[Senate Hearing 105-556]
[From the U.S. Government Publishing Office]
S. Hrg. 105-556
REVISING PHYSICIAN PRACTICE EXPENSE PAYMENTS
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
______
49-638 cc U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1998
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
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ISBN 0-16-057256-8
COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire HARRY REID, Nevada
ROBERT F. BENNETT, Utah HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado PATTY MURRAY, Washington
LARRY CRAIG, Idaho BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
Steven J. Cortese, Staff Director
Lisa Sutherland, Deputy Staff Director
James H. English, Minority Staff Director
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Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
SLADE GORTON, Washington ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri DANIEL K. INOUYE, Hawaii
JUDD GREGG, New Hampshire DALE BUMPERS, Arkansas
LAUCH FAIRCLOTH, North Carolina HARRY REID, Nevada
LARRY E. CRAIG, Idaho HERB KOHL, Wisconsin
KAY BAILEY HUTCHISON, Texas PATTY MURRAY, Washington
TED STEVENS, Alaska ROBERT C. BYRD, West Virginia
(Ex officio) (Ex offico)
Majority Professional Staff
Bettilou Taylor
Minority Professional Staff
Marsha Simon
Administrative Support
Jim Sourwine
C O N T E N T S
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Page
Opening remarks of Senator Arlen Specter......................... 1
Statement of Neil H. Brooks, M.D., president, American Academy of
Family Physicians.............................................. 2
Prepared statement........................................... 3
Statement of Nancy Ann Min DeParle, Administrator, Health Care
Financing Administration, Department of Health and Human
Services....................................................... 8
Prepared statement........................................... 10
Statement of Arthur L. Day, M.D., University of Florida,
professor of neurosurgery, American Association of Neurological
Surgeons....................................................... 13
Prepared statement........................................... 15
Statement of Timothy J. Gardner, M.D., University of
Pennsylvania, chief of cardiothoracic surgery, American
Association of Thoracic Surgeons............................... 21
Prepared statement........................................... 22
Budget neutrality................................................ 29
Statement of Alan R. Nelson, M.D., executive vice president,
American Society of Internal Medicine.......................... 29
Prepared statement........................................... 31
Report........................................................... 40
Proposed rule.................................................... 44
New regulations.................................................. 47
Regulations...................................................... 47
REVISING PHYSICIAN PRACTICE EXPENSE PAYMENTS
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TUESDAY, MARCH 10, 1998
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 3:30 p.m., in room SD-192, Dirksen
Senate Office Building, Hon. Arlen Specter (chairman)
presiding.
Present: Senator Specter.
NONDEPARTMENTAL WITNESSES
STATEMENT OF NEIL H. BROOKS, M.D., PRESIDENT, AMERICAN
ACADEMY OF FAMILY PHYSICIANS
opening remarks of senator specter
Senator Specter. Ms. DeParle, if you would come up, along
with Dr. Brooks, Dr. Day, Dr. Gardner, and Dr. Nelson. All of
your statements will be made part of the record.
On the Senate floor at this moment we have the
transportation bill, and my amendment is now pending on reverse
commuting--and may we have order in the Chamber, please--and I
have to go to the Senate floor, so we will recess for just a
few minutes and I will return as promptly as I can.
[A brief recess was taken.]
Senator Specter. We will now proceed with the hearing.
Just a word or two of explanation. The ISTEA bill, the so-
called transportation mass transit bill is on the Senate floor
right now, and they were about to close down the section on
mass transit. I had an amendment which provided for reverse
commuting to take people from the inner city to the suburbs and
that required my attention.
Well, then they had a very important meeting on the House
side which I just went and gave three words of support and came
back here, but this is one of the problems of roller skates in
the Senate, and I am sorry to have kept you all waiting here. I
hear you have been told, due to the lateness of the hour, that
your time might be cut to 3 or 4 minutes. Well, it has been
reinstated to 5 minutes since you had to wait, 2 minutes is not
a whole lot, but it is something.
So let us begin first with the medical panel, if we may.
SUMMARY STATEMENT OF DR. NEAL BROOKS
Dr. Neal Brooks, president of the American Academy of
Family Physicians, you are at the top of the list. Dr. Brooks,
the floor is yours.
Dr. Brooks. Good afternoon, Mr. Chairman, I am Neil Brooks,
a practicing family physician from Rockville, CT, president of
the 85,000 member Academy of Family Physicians. I thank you for
inviting us to testify.
The balanced budget law requires that a resource-based
method for Medicare practice cost payments be in place by the
year 2002, a decade after the physician fee schedule first took
effect.
Between now and then we should be focused on creating a
system that best serves the beneficiaries instead of having
providers battle over fees. Family physicians recognize the
unique role of our subspecialty colleagues. To be good family
doctors we need to consult with subspecialists and refer our
patients to them, but we are concerned about access to services
as well, but a strong primary care base is also needed to have
balanced health care.
I believe that full implementation of the fee schedule will
be good for everyone and eventually improve access to medical
services. This is why a switch to resource-based practice
expense payments in the fee schedule is a compelling and urgent
one. Practice expenses are more than 52 percent of the average
family physician's fees. In my own practice it exceeds 60
percent. If we want more medical students to elect primary care
specialties and want them to participate in Medicare, we need
to be sure that Medicare pays primary care fairly.
Last June, HCFA published a proposal for a new practice
expense method. The GAO released a report last month on the
HCFA plan. The academy is pleased with this report for several
reasons.
First, GAO says the HCFA proposal is acceptable and
reasonable. We agree. A lot of time and effort has gone into
putting it together.
In 1996 direct practice costs for labor, equipment,
supplies, for hundreds of medical services were obtained from
physicians, nonphysician providers, and practice administrators
on panels called CPEP's.
Last fall, an entirely new group of experts reexamined the
CPEP data, and then a cross-specialty panel studied the highest
volume and highest cost services. These groups were
representative of physicians whose direct expenses were being
studied. The resulting data has the combined experience of all
the members of the expert panels to back it up.
