments for certain
physician services furnished in facility settings)).
The site-of-service payment differential is a long established
policy to avoid duplicate payments for practice costs while, at the
same time, recognizing that some office practice cost is incurred when
physicians perform procedures outside the office setting. The site-of-
service policy applies to both inpatient and outpatient hospital
settings.
Since the implementation of the physician fee schedule, we have
compiled a list of services furnished outside physician offices that
are subject to the site-of-service payment differential. The current
list includes approximately 700 services.
As part of the resource-based practice expense initiative, we are
proposing to replace the current policy that systematically reduces the
practice expense RVU by 50 percent for certain procedures with a policy
that would generally identify two different levels (facility and
nonfacility) of practice expense RVUs for each procedure code depending
on the site-of-service. In general, we would furnish two levels of
practice expense RVUs per code; one when the procedure is performed in
the office or other site (or nonfacility) if no additional facility fee
is paid and
[[Page 30835]]
another when the procedure is performed out of the office (for example,
in a hospital or an ambulatory surgical center in which the costs of
resources, such as labor, medical supplies, and medical equipment are
paid outside the physician fee schedule and only to the hospital or
ambulatory surgical center).
Some services, by the nature of their codes, are performed only in
certain settings and would have only one level of practice expense RVU
per code. Many of these are evaluation and management codes with code
descriptions specific as to the site of service. Examples of these
codes are the following:
Inpatient hospital care for new or established patients
(CPT codes 99221 through 99223).
Subsequent hospital care (CPT codes 99231 through 99239).
Emergency department services for new or established
patients (CPT codes 99281 through 99285).
Critical care services (CPT codes 99291 through 99297).
Nursing facility services (CPT codes 99301 through 99303).
Subsequent nursing facility care (CPT codes 99311 through
99313).
Domiciliary, rest home (CPT codes 99321 through 99333).
Home services (CPT codes 99341 through 99350.
We note that office or outpatient evaluation and management
services (CPT codes 99201 through 99215) are used to report services
furnished in the physician office or in a hospital outpatient
department; therefore, these procedure codes will have different levels
of practice expense RVUs. Other services, such as most major surgical
services with a 90-day global period, are performed entirely or almost
entirely in the hospital, and we are generally providing a practice
expense RVU only for the out-of-office or facility setting.
In the majority of cases, however, we would provide both facility
and nonfacility practice expense RVUs. The higher nonfacility practice
expense RVUs are generally used to calculate payments for services
performed in a physician office and for services furnished to a patient
in the patient's home, or facility or institution other than a
hospital, skilled nursing facility, or ambulatory surgical center. For
these services, the physician typically bears the cost of resources,
such as labor, medical supplies, and medical equipment associated with
the physician service.
The lower facility practice expense RVUs generally are used to
calculate payments for services furnished to hospital, SNF, and
ambulatory surgical center patients. The costs for nonphysician
services and other items, including medical equipment and supplies, are
typically borne by the hospital, by the SNF, or the ambulatory surgical
center.
b. Additional Relative Value Units for Additional Office-Based
Expenses for Certain Procedure Codes. Usually office medical supplies
or surgical services in the physician office are included in the
practice expense portion of the payment for the medical or surgical
service to which they are incidental. The November 1991 final rule (56
FR 59522) included a policy that allowed a practice expense RVU of 1.0
to pay for the supplies that are used incident to a physician service
but generally are not the type of routine supplies included in the
practice expense RVUs for specific services. For example, if the
physician performed a cystourethroscopy with a biopsy (CPT code 52204)
in the office and billed for a surgical tray (HCFA Common Procedure
Coding System (HCPCS) code A4550) in addition to the procedure, the
physician would receive approximately $34.86 (an RVU of .95) for the
surgical tray in addition to the payment for the cystourethroscopy with
biopsy. The November 1991 final rule (56 FR 59811) listed 44 procedure
codes that qualified for additional RVUs if furnished in the physician
office. This list was expanded in the December 1993 final rule (58 FR
63854) to include several cystoscopy codes. Included in this list of
procedures for which an additional amount for supplies may be paid if
performed in a physician office are closing a tear duct (CPT code
68671) and billing for a permanent lacrimal duct implant (HCPCS A4263)
and inserting an access port (CPT code 36533) and billing for an
implantable vascular access portal/catheter (A4300). These supplies
were given the same RVU as HCPCS code A4550.
