# Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar Year 1999 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A98-14650 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** June 5, 1998 - **Citation:** 63 FR 30818 ## Text 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). Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512- 2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/su__docs/, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call 202-512-1661; type swais, then login as guest (no 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 [[Page 30819]] 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A98-14650. Public record. Not legal advice.