Second, GAO dismisses the idea of replacing the CPEP data
with data gathered by alternative methods. Like GAO, we believe
the alternatives would increase the costs of developing a new
method while needlessly delaying implementation.
Third, GAO recommends that HCFA monitor the impact of the
proposal on access to services, especially those with the
largest reduction in payments. We believe that HCFA's
monitoring access would be more balanced if improvements in
obtaining primary care services that result from the new method
are also reported.
And fourth, and most importantly, the GAO confirms that the
HCFA proposal meets the requirements of the balanced budget
law. It is clear that the Government's principal accounting
agency has validated HCFA's proposal and that the GAO report
should lay to rest criticisms that it is fatally flawed.
The GAO concludes that HCFA is on the right track, and we
could not agree more. As good as HCFA's work is, though,
however, the proposal could be improved by striking two
controversial provisions. The behavioral offset should be
removed from the proposal. Any changes in the physician
behavior will be taken care of by the new sustainable growth
factor of the fee schedule. This is supported by the Medicare
Payment Advisory Commission and AMA.
We also request HCFA to delay a 50-percent reduction in
practice expense payments for procedures done at the same time
as an office visit. There is no evidence for this large
reduction. It has the potential for having physicians fail to
offer preventive services such as cancer screening concurrent
with an office visit. It is a disincentive to the provision of
good medical and preventive care. I do not believe that is
HCFA's intent.
We urge HCFA to delay this reduction and work instead on
gathering procedure-specific data so the appropriate practice
expense reductions in these situations can be made.
PREPARED STATEMENT
In closing, thanks for the opportunity to speak for family
physicians, and helping to ensure that we can deliver the best
in medical services to our patients.
I will be glad to answer any questions.
Senator Specter. Thank you very much, Dr. Brooks.
[The statement follows:]
Prepared Statement of Dr. Neil H. Brooks
INTRODUCTION
My name is Neil H. Brooks, M.D. I am the President of the
85,000-member American Academy of Family Physicians. It is my
privilege to appear before this subcommittee today to discuss
our views on the method being developed by the Health Care
Financing Administration (HCFA) for implementing resource-based
practice expense relative value units as part of the Medicare
physician fee schedule.
As you may know, the HCFA proposal appeared in a June 18,
1997, Federal Register proposal addressing revisions in the
Medicare physician fee schedule. On October 31, 1997, HCFA
published a Notice of Intent to Regulate in the Federal
Register that requested information from the physician
community and other experts on specific elements of the
proposal. The HCFA practice expense proposal is examined in
reports that Congress received last week from the Medicare
Payment Advisory Commission (MedPAC) and the General Accounting
Office (GAO).
THE NEED FOR RESOURCE--BASED PRACTICE EXPENSE PAYMENTS
Prior to 1992, Medicare compensated physicians on the basis
of historical charges that substantially overvalued procedures
performed in hospital settings while deeply undervaluing E/M
services and other non-surgical services provided in office
settings. In 1992, HCFA began to implement a new Resource-Based
Relative Value Scale (RBRVS) designed to pay physicians on the
basis of relative value units (RVU's) for each procedure. These
RVU's are based on the time, skill and effort required of a
physician to perform a particular procedure. Payments for
physician work, however, are only a part of the whole
reimbursement. Physicians also have to be compensated for the
Medicare share of their practice expenses and malpractice costs
as a part of each payment under the RBRVS system. The RBRVS is
intended to eventually encompass all three components of the
fee: physician work, practice expenses and malpractice costs.
Congress expected the RBRVS to be an accurate and equitable
system for paying physicians for their Medicare services.
What is at issue today is resource-based practice expenses.
HCFA has not yet proposed a method for determining resource-
based RVU's for malpractice costs, but has substantially
completed the process of establishing resource-based RVU's for
practice expenses. These expenses include the costs of office
staff, and the equipment and supplies necessary to run an
office. We believe that the HCFA proposal on practice expenses
meets the requirements established in the Balanced Budget Act
of 1997, because it is the result of extensive collaboration
with the physician community, and the methodology is valid as
it is based on reliable data on actual physician practice
costs. In these conclusions we agree with the General
Accounting Office, whose report we have reviewed.
Establishing resource-based RVU's for the practice expense
and malpractice components of the Medicare physician fee
schedule is lagging behind schedule. All physician work RVU's
are now resource-based and were even reviewed and modified as
part of a five-year review conducted by HCFA and the American
Medical Association RVU Update Committee (RUC) in 1995 and
1996. However, the practice expense and malpractice components
of the fee schedule have not yet been converted into resource-
based RVU's. This is a serious problem given the proportion of
the overall fee that is represented by each component. The need
to rectify this tardiness is especially compelling when one
considers that practice expenses account for 41 percent of the
total RVU's in the Medicare Fee Schedule and 52.2 percent of a
family physician's total revenue, according to the 1988-1990
AMA Socioeconomic Monitoring Survey.
Congress in 1994 extended the deadline for implementation
of resource-based practice expense RVU's to 1998. Reputable,
independent studies conducted by the Physician Payment Review
Commission, the Harvard School of Public Health and Health
Economics Research, Inc. in the mid-1990s confirmed the
problems of the current payment system and bolstered the need
to correct the practice expenses issue as soon as possible.
Thus, HCFA began the process of gathering direct practice
expense data for developing the new practice expense RVU's with
the assistance of Abt Associates, Inc., in 1996.
PRACTICE EXPENSES AND THE BALANCED BUDGET LAW OF 1997
Preliminary results of the HCFA effort to establish
resource-based practice expense RVU's were released in the
early part of 1997. The data justified a substantial decrease
in practice expense payments for certain facility-based,
procedural services and an increase for primary care and other
office-based services. Reaction to the data and a subsequent
HCFA proposal for implementing a new practice expense method
based on it led to a new timetable for implementation of
resource-based practice expenses in the balanced budget law
enacted last year.