We are proposing to revise this policy under the resource-based
practice expense system. We believe the supply costs that this policy
is designed to cover were included in the supply inputs identified by
the CPEPs and the AMA's SMS survey. Thus, they were included in the
practice expense RVUs for each related procedure code. Therefore, we
are proposing to discontinue separate payment for supply codes A4263,
A4300 and A4550.
c. Anesthesia Services. Although physician anesthesia services are
paid under the physician fee schedule, these services do not have
practice expense RVUs. Rather, payment for physician anesthesia
services is determined based on the sum of allowable base and time
units multiplied by a locality-specific anesthesia CF.
Since the beginning of the physician fee schedule, overall budget
neutrality and work adjustments have been made to the anesthesia CF and
not to the base and time units. We are proposing to follow the same
process and make an adjustment to the anesthesia CF to move anesthesia
services under the resource-based practice expense system. The
adjustment to the anesthesia CF is 3.5 percent.
14. Refinement
Section 4505(d)(1)(C) of the BBA requires the Secretary to develop
a refinement process to be used during each of the 4 years of the
transition period. In this section, we will describe those aspects of
this proposed rule that we believe are subject to refinement as well as
our proposed process for refinement during the coming year. In light of
the complexity of the issues associated with establishing the initial
proposed practice expense RVUs, we believe it is premature to propose,
in this proposed rule, the refinement process for subsequent years of
the transition period. We also believe it would be premature to
finalize the practice expense RVUs before the fall of 1999. Therefore,
we will keep the practice expense RVUs as interim RVUs until at least
the fall of 1999. We also are open to extending the period during which
the practice expense RVUs are interim beyond 1999 if we believe that
more time is needed to identify and correct errors.
We are particularly interested in receiving comments on our
proposed refinement process for this year, and we are soliciting
recommendations for the process in subsequent years. Based on our
analysis of comments we receive, we hope to describe our plans for the
entire refinement process in the final rule.
a. Issues Involved in Refinement. We believe the refinement process
for practice expense RVUs will enable us to:
Review and refine practice expense/hour data.
Obtain and review practice expense/hour data for
specialties or practitioners not included in the SMS survey.
Address anomalies, if any, in the code-specific Harvard/
RUC physician time data.
Address anomalies, if any, in the code-specific CPEP data
on clinical staff types and times, quantity and cost of medical
supplies, and quantity and cost of medical equipment.
Refine, as needed, our process of developing practice
expense RVUs for codes that were not addressed by the
[[Page 30836]]
CPEP process, for example, codes that were new in 1996, 1997, and 1998.
Develop practice expense RVUs for codes that will be new
in 1999 and beyond.
Our plans for each of these six points are as follows:
Refinement of the practice expense/hour data. The practice
expense/hour data are based on the SMS survey. (These data can be found
in Table 1). Although the SMS survey was not designed to support the
development of practice expense RVUs, we believe it is the best
available source of data on actual practice costs that allows us to
recognize all staff, equipment, supplies, and expenses, not just those
that can be tied to specific procedures. In fact, we believe one
advantage of the SMS data is that they were collected before this
proposed rule.
The SMS survey data used in this proposed rule do not include the
practice expense information on all specialties recognized by Medicare.
However, for certain larger specialties, for example, family practice
and general surgery, the sample of physicians surveyed is of sufficient
size to serve as the basis of the practice expense/hour calculation in
the short term. For those larger specialties, we are unlikely to make
any changes in the practice expense/hour calculation in the final rule
to be published this fall. In the long term, specifically, 1999 and
beyond, we are prepared to refine the practice expense/hour data of the
larger specialties if we receive compelling evidence that the SMS data
are incorrect. Any arguments that the practice expense/hour for a given
specialty should be changed would be strengthened by the submission of
survey data comparable to the SMS that include data for a range of
specialties expected to gain and lose Medicare revenue.