The law spelled out in detail how HCFA is to proceed with
the task of completing the implementation of resource-based
practice expenses. A transition period totaling five years
(1998-2002) was established. HCFA has begun phasing in the new
practice expense method this year by shifting $330 million from
the most overvalued procedures to the undervalued office-based
services represented by CPT codes 99201-99215. Further, HCFA is
required to consult with physicians and other experts, and use
generally accepted accounting principles and actual cost data
to the ``maximum extent practicable'' in drafting a new
proposed rule on practice expenses which must be published by
May 1. Finally, the law requires GAO to report to Congress on
the HCFA proposal.
Although the balanced budget law establishes a five-year
transition process that began this January, during which family
physicians will continue to be underpaid for their Medicare
practice costs, it is encouraging that the long-standing
problem with practice expenses will at last be resolved by
2002.
THE GENERAL ACCOUNTING OFFICE REPORT
The Academy is pleased with the report. We believe the GAO
displayed commendable objectivity in its thorough examination
of the issues surrounding the HCFA proposal as well as balance
in its subsequent recommendations to Congress. The report
thoroughly analyzes the complicated topic of Medicare practice
expense payments, the HCFA proposal and the various arguments
advanced in support of or in opposition to the HCFA proposal.
The GAO report contains a number of significant findings
and recommendations that I will address in the order presented
in the draft.
The GAO found that using expert panels such as the Clinical
Practice Expert Panels (CPEP's) for estimating direct labor and
other direct practice expenses is an acceptable method. The GAO
rebuts specific criticisms of the CPEP process by noting that
these panels were representative of the medical specialties and
that members were contributing information based largely on
facts, not merely ``best guesses.'' It should be noted that the
Physician Payment Review Commission also supports the HCFA
approach for gathering direct expense data for the development
of resource-based practice expense RVU's. The Academy concurs
with these assessments of the HCFA method.
The report is very clear in stating that alternative data
gathering proposals that have been advanced are unreasonable
and, if followed, would increase costs while needlessly
delaying the implementation of a new method for determining
practice expense payments. The GAO resoundingly dismisses the
activity-based accounting alternative, for example, because it
reallocates practice costs to broad categories of codes and not
to specific procedures, as required by the law. The Academy
agrees with the GAO position on alternative data gathering
proposals.
The GAO suggests that there may be a need to gather a small
amount of additional data through a limited survey to be used
as part of a refinement process, and that the refinement
process itself should be clearly described to the public.
Collecting additional data specifically as part of a refinement
process is supportable and could be of assistance to HCFA. Such
an activity, however, should not be used as justification to
discard the data already amassed from the expert and validation
panels. The Academy believes that if additional data is to be
collected as part of the refinement process, HCFA must then
offer a detailed proposal for conducting a targeted data
gathering effort to the public so that physicians may
collaborate with the agency on how such data should be gathered
and used.
Some specialty groups would like to involve the Relative
Value Unit Update Committee (RUC) in the practice expense
refinement activities. Although we are supportive in concept of
utilizing the RUC in this fashion, the Academy also has
concerns with involving the RUC in refinement of the resource-
based practice expense RVU's. Before utilizing the RUC,
sufficient staffing and resources must be obtained to ensure
that the committee is capable of handling an increased
workload. Just as importantly, we believe that non-physician
clinicians, such as physician assistants, nurses and practice
administrators should be invited to participate in RUC practice
expense refinement activities. These providers and
administrators would bring valuable perspectives on the
clinical and administrative labor upon which the allocation of
direct and indirect practice expense RVU's is based.
The report supports the use of a statistical linking method
for normalizing the data generated by the CPEPs while
suggesting that HCFA consider other possible means of linking
the labor and administrative costs for E/M and non-E/M
services. The Academy reviewed HCFA's proposed regression
formula for linking the CPEP data and found it to be a
statistically valid one. We also found it preferable to simply
averaging values across all expert panels since this approach
can disturb the relative rankings of codes within panels.
Further, we believe that a linkage based on the E/M codes is
preferable because virtually every specialty provides E/M
services and virtually all of the CPEPs reviewed E/M services,
making these codes a ``common denominator'' that can connect
all of the findings to one another. In addition, the
composition of the E/M panel was more balanced between primary
care and subspecialties than were other panels, and there was
greater consensus among its members, leading us to believe that
the data reported by the E/M panel were inherently more
accurate and less inflated than those recorded by the other
panels.
The Academy is supportive of HCFA's proposed linking
formula. If other methods for normalizing the direct practice
expense data are considered, we believe they should be
thoroughly reviewed. If the linkage formula is to be modified,
a detailed proposal for accomplishing this change should be
developed with guidance from physicians, offered for public
comment, and it should correct the problem with inflated
administrative and labor cost estimates for some non-E/M codes.
Otherwise, an alternative formula probably would be opposed by
family physicians.
The report also recommends that HCFA consider certain
improvements in its methodology, including the use of
``scaling'' to match aggregate CPEP data with data from the
AMA's 1996 SMS survey, the use of specialty-specific adjustment
factors to determine the ratio of direct and indirect costs,
and moving administrative costs into the indirect practice
expense category. I will address these individually below.
``Scaling'' refers to a statistical adjustment made in the
CPEP data so that the proportion of direct expenses
attributable to labor, equipment and supplies is consistent
with the AMA Socioeconomic Monitoring Survey (SMS). In its June
18, 1997 proposed rule, HCFA noted that in the aggregate, for
all CPEPs, labor comprised 60 percent of total direct expenses,
medical supplies comprised 17 percent, and medical equipment
comprised 23 percent. Further, HCFA noted that the
corresponding percentages from the AMA SMS data were 73, 18,
and 19, respectively. To equate the aggregate CPEP percentages
with those of the AMA SMS, HCFA proposed an adjustment in CPEP
expenses for labor, medical supplies and medical equipment
using scaling factors of 1.21, 1.06 and 0.39, respectively. In
essence, this involved multiplying the CPEP expenses for labor,
equipment and supplies for each code by the given scaling
factors so that the overall distribution would be equivalent to
the distribution in the AMA SMS.