We are concerned that the validity of future SMS surveys could be
affected if we decided to explicitly link the data collected to future
revisions of the Medicare fee schedule. Also, SMS is a physician level
survey, and physicians in groups are asked for their share of expenses
rather than the practices' expenses. Practice level data may provide a
better basis for constructing practice expense RVUs. We invite comments
on potential revisions to the SMS survey or alternative sources of data
that could be used for long term refinement. Finally, because the
calculation of the practice expense/hour is so critical to our
methodology, we also invite comment on the need to confirm, through
audit or other means, the survey data that would be used for long term
refinement.
Refinement of the crosswalk for the practice expense/hour
data. The SMS data we used for this proposed rule do not include data
for all specialties that are recognized by Medicare, and they do not
include data on nonphysician practitioners who are paid under the
physician fee schedule. To develop this proposal, it was necessary to
crosswalk certain specialties and nonphysician practitioners to the
practice expense/hour data we developed for the specialties included in
the SMS. We invite comments on the appropriateness of our crosswalks.
Any arguments that the practice expense/hour data should be changed
would be strengthened by the submission of survey data comparable to
the SMS data.
Refinement of the physician time data. The number of
practice expense RVUs assigned to the services performed by a given
specialty is determined by the practice expense/hour data from the SMS
and the physician time data for each of the codes. The physician time
data are based on the Harvard resource-based RVS study and RUC survey
data that were developed as part of the refinement of the work RVUs. We
are confident that these data are accurate although there may be some
codes for which the final work RVUs we have assigned may be
inconsistent with the time data. We will accept comments on the code-
specific physician time data but must point out that any proposed
revisions to the time data have implications for the work RVUs assigned
to those codes. We do not intend to revisit work RVU issues that have
been already addressed as part of the 5-year review. (Total physician
time data can be found in the ``Total Physician Time'' file located on
the HCFA Homepage. Specific instructions for accessing this and other
Internet files referred to in this proposed rule can be found at the
end of this refinement section.)
Refinement of the CPEP data. The identification and
correction of errors, if any, in the code-specific CPEP data on
clinical staff types and times, quantity and cost of medical supplies,
and quantity and cost of medical equipment has its principal effect on
the relative relationship of the practice expense RVUs assigned to
services performed by a given specialty.
It is important to understand that the allocation of practice
expense RVUs at the code level is based on CPEP data that have not been
revised or edited in any fashion. We have not made any revisions or
edits for two main reasons. First, we received many comments in
response to last year's proposed rule that objected to the data
reasonableness edits and caps that were part of our proposal. Second,
we received many comments in response to June 1997 proposed rule that
objected to our decision to exclude from the CPEP data the direct
inputs for medical equipment, medical supplies, and clinical staff
recorded for hospital patients. In addition, we found this decision to
be quite controversial in subsequent meetings with representatives of
various specialty societies. Under our proposed methodology that begins
with the total practice expense costs, the question as to the
appropriateness of including the direct inputs for medical equipment,
medical supplies, and clinical staff in the inputs for hospital
patients is much less important because the inclusion of the data
impacts the distribution of practice expense RVUs across the entire fee
schedule only to the extent codes are performed by more than one
specialty.
For example, if a given specialty performs cardiovascular
procedures, including time for nursing staff in the hospital for these
procedures allocates more of the fixed practice expense pool of dollars
for that specialty to these procedures, leaving fewer dollars for the
other codes performed by that specialty. We believe the most
appropriate method for determining the relative relationship of the
RVUs assigned to cardiovascular procedures in this proposed rule is to
rely on the CPEP that developed the inputs for those procedures.
Therefore, the direct inputs for medical equipment, medical supplies,
and clinical staff recorded for hospital patients have not been removed
from the CPEP data.
In deciding not to modify the CPEP data, we recognize the
possibility that the RVUs assigned to some codes will appear to be
incorrect or anomalous. Any apparent errors will be identified and
corrected in response to the comments we receive on this proposed rule
and through our refinement process. We received comments in response to
last year's proposed rule that pointed out apparent errors in the RVUs,
and many of the CPEP inputs were revised during the validation panels
we conducted in October 1997. We have not incorporated any of those
revisions to the data primarily because our methodology for developing
RVUs has been revised, and we were not convinced that all the revisions
that occurred during the validation panels were correct. To the extent
that commenters believe that previously submitted comments are still
valid or that data revisions that occurred during the validation panels
are still
[[Page 30837]]
appropriate, we request that they again be brought to our attention in
response to this proposed rule.
While we will accept comments on any code-specific data, we
recommend that commenters focus their attention during this comment
period on high-volume services with large aggregate expenditures under
Medicare. We will review the comments with the assistance of our
carrier medical directors. Time constraints preclude convening multiple
specialty panels to assist us in our review of the comments. However,
as noted above, the practice expense RVUs would be interim values for
at least 1999, including those we change as a result of our review of
the comments.
Because all of the practice expense RVUs will be interim during
1999, commenters will have another opportunity to identify errors in
the code-specific CPEP data during the comment period of the final rule
with comment period to be published in the fall of 1998. We believe
that the codes identified as possible errors during the comment periods
of the proposed rule and the final rule will constitute the universe of
codes whose code-specific CPEP data should be reviewed. In other words,
although we may keep all the practice expense RVUs interim beyond 1999
as we refine other aspects of the physician fee schedule, it is not our
intention to continually review the inputs for all the codes on the fee
schedule on an annual basis.
We do believe it is important to have the advice of practicing
physicians on the appropriateness of recommended changes to the CPEP
inputs. We have two principal options for obtaining that advice. The
first option would be for us to convene multiple specialty panels to
review the recommended changes. The second option would be to ask the
RUC, or a new organization like the RUC that includes broad
representation across all specialties and includes nonphysician
practitioners, to do this. We believe that under either option, the
panel or panels should include individuals other than physicians, for
example, practice managers or nurses, who could bring additional
experience and expertise to the discussion. The panels would need to
meet no later than the summer of 1999 to consider the comments we
received on both the proposed rule and the final rule. We invite
comments on these options and would welcome any other recommendations.
Refinement of the crosswalk for 1996, 1997, and 1998
codes. Because the CPEP process was based on 1995 CPT codes, it was
necessary for us to develop practice expense RVUs for new codes that
were developed for the 1996, 1997, and 1998 CPT books. The process we
used was based on comparing the new codes to other comparable codes for
which we had actual CPEP data. Files containing information about the
crosswalks used for codes that were new in 1996, 1997, and 1998 are
available on the HCFA homepage under the heading ``CPEP Data
Crosswalked to 1998 CPT Codes.'' Since this crosswalk was based on our
judgment rather than actual data, we invite comments on the
appropriateness of our crosswalks. Also, we will accept new code
specific-data on clinical staff types and times, quantity and cost of
medical supplies, and quantity and cost of medical equipment. Any
comments we receive on these codes will be reviewed as part of the
process of review described above.
Development of practice expense RVUs for codes that will
be new in 1999 and beyond. There will be new codes included in CPT 1999
for which we will not have practice expense data in time for
publication in the 1998 final rule. We plan to develop interim practice
expense RVUs for these codes by preparing a crosswalk of CPEP data from
existing codes. The crosswalk we use will be available with the final
rule, and the practice expense values for the codes will be subject to
comment. However, the interim values will serve as the basis of payment
during 1999.
We do not believe that preparing a crosswalk of new codes is the
most appropriate method of developing practice expense RVUs for new
codes. However, for 1999, time constraints do not permit any other
approach. Beyond 1999, we would like to develop a process whereby we
receive recommended practice expense RVUs or recommended inputs for
clinical staff types and times, quantity and cost of medical supplies,
and quantity and cost of medical equipment.
For the assignment of work RVUs to new and revised codes, we first
look to the RUC for recommended RVUs. Under that process, codes that
will be new or revised in the next year's CPT are referred from the CPT
editorial panel to the RUC. Specialty societies are informed of these
codes and furnished an opportunity to survey a sample of physicians in
their specialty for the development of recommended RVUs. The entire RUC
then reviews the survey results and forwards the recommended work RVUs
to us.
We then review the RUC's recommended work RVUs with the assistance
of our Medicare carrier medical directors and publish our decisions as
interim RVUs in the final rule for the upcoming year. For example, work
RVUs for codes that were new or revised in CPT 1998 were published as
interim RVUs in the October 1997 final rule.
Publishing RVUs as interim allows the public the opportunity to
furnish comments on the appropriateness of our interim work RVUs.