The impact of scaling on the direct expenses of any given
code depends on the distribution of direct expense for that
code as compared to the aggregate distribution. This means that
codes with a greater-than-average share of labor costs would
experience an increase in direct expenses as a result of
scaling, while the opposite would occur for codes with a
greater-than-average share of equipment costs.
The GAO believes that scaling is necessary so that HCFA has
an external benchmark to ensure that labor, supply and
equipment costs are appropriately apportioned among the total
RVU's for direct practice expenses. As the Academy commented
last year, we are not convinced that scaling adds value,
especially given the credibility of the CPEP data. We would,
however, support the use of scaling to the extent that it can
be shown to add value or greater accuracy to the overall HCFA
formula for determining resource-based practice expense RVU's.
The GAO recommends using specialty-specific ratios to
allocate indirect practice expenses among codes. In its
proposed rule, HCFA wants to use the aggregate ratio (55/45)
for this purpose so the adjustment would be the same across the
board for all codes. The Academy has not taken issue with the
method HCFA originally suggested for allocating indirect
practice expenses among codes. However, scaling indirect
practice expense RVU's to the available pool of RVU's on the
basis of the percentage of direct and indirect practice expense
RVU's billed by each specialty, as recommended by the American
Society of Internal Medicine, rather than on a fixed factor of
0.219 as in the HCFA proposal, has merits. We believe that the
use of specialty-specific ratios in the formula would represent
a further refinement of that formula. Although the ASIM method
is more complex, this approach might, in fact, allocate
indirect practice expenses more accurately. We would support
HCFA's consideration of this refinement, with an understanding
of the trade-off between simplicity and precision in this
decision.
In reference to the GAO proposal to shift administrative
expenses to the indirect side of the equation, the Academy
conceptually has no problem with doing this, a position similar
to that held by ASIM. The CPEP and subsequent validation panels
have highlighted the difficulty with trying to attach
administrative costs to individual procedure codes. For
example, how does one account for multiple service codes
submitted on the same claim form? Or all of the other
administrative expenses incurred for a patient presenting with
multiple medical problems--a common situation in family
practices? Like rent and utilities, administrative costs will
probably vary less by procedure code and more by the size and
type of practice. The only problem with shifting administrative
costs to the indirect category is that the formula for
allocating indirect expenses would allow higher payments for
the indirect practice costs of surgical services even though
associated billing costs, for example, are most likely the same
as those costs associated with billing for an E/M service.
However, the question of whether these billing and
administrative costs should be standardized, or if this data
should be obtained from independent data sources such as
billing agencies, has not been addressed by the Academy.
The GAO recommends that HCFA determine whether practice
expense payments are warranted in situations where physicians
bring their clinical staff into the hospital setting. GAO said
there is no evidence that utilizing staff in this fashion is a
common practice at this time. The Academy agrees. Any claims
about using clinical staff in the hospital should be subjected
to external review and validation. Even if such practices are
validated, we contend that payment for the expenses of staff
brought into the hospital should come from Medicare Part A, not
Part B.
It should also be noted that the GAO report specifically
certifies that the HCFA proposal meets the balanced budget
law's requirements for consulting physicians and other experts
and gathering actual cost data to the ``maximum extent
practicable,'' as required by the balanced budget law. We hope
that having the government's principal accounting agency
validate HCFA's approach will finally lay to rest the
criticisms about data gathering efforts, accounting principles,
the thoroughness of efforts to consult with physicians and
other experts and so forth that have been lodged against the
HCFA proposal.
Finally, the GAO recommends that HCFA monitor the impact of
its proposal on access to services, focusing its attention in
particular on those procedures with the largest reductions in
practice expense payments. The Academy believes that HCFA
should also monitor improvements with access to primary care
services that may result from the new practice expense payment
method.
THE MEDICARE PAYMENT ADVISORY COMMISSION REPORT
Two important issues relating to the HCFA practice expense
proposal were not included in the GAO report, but are mentioned
in the annual report of the MedPAC. We are referring to the
HCFA proposals to include in the new practice expense method a
behavioral offset and a reduction in practice expense RVU's for
multiple procedures performed during an E/M office visit.
The Academy strongly opposes the inclusion in the practice
expense proposal of a 2.4 percentage point reduction, or
behavioral offset, in the conversion factor to account for
increases in the volume and intensity of services that HCFA
claims will result from changes in net income caused by
implementation of resource-based practice expenses, a position
supported by the AMA and MedPAC. We have always opposed HCFA's
use of a behavioral offset, and oppose it again in this
instance. Given that we do not believe that HCFA has ever been
able to adequately support the need for a behavioral offset,
the Academy opposes this provision of the resource-based
practice expense proposal and is pleased by the commission's
agreement with us on this matter.
We strongly disagree with HCFA's proposal to reduce by 50
percent the practice expense RVU's for additional procedures
furnished during the same encounter as an E/M service. None of
the direct cost data gathered for the development of the new
practice expense RVU's justifies the proposed 50 percent
reduction.
In the short term, HCFA would simply reduce the practice
expense RVU's for the additional procedures by 50 percent; the
reduction would not apply to the E/M service. This is similar
to the way in which HCFA lowers payment for multiple surgical
procedures furnished to the same patient on the same day by the
same surgeon. In the long term, HCFA would like to apply a
procedure code-specific reduction when a given procedure is
performed during the same encounter as an E/M service.
Under this proposal, if a patient came into the office for
a visit and subsequently received a blood draw and an
electrocardiogram, HCFA would reduce the practice expense RVU's
for the blood draw and electrocardiogram by 50 percent, even
though they probably involve different equipment and supplies
and, potentially, different clinical staff. We concede that
there may be some savings in administrative staff time
associated with multiple procedures performed during the same
encounter as an E/M service. However, arbitrarily reducing
practice expense RVU's by 50 percent is an inappropriate means
of addressing this issue.
Medicare's physician payment system is supposed to be based
on resource costs. However, until resource cost data are
provided showing that practice expenses for office procedures
are reduced by half when an office visit is also provided,
there is no rationale for applying a multiple procedure
reduction to office procedures.