During the following year, we review any comments we have received with
the assistance of multiple-specialty panels we have convened. We
consider our analysis of any comments on the interim work RVUs and the
advice we receive from the multiple specialty panels in the assignment
of the final work RVUs that are announced in the final rule for the
next year's physician fee schedule.
For practice expense RVUs, we believe there are two principal
options. First, we could continue to crosswalk new codes to existing
codes, publish the results of that crosswalk as interim practice
expense RVUs in the final rule, and review comments we receive with the
assistance of our multiple specialty panels. Second, we could request
the RUC or a RUC-like organization to provide recommended practice
expense RVUs or recommended inputs before publication of the proposed
rule as we do with work RVUs. This approach would allow us to publish
interim RVUs based on the advice of practicing physicians. As with the
work RVUs, any comments we received on the interim RVUs could then be
reviewed with the assistance of HCFA multiple specialty panels. We
invite comments on these options and would welcome any other
recommendations.
b. Example of the Process for Reviewing and Commenting on Practice
Expense Relative Value Units. To facilitate the development of
responses to this proposed rule, to illustrate the issues involved in
refining the RVUs for practice expense, and to furnish further guidance
on the use of the data files that are available on the Internet, we are
furnishing the following analysis of an apparent anomaly in a family of
codes. This analysis is intended to serve as an example of the process
for reviewing and commenting on the practice expense RVUs. We have not
concluded that revisions to the RVUs proposed for this family of codes
are warranted. In the event that no comments are received on the RVUs
for these codes, it is unlikely that we will make any revisions.
In the ophthalmology section of the CPT, there are four codes for
the reporting of eye exams. The codes, brief descriptors, and the
proposed practice expense RVUs follow:
[[Page 30838]]
------------------------------------------------------------------------
Practice
Code Descriptor expense
RVUs
------------------------------------------------------------------------
92002........................... Eye exam, new patient, 0.96
intermediate.
92004........................... Eye exam, new patient, 1.58
comprehensive.
92012........................... Eye exam, established 1.26
patient, intermediate.
92014........................... Eye exam, established 1.25
patient, comprehensive.
------------------------------------------------------------------------
We believe there is a rank order anomaly in this family. We
expected that the practice expense RVUs for new patients would be
higher than the practice expense RVUs for established patients and that
the practice expense RVUs for comprehensive visits would be higher than
practice expense RVUs for intermediate visits. For example, we expected
that CPT code 92014 would have higher practice expenses than CPT code
92012, which is not the case.
To analyze this apparent anomaly, we first reviewed the data on
which specialties furnish the services. These data are located on the
HCFA Homepage under the file name ``Procedure Code Utilization by
Specialty.'' This analysis is important because one potential cause of
an anomaly is that codes in a given family of codes are performed by
physicians in different specialties whose practice expenses per hour
are different. In this case, the dominant specialty performing the
codes is ophthalmology. Optometrists also perform these services but
with less frequency than ophthalmologists. In Table 2, the sum of the
practice expenses per hour for ophthalmology is $131.80, and the sum of
the practice expenses per hour for optometry is $67.50. Although the
practice expense per hour differs for ophthalmology and optometry
because ophthalmology is by far the dominant specialty, this anomaly
cannot be attributed to differences in practice expense per hour.
We next reviewed the code-specific data for in-office services on
clinical labor, equipment, and supplies that are included in the file
``CPEP Data Converted Into 1998 Dollar Amounts,'' located on the HCFA
Homepage. This file is based on the raw CPEP data that have been
converted to monetary amounts. It is considerably easier to review than
the raw CPEP data because it includes fewer data points per code. (The
file containing raw CPEP data, ``Raw CPEP Data'', can also be found in
the HCFA Homepage. Both of these files also contain CPEP data for
supplies and equipment.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total %
Code Descriptor Clin Eqp Sup services Ophthalmology % Optometry
--------------------------------------------------------------------------------------------------------------------------------------------------------
92002.................................... Eye exam, new patient, 15.44 11.76 3.41 354,000 48 50
intermediate.
92004.................................... Eye exam, new patient, 16.87 12.85 3.41 1,866,000 72 27
comprehensive.
92012.................................... Eye exam, est. patient, 11.15 8.49 27.60 6,022,000 85 13
intermediate.
92014.................................... Eye exam, est. patient, 14.01 10.67 3.41 6,980,000 79 20
comprehensive.
--------------------------------------------------------------------------------------------------------------------------------------------------------
These data show that the relative relationship within the family of
codes appears to be appropriate for clinical staff and equipment.
However, for supplies there is a large discrepancy in that the supply
costs for code 92012 are eight times greater than the supply costs for
the other three codes. To determine whether the supply costs for code
92012 are too high or the supply costs for the other three codes are
too low, it is necessary to review the actual supply inputs assigned to
the codes by the CPEP. These data may be found as a subdirectory of the
file, ``CPEP Data Converted to 1998 Dollars.'' We reviewed the inputs
but have made no judgments about them. We believe the inputs should be
reviewed by the specialties providing the service.
As can be seen in the table, 85 percent of the code 92012 services
are furnished by ophthalmologists, and 13 percent are furnished by
optometrists. The table also shows that this is a high volume family of
codes and that errors in the CPEP data could cause distortions in the
relative relationships of the RVUs assigned to services furnished by
ophthalmologists and optometrists. Under our proposed methodology for
developing RVUs, any revisions to the CPEP data will primarily impact
only those specialties that furnish the service. Thus, if we determine
that the supply inputs for code 92012 include items that are not
typically furnished and are recommended for removal, that will ``free
up'' RVUs that can be redistributed across the other services furnished
by the two specialties.
Conversely, if it is determined that the supply inputs for the
other three codes are missing items that are typically furnished and
are recommended for inclusion, that will require RVUs to be taken from
the other services furnished by the two specialties, not from other
services on the physician fee schedule. We view this as a significant
advantage of our proposed methodology in that the highly contentious
atmosphere of refinement under our earlier methodology is greatly
reduced because, except when multiple specialties perform the same
service, agreement or disagreement with the CPEP inputs of one
specialty does not directly impact the RVUs assigned to services
furnished by other specialties.
c. Information on Accessing Data Files on HCFA's Homepage. The
aforementioned files can be obtained on the HCFA Homepage at
``www.hcfa.gov.'' Following is the step by step process by which the
data files can be accessed.
Step 1: After accessing the HCFA Homepage go to Stats and Data.
Step 2: Go to 1999 Resource-Based Practice Expense.
Step 3: Under Resource-Based Practice Expense, you will have the
option of accessing one of six files related to resource-based practice
expense:
Raw CPEP Data
This file includes the original CPEP data. There are four subgroups
within this file:
Clinical Work
Medical Supplies
Procedure Specific Medical Equipment
[[Page 30839]]
Overhead Medical Equipment
1998 Code Crosswalks
Since the CPEP data were based upon 1995 data, we performed
crosswalks for codes which were new codes in 1996, 1997, and 1998. This
file shows the crosswalks that were used for all codes that were new
after 1995. In addition, this file also contains those codes gap-filled
based on analogous procedures due to an absence of data from the CPEP
process.
CPEP Data Crosswalked to 1998 Codes
This file crosswalks all CPEP data to 1998 codes.
CPEP Data Converted to 1998 Codes Converted Into Dollars
This file converts the CPEP data, crosswalked to 1998 codes, into
dollars.
Procedure Code Utilization by Specialty
This file shows the Medicare allowed services for each procedure
code performed by each specialty.
Time Associated With the Work Relative Value Units
This file contains the time associated with the work RVUs for each
procedure.
15. Reductions in Practice Expense Relative Value Units for Multiple
Procedures
In the June 1997 proposed rule (62 FR 33171), we had recommended
reducing the practice expense RVUs for multiple nonsurgical services
performed at the same time as an evaluation and management service. We
had proposed this as a way to reflect the lower practice costs that
would result when more than one service is performed during a single
patient encounter. Many commenters, as well as the Medicare Payment
Advisory Commission (MEDPAC), recommended that we not implement a
multiple procedure reduction, at least until this issue has been
further studied.
We have decided not to propose this reduction at this time but will
consider it in the future. We invite comments on this specific issue.
The current multiple surgical procedure reduction policy with regard to
physician work is not affected by the practice expense proposal.