For these reasons, we encourage HCFA to proceed with the
data development necessary to identify procedure code-specific
reductions that can be implemented in the long run while not
making any arbitrary reductions in the short-run. We are
pleased that the commission has adopted a similar stance on
this matter. Alternatively, in the short run, HCFA should only
reduce the administrative labor component of the direct
practice expense RVU's by 50 percent and recognize that the
clinical labor, equipment and supply components of direct
practice expenses as well as indirect practice expenses are the
same whether the procedure is done as a stand alone or with an
E/M service.
DOWN PAYMENT IS APPLICABLE IN THE TRANSITION YEARS
The movement to resource-based practice expense RVU's began
this year with a $330 million ``down payment'' for office-based
procedures. It seems to us that the increase in 1998 practice
expense RVU's for office visits is supposed to be blended with
the new, resource-based practice expense RVU's starting in
1999. HCFA stated precisely this particular understanding in
its notice of intent to issue a rule; that is, that the 1998
down-payment-adjusted practice expense RVU's for office visits
would be blended with resource-based practice expense RVU's for
office visits beginning in 1999.
It has come to our attention that some medical specialties
are urging HCFA to re-interpret the law with respect to the
base year for the transition period. That is, using the 1997
practice expense RVU's instead of the 1998 down payment-
adjusted practice expense RVU's as the base amount for the
blend during the four-year transition period is being advanced
at this time. This interpretation defies logic and would lower
overall payments for office visit services from what they would
be otherwise under the balanced budget law, and for these
reasons this effort is strongly opposed by the Academy.
Also, increasing practice expense payments for office
visits in 1998 just to turn around and calculate them in part
based on the lower, historical charge-based RVU's of 1997
would, in effect, negate the compromise on practice expenses
adopted last year. The Academy and other primary care groups
accepted the implementation delay and four-year transition
period contingent on HCFA starting to improve practice expense
payments for office visits in 1998. However, if a revision such
as the one proposed were accepted by HCFA, it would re-open a
very controversial debate that for all intents and purposes was
settled with enactment of the balanced budget law. For these
reasons we urge Congress and HCFA to leave the balanced budget
law untouched.
CONCLUSION
Once again, thank you for this opportunity to present the
family practice viewpoint on the resource-based practice
expense issue. After so many years of waiting for this
component of the Medicare physician fee schedule to be fixed,
we are gratified that Congress at last has set a deadline
certain of January 1, 2002 for full implementation of the new
payment method. It is overdue, but ``better late than never''
as the old saying goes.
If you take away one message from my comments, let it be
this: the practice expense issue does not need to be re-opened
legislatively. HCFA is on the right track, according to the
GAO. We could not agree more.
I invite the subcommittee and its members to continue to
look to the Academy as a resource on matters pertaining to the
Medicare physician fee schedule and resource-based practice
expenses. We would like to continue to be a part of this
discussion, and we will try to be as helpful as possible. At
this time, I would pleased to answer questions from the
subcommittee members.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
STATEMENT OF HON. NANCY ANN MIN DePARLE, ADMINISTRATOR,
HEALTH CARE FINANCING ADMINISTRATION
ACCOMPANIED BY DR. BART McCANN, CHIEF MEDICAL OFFICER
Senator Specter. Ms. DeParle, the floor is yours.
Ms. DeParle. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today to discuss resource-based practice
expenses under the Medicare physician fee schedule.
With me today is Dr. Bart McCann, the Chief Medical Officer
who has led our practice expense efforts. He is a family
physician who trained at Children's Hospital in Pittsburgh
before joining the Public Health Service.
Practice expenses, as you know, Mr. Chairman, are a
resource input such as the physician's clinical and
administrative staff, rent, equipment, and supplies. In 1994,
Congress passed legislation requiring HCFA to implement a
resource-based practice expense relative value system in order
to create a more equitable system for Medicare physician
payment that better reflects the relative overhead expenses
involved in furnishing a service.
Today, Mr. Chairman, I would like to give you an update on
our implementation efforts. As mandated by the Balanced Budget
Act, we are working toward a May 1 implementation date of a
proposed rule. We are still analyzing data, input, and comments
from many specialty societies, including those represented here
today. We are also considering the recommendations made in the
recent GAO report.
Converting the current system based on historic cost to one
based on relative resources has been very challenging. Each
year, Medicare pays about 500,000 physicians more than $40
billion for more than 6,000 different procedure codes. Average
practice expenses represent about 41 percent of the total
relative value for a service, or $16 billion of Medicare's
total physician spending.
Our task is to establish relative values for the more than
6,000 services involved, even though data are not readily
available for each service. Because the law requires the system
be implemented in a budget-neutral manner, there will also be
redistributions. In other words, increases for some procedures
will result in decreases for others.
I want to emphasize that the new system will reflect the
relative practice expense resources involved with furnishing
physician's services. The new system is not a cost
reimbursement system.
We have sought and encouraged the participation of the
medical community in virtually every step along the way. We
have consulted with hundreds of representatives of medical
specialty groups. We will continue to do so.
As you know, on June 18 of last year HCFA published a
proposed rule in the Federal Register announcing the proposed
relative value units for practice expenses. The publication of
the proposed rule elicited strong reactions. Generally
speaking, family practitioners and other primary care
physicians had been supportive of the approach that HCFA took.
However, most surgeons and many medical specialties have
challenged many aspects of our proposal.
The Balanced Budget Act made several changes in how
Medicare will pay for physician practice expenses, including,
importantly, delaying the implementation until 1999 and
providing for a 4-year transition.
The Balanced Budget Act requires that we publish a notice
in the Federal Register by May 1 and provide a 90-day comment
period, and we are on track to do that right now.
One message of the Balanced Budget Act was that Congress
wanted us to do more consulting with doctors, and we have done
that, Mr. Chairman. We met with physician groups in October,
November, and December 1997 on these issues.
In October, we hosted 17 medical specialty panels charged
with validating some of the direct expense data generated
through the original panel process used for our June 18 notice.
Members of the panels were nominated by their specialty
societies, and I think that Dr. Brooks has referred to some of
that activity today.
On November 21, we held a forum on indirect practice
expenses. Again, all major specialty societies were invited to
send representatives, and the comments that we received were
both constructive and informative.
And then on December 15 and 16 we again hosted a single
cross-specialty panel with the objective to understand the
differences in the way specialties provide common
administrative functions such as billing and scheduling.
On October 31 of this year, through a Federal Register
notice, we again solicited comments from the physician
community on a wide variety of key data and methodological
issues, including generally accepted accounting principles,
equipment utilization, physician-employed staff, and the
refinement process.
The Balanced Budget Act, as you know, also requested an
independent review and evaluation by GAO and, as Dr. Brooks has
testified already GAO has supported the key elements of the
methodology that we used. As we develop our May 1 proposed
rule, we are carefully reviewing and considering each of GAO's
recommendations.
PREPARED STATEMENT
Mr. Chairman, we are working very hard to analyze the data,
including comments that we have received, and considering the
recommendations that GAO has made, and we look forward to
working with you and with the members of the subcommittee as we
develop our May 1 proposed rule.
Thank you very much.
Senator Specter. Thank you, Ms. DeParle.
[The statement follows:]
Prepared Statement of Nancy Ann Min DeParle
INTRODUCTION
Mr. Chairman and Members of the Subcommittee, I appreciate the
opportunity to be here today to discuss resource-based practice
expenses under the Medicare physician fee schedule. Research performed
by the Physician Payment Review Commission (PPRC) and recommendations
made in their 1993 Annual Report to the Congress documented the need to
change the current practice expense system and the significant
redistributions that would occur under a new system. Following the PPRC
recommendations, Congress passed legislation requiring HCFA to
implement a resource-based practice expense relative value system
beginning in 1998. The intent of the new system is to create a more
equitable system for physician reimbursement which better reflects the
relative practice expense resources involved in furnishing a service.
As you know, last June 18th, we published a proposed rule. The
Balanced Budget Act delayed the new system for one year and made a
number of other changes in resource-based practice expenses, including
a report to Congress from the Secretary and publication of a new
proposed rule by May 1, 1998.
Today, I will review our efforts since the passage of the Balanced
Budget Act. We are busily working on development of the May 1st rule.
At this point, we are still analyzing data, input and comments that we
received during the activities I will describe later and considering
the recommendations made in the just released GAO report. Since our new
proposed rule is currently under development, I do not have details and
specifics to discuss with you today.
BACKGROUND
Medicare spends about $40 billion annually for physicians'
services. We pay for more than 6,000 different procedure codes under
the physician fee schedule. These services are provided by more than
500,000 physicians and practitioners in settings as diverse as
physician's offices, hospitals, ambulatory surgical centers, and
nursing homes.
Medicare's physician fee schedule established relative values for
three components of each physician's service: physician work, practice
expenses and malpractice insurance. The sum of these three components
represents the total relative value for a service; this total relative
value is used in conjunction with a conversion factor to establish the
Medicare fee schedule amount for the service. The relative size of the
three components varies for each service, but on average, physician
work represents 54 percent of the overall relative value, practice
expenses 41 percent and malpractice insurance 5 percent. Practice
expenses include resource inputs such as a physician's staff (both
clinical and administrative), rent, equipment and supplies.
The relative values for physician work have been resource-based
since the inception of the fee schedule in 1992. The relative values
for physician work are based on physicians' estimates of the physician
time and effort needed to perform a service. Practice expense and
malpractice expense relative value units (RVU's), however, currently
are based on allowed charges under the old reasonable charge system of
paying physicians. Relative values for these components thus largely
reflect historical charges, without a direct and explicit relationship
to resources used.
One example of the inequity in the current system can be seen by
comparing practice expense RVU's that Medicare currently pays for the
most common office visit and for triple by-pass surgery. Under the
existing system, Medicare pays almost 100 times more for the
physician's practice expense (overhead) for a by-pass surgery than for
an office visit. In other words, a physician practicing in an office
would have to do almost 100 office visits to receive the same payment
for practice expenses as a surgeon performing one by-pass surgery in a
hospital. Most observers would agree that the ``relative'' values for
practice expense is out of line for both services.
The Balanced Budget Act requires that malpractice expense relative
value units be converted to a new system beginning in 2000. The
Balanced Budget Act also requires that practice expense RVU's be
converted to a resource-based system beginning on January 1, 1999.
Converting the charge-based system to a resource-based system has
been quite challenging. We must establish relative values for the large
number of services involved, but practice expense data are not readily
available for each service.
In addition, the law requires that we establish resource-based
practice expense relative values in a budget-neutral manner. In other
words, the total Medicare payments for practice expenses prior to the
changeover to resource-based values should be the same as the payments
under the new system. This necessarily involves a redistribution of
payments across services; to the extent that there are increases in
values for some services, others will decrease.
I want to emphasize that new resource-based relative values for
practice expense reflect the relative practice expense resources
involved with furnishing physicians' services. The new system is not a
cost reimbursement system.
Since we started to develop the new system, we have sought and
encouraged the participation of the medical community in virtually
every step along the way. We will continue to actively encourage the
participation of the medical profession and others who have a stake in
the physician fee schedule as we proceed with our proposal. I have
attached to my testimony the Appendix to our Report to Congress which
contains a list of the major physician and other groups with whom we
have consulted.
LAST YEAR'S PROPOSED RULE
As you know, on June 18, 1997, we published a proposed rule in the
Federal Register announcing our proposed relative value units for
practice expenses. Using the traditional accounting concepts of direct
and indirect costing, we segmented the project into two parts, one
involving direct costs, the other involving indirect costs.
For direct costs, we used a contractor to convene panels of
physicians and others knowledgeable about how services are provided to
present information on direct cost inputs, i.e., the time it takes
various clinical and administrative staff to assist the physician in
providing the service. The panels also provided information on the
types of supplies and equipment used in providing services.