16. Transition
Under the transition enacted under BBA 1997, practice expense RVUs
in 1999 are to be based 75 percent on the old method and 25 percent on
the resource-based method. In 2000, the shares are 50 percent old
method and 50 percent resource-based. In 2001, the shares are 25
percent old method and 75 percent resource-based. Beginning in 2002,
practice expense RVUs are entirely resource-based.
In our October 1997 final rule (62 FR 59052), we indicated that the
old method to be used in the formula constitutes the 1998 practice
expense RVUs actually used for payment. We received a comment that
suggested that we consider an alternative interpretation of the law for
purposes of the transition starting point that would eliminate the 1998
changes in practice expenses enacted by BBA 1997. This comment was
based on the theory that the 1998 changes were for 1 year only and not
intended to be included in the base practice expense used for the
transition. This alternative would result in higher payments for
certain specialty procedures and lower payments for medical visits
during 1999, 2000, and 2001. Beginning in 2002, the starting point for
the transition does not matter as practice expenses are entirely
resource-based.
We have considered this suggestion. We do not believe that we can,
as suggested by the commenter, utilize 1997 practice expense RVUs
actually used for payment because we do not believe that we could treat
the reductions enacted in BBA 1997 for 1998 differently from the
similar reductions enacted in OBRA 1993 on practice expenses for 1994,
1995, and 1996. That is, the effects of both amendments should be
included in the base or excluded. We believe that the appropriate
option, other than using 1998 practice expense RVUs, is to exclude the
effects of both the OBRA 1993 and BBA 1997 provisions and revert to
practice expense RVUs as they existed before any amendments. We do not
believe that this is the better alternative. In addition to creating
practical problems of requiring imputation of practice expense RVUs for
the many new codes that have been established between 1991 and 1998, it
would seem contrary to the statute's plain intent of moving toward a
resource-based payment system. This alternative could also potentially
result in a ``yo-yoing'' of practice expense RVUs between 1998 and
future years. Practice expense RVUs for certain procedures explicitly
increased by the Congress in 1998 could be reduced in 1999 only to be
increased again when the practice expense is fully resource-based. If
we were to use 1997 RVUs as the base for the transitions, payments for
office visit procedure codes, for example, would likely decrease
noticeably during 1999, reversing the clear policy the Congress enacted
in BBA 1997 by raising them. To adopt such a construction of the law
would not gradually ``transition'' payments to the new resource-based
system, but instead would represent an abrupt change in direction, a
result at odds with the purpose of having a transition period and with
transitions previously established for payment changes in Medicare. We
find nothing in the legislative history to suggest that the Congress
intended such an atypical transition. Therefore, we propose to use the
1998 practice expense RVUs for purposes of the blend during the
transition years of 1999, 2000, and 2001.
17. Proposed Regulation Revisions
We are proposing to revise Sec. 414.22 (Relative value units
(RVUs)), paragraph (b), (Practice expense RVUs), to state that for
services beginning January 1, 1999, the practice expense RVUs would be
based on a blend of 75 percent of the 1998 code-specific practice
expense RVUs and 25 percent of the relative practice expense resources
involved in furnishing the service. For services beginning January 1,
2000, the practice expense RVUs would be based on a blend of 50 percent
of the 1998 code-specific practice expense RVUs and 50 percent of the
relative practice expense resources involved in furnishing the service.
For services beginning January 1, 2001, the practice expense RVUs would
be based on a blend of 25 percent of the 1998 code-specific practice
expense RVUs and 75 percent of the relative practice expense resources
involved in furnishing the service. For services beginning January 1,
2002, the practice expense RVUs would be based on 100 percent of the
relative practice expense resources involved in furnishing the service.
There would be only one level of practice expense RVUs per code for
the following categories of services: those that have only the
technical component of the practice expense RVUs; only the professional
component practice expense RVUs; certain evaluation and management
services, such as hospital or nursing facility visits that are
furnished exclusively in one setting; and major surgical services. For
other services, there would be two different levels of practice expense
RVUs per code. The lower practice expense RVUs would apply to services
furnished to hospital or ambulatory surgical center patients. The
higher practice expense RVUs would apply to services furnished in a
physician office or services other than visits but performed in a
patient's home and services furnished to patients in a nursing
facility, skilled nursing
[[Page 30840]]
facility, or an institution other than a hospital or ambulatory
surgical center.