The second part of the project involved indirect costs. We needed
to allocate the remaining resources, indirect expenses, to specific
procedures in order to arrive at a total practice expense relative
value for the service. This process was initially to be accomplished
through a survey of physician practices. However, due to the very low
response rate to this survey, we instead relied on existing data
sources to allocate indirect expenses. The data source we used was the
information gathered by the American Medical Association through
surveys of its members.
Needless to say, the publication of the June 18 Notice resulted in
strong opinions about our methodology, assumptions, and approach.
Generally speaking, family practitioners, and other primary care
physicians have been supportive of our approach. However, most surgeons
and many medical specialties have challenged many aspects of our
proposal. Many of the physicians and groups which were adversely
affected by our proposal criticized our methodology as flawed and
suggested alternatives. Some of the alternatives would have required
abandoning the panel process of gathering data in favor of a brand new
data gathering activity.
the balanced budget act and our consultations with physicians
I would like to describe some of the recent key events of this
project. As you know, the Balanced Budget Act (BBA) made several
changes in how Medicare will pay for physician practice expenses. The
BBA delayed the implementation of a resource-based relative value
practice expense for one year. The BBA also allowed for a four-year
transition to the new system beginning January 1, 1999. The Balanced
Budget Act required that we publish a notice in the Federal Register by
May 1 and provide a 90 day comment period, which is 30 days longer than
our usual comment period for the annual physician fee schedule
regulation.
The Balanced Budget Act requires us, to the maximum extent
practicable, to use generally accepted cost accounting principles which
recognize all staff, equipment, supplies, and expenses and to use
actual data on equipment utilization, etc. The Balanced Budget Act also
requires that we consult with organizations representing physicians on
our methodology and to develop a refinement process to be used during
each year of the transition period.
On October 31, 1997, we published a Notice of Intent to regulate in
the Federal Register. We solicited input from the physician community
on a wide variety of key data and methodological issues including
general accepted accounting principles, equipment utilization,
physician employed staff and the refinement process. This was an
opportunity for many of the groups to provide additional information to
aid us as we develop this year's proposed rule. We received a number of
constructive and thoughtful comments in response to this Notice.
Since the Balanced Budget Act was enacted, we have met with
physician groups in October, November, and December 1997 to discuss
various practice expense issues. In October, we hosted 17 medical
specialty panels charged with validating some of the direct expense
data generated through the original panel process used for our June 18
Notice. The panels reviewed about 200 of the highest volume Medicare
services to validate the data originally collected. These codes
represent about 80 percent of Medicare physician spending. Members of
the panels were nominated by their specialty societies and were given
extensive information about the original panel process prior to the
meetings to help them as they validated the data.
On November 21, 1997, we held a forum on indirect practice
expenses. Again, all major specialty societies were invited to send
representatives. We asked specialties who had specific concerns about
our indirect cost methodology to present their views to the meeting
and, where applicable, to provide alternatives to the approach in last
June's proposed rule. Several presentations were made offering
alternative approaches to the allocation of indirect costs as well as
an approach which used a non traditional accounting approach to
determining practice costs. There was consensus that by definition all
approaches to dealing with indirect costs require an allocation
formula. As with our prior meetings and discussions with the physician
community, the comments were both constructive and informative.
On December 15 and 16, we again hosted a single cross-specialty
panel to discuss some of the issues that were believed to have
commonality among the various specialties. The objective was to
understand the differences in the way specialties provide common
administrative functions, such as billing and scheduling. Although
there was no agreement among the specialties about many of the issues,
the discussions were helpful in framing the debate and in shaping
alternatives to some of the original assumptions that were made in the
June 18 proposal.
Since the December panel, we have been meeting with groups
proposing alternative approaches to the practice expense project. Some
of these groups are advocating extensive data surveys of individual
physician practices. We do not believe it is practicable at this time
to do any new surveys and still meet the January 1, 1999 implementation
date established in the Balanced Budget Act. Although we have not
completed our internal deliberations on the refinement process we will
be proposing in May, we are considering additional data gathering as
part of a longer term refinement of the practice expense values.
GAO REPORT TO CONGRESS
The Balanced Budget Act requested an independent review and
evaluation by the General Accounting Office (GAO) of the practice
expense methodology contained in last June's proposed rule.
We are pleased that GAO supports the key elements of the
methodology we used to develop practice expense relative values. GAO
found that our use of expert panels is an acceptable method to develop
direct cost estimates. GAO also found that assigning indirect expenses
to individual procedures, such as the method we used, is an acceptable
approach. As the GAO Report indicates: ``There is no need for HCFA to
start over and utilize different methodologies for creating new
practice expense RVU's; doing so would needlessly increase costs and
further delay implementation of the fee schedule revisions.''
GAO also made recommendations about a number of technical issues.
As we develop our May 1, 1998 proposed rule, we will carefully review
and consider each of GAO's specific recommendations.
GAO recommended that we use sensitivity analyses to test the
effects of two items, (1) the limits we placed on direct cost panel's
estimates of clinical and administrative labor, and (2) our assumptions
about equipment utilization. We are currently doing such sensitivity
analyses. GAO also recommended that where our adjustments or
assumptions substantially changed the rankings and RVU's or specific
procedures we should collect additional data to assess the validity of
our assumptions and adjustments, focusing on the procedures most
affected. We will consider that recommendation for future years since
it does not appear to be possible to collect any new data in time for
the proposed or final rules this year.
GAO recommends that we evaluate three interrelated issues: (1)
classifying administrative labor associated with billing and other
administrative expenses as indirect expense, (2) alternative methods
for assigning indirect expenses, and (3) alternative specifications of
the regression model used to link the panels' estimates. We are
currently analyzing these issues.
GAO recommends that we ``determine whether changes in hospital
staffing patterns and physicians' use of their clinical staff in
hospital settings warrants adjustments between Medicare reimbursements
to hospitals and physicians''. On a related note, GAO recommends that
we ``determine whether physicians have shifted tasks to non-physician
clinical staff in a way that warrants re-examining the physician work
RVU's''. We are currently analyzing these issues.