18. Response to GAO Recommendations
As previously discussed, the GAO report to Congress on practice
expense made five recommendations for further action; two of these are
short term recommendations that are addressed by this proposed rule and
three are longer term recommendations that will be addressed during the
refinement process. The GAO recommendations are as follows:
Short Term Recommendations.
+ Use sensitivity analyses to test the effects of the limits we
placed on the panels' estimates of clinical and administrative labor
and our assumptions about equipment utilization.
We believe that our proposed methodology answers the concerns that
prompted this recommendation. Our current proposal has eliminated the
limits previously placed on the CPEP panels' estimates of clinical and
administrative staff times. In addition, because the proposed
methodology is based on specialty-specific RVU pools, changes in
assumptions about equipment utilization rates would impact
redistributions between specialties only to the extent that codes are
performed by more than one specialty.
+ Evaluate the classification of the administrative labor
associated with billing and other administrative expenses as indirect
expenses, alternative methods for assigning indirect expenses, and
alternative specifications of the regression model used to link the
panels' estimates.
We again believe that our proposed methodology is responsive to
this recommendation. Under our proposal, administrative expenses are
treated as indirect costs, and we have developed a method of assigning
indirect expenses that we believe most closely reflects the various
specialties' actual costs. The third part of the recommendation is now
moot as the current proposed methodology no longer utilizes the linking
algorithm.
Longer Term Recommendations.
+ Determine whether changes in hospital staffing patterns and
physicians' use of their clinical staff in hospital settings warrant
adjustments between Medicare reimbursements to hospitals and
physicians. Similarly, we should determine whether physicians have
shifted tasks to nonphysician clinical staff in a way that warrants
reexamining the physician work RVUs.
+ Work with physician groups and the AMA to develop a process for
collecting data from physician practices as a cross-check on the
calculated practice expense RVUs and periodically refine and update the
RVUs.
+ Monitor indicators of beneficiary access to care, focusing on
those services with the greatest cumulative reductions in physician fee
schedule allowances, and consider any access problems when making
refinements to the practice expense RVUs.
We agree with all of these recommendations. One of the major tasks
of any proposed refinement process will be determining when any
additional data are need, whether it be on physician practice patterns
or actual practice expenses. We welcome comments and suggestions on how
best to carry out these recommendations to aid us in developing a
strategy for data gathering in our final rule. We plan to monitor
access to care.
B. Medical Direction for Anesthesia Services
The conditions for payment of medical direction were discussed in
the March 2, 1983 final rule (48 FR 8902) that implemented section 108
of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982,
effective October 1, 1983.
TEFRA added section 1887 to the Act and required that we
distinguish between services furnished by physicians to patients that
are now payable under the physician fee schedule and services furnished
by physicians to hospitals that are reimbursed to the hospital on a
prospective payment basis for inpatients or on a reasonable cost basis
for outpatients.
Section 1887 of the Act did not, however, include a reference to
``medical direction.'' This is a term we adopted from the medical
profession that refers to the necessary level of direct involvement of
the anesthesiologist in each of two to four concurrent anesthesia
procedures so that the service meets the definition of physician
services as required by section 1887 of the Act.
Our definition of medical direction closely followed the standards
of anesthesia care team practice promulgated by the American Society of
Anesthesiologists (ASA).
The conditions for payment of medical direction are included in
Sec. 415.110 (Conditions for payment: Medically directed anesthesia
services). For each patient, the physician must furnish seven kinds of
services, and the physician may not perform any other services while he
or she is directing the concurrent procedures unless they meet the
exception as noted. The medical direction activities in Sec. 415.110(a)
(Services furnished directly or concurrently) are as follows:
Performs a pre-anesthesia examination and evaluation.
Prescribes the anesthesia plan.
Personally participates in the most demanding procedures
in the anesthesia plan, including induction and emergence.
Ensures that any procedures in the anesthesia plan that he
or she does not perform are performed by a qualified individual as
defined in program operating instructions.
Monitors the course of anesthesia at frequent intervals.
Remains physically present and a
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