The GAO Report recommends that we ``work with physician groups and
the AMA to develop a process for collecting data from physician
practices as a cross-check on the calculated practice expense RVU's,
and to periodically refine and update the RVU's''. I also note that the
Balanced Budget Act also requires that we develop a refinement process
to be used during each of the four years of the transition. We are
currently developing our plans for refinement.
The GAO Report recommends that we ``monitor indicators of
beneficiary access to care, focusing on those services with the
greatest cumulative reductions in Medicare physician fee schedule
allowances, and consider any access problems when making refinements to
the practice expense RVU's''. We have comprehensively monitored access
to care and utilization of services since the inception of the
physician fee schedule and we will continue to do so.
CONCLUSION
I appreciate the opportunity to discuss with you today the status
of our efforts on resource-based practice expenses under the Medicare
physician fee schedule. We are working very hard analyzing data, input
and comments that we received and considering the recommendations made
in the GAO Report. We look forward to working with you, Mr. Chairman
and Members of the Subcommittee, as we develop our May 1st proposed
rule.
NONDEPARTMENTAL WITNESSES
STATEMENT OF ARTHUR L. DAY, M.D., UNIVERSITY OF
FLORIDA, PROFESSOR OF NEUROSURGERY,
AMERICAN ASSOCIATION OF NEUROLOGICAL
SURGEONS
Senator Specter. I would like now to turn to Dr. Arthur
Day.
Dr. Day. Mr. Chairman and members of the subcommittee, my
name is Arthur Day. I am a professor and practicing
neurosurgeon at the University of Florida in Gainesville, and I
appear here today wearing two hats, one as a member of the
Practice Expense Coalition, and the other as a member of
Organized Neurosurgery.
The Medicare physician fee schedule should accomplish two
fundamental goals: First, it should ensure that Medicare
beneficiaries have continued and prompt access to high quality
medical care; and Second, it should provide a fair payment
system based on accurate data.
The coalition is concerned that without substantial
correction HCFA's current effort to develop new practice
expense relative values will not meet these important
objectives. My remarks today focus on four areas.
First, the GAO report. For an entirely different set of
reasons, the Practice Expense Coalition and Organized
Neurosurgery support the GAO report. The GAO report is
entitled, ``HCFA Can Improve Methods of Revising Physician
Practice Expense Payments.'' In our view, can means should, and
the report identifies a number of key spots in HCFA's work that
must be addressed before a final system is put into place.
Our sites of concern are incorporated into our written
testimony and due to time constraints today will not be
individually discussed.
The second point. What has HCFA done since the enactment of
the Balanced Budget Act? Since last summer, HCFA has conducted
three public meetings which on the surface appear to satisfy
the BBA's requirements for consultation with physician groups.
Each of these meetings, however, focused on refining
methodology and data from the original June 1997 proposed rule.
From our viewpoint, HCFA appears to have made no substantive
alterations in last year's proposal.
Third, what should HCFA do to comply with the Balanced
Budget Act? It is obvious in this debate, and reading these
testimonies, that medicine is divided, the proceduralist versus
primary care. Both groups interpret this data from their own
perspective and with their own self-interest in mind. Within
the confines of budget neutrality, what benefits one will harm
the other. It may be, however, that both sides are right.
How can we reconcile this disagreement without irreparable
damage to our health care system? The answer is, in our
opinion, clear and accurate data, not assumptions derived from
statistical theory.
To accomplish this goal, HCFA must start with total
practice costs and then, using accounting methodology, allocate
specialty-specific practice expenses to relative value units.
The coalition has presented HCFA with a straightforward plan
developed by Coopers & Lybrand as to how this can be done.
Finally, what are the consequences to a poorly designed
system? If HCFA implements essentially the same proposal as
last year, access to quality health care for all patients, not
just Medicare beneficiaries, may be severely compromised. Such
large reductions may create a two-tier health care delivery
system.
For example, if the June 1997 rule had been implemented,
fees for many common neurosurgical procedures will have equaled
or dropped below Medicaid rates in many States. We are all
aware of the access problems that Medicaid patients face.
The survival of academic medical centers may also be
threatened, thus endangering medical education and research. A
1997 study conducted by the AAMC found that HCFA's original
proposal would have reduced practice expense reimbursement to
the University of Pennsylvania's Department of Neurosurgery by
over 50 percent.
Senator Specter. How about to your university?
Dr. Day. Approximately the same.
Senator Specter. Why do you pick the University of
Pennsylvania?
Dr. Day. I think I got that research from my staff person.
Senator Specter. You have a very able staff person.
[Laughter.]
We will extend your time by 57 seconds. [Laughter.]
Dr. Day. In our opinion, Congress can do two things to help
prevent these adverse consequences. First, continue active
oversight of HCFA to ensure that access is not compromised, and
second, provide HCFA with the necessary resources to carry out
the mandates of Congress in the GAO's recommendations.
PREPARED STATEMENT
Today, we, the Practice Expense Coalition in Neurosurgery,
pledge our support for a public-private partnership to get this
task done completely, correctly, and on time.
Thank you very much.
Senator Specter. Thank you very much, Dr. Day.
[The statement follows:]
Prepared Statement of Dr. Arthur Day
EXECUTIVE SUMMARY
Background
In 1997, the Health Care Financing Administration (HCFA) proposed
changes to the Medicare Fee Schedule that would have produced
significant reductions in reimbursement for many physicians. These
changes centered around the manner in which Medicare calculates
physician practice expenses. Because the cuts were so severe, and
because the methodology on which they were based was flawed, the
Congress intervened and mandated HCFA to take an entirely new approach
to devising the new payment system. The Balanced Budget Act of 1997
(BBA), among other things, required the following:
1. A one-year delay in the implementation date of new practice
expense relative values from January 1998 to January 1999;
2. A four year phase-in of the new values from 1999-2002;
3. A General Accounting Office (GAO) review and evaluation of
HCFA's proposed methodology, including an evaluation of the adequacy of
the data and the potential impact of the proposal on Medicare
beneficiary access to services; and
4. Detailed requirements for HCFA in developing new practice
expense relative values, including a directive to use generally
accepted accounting principles and data based on actual physician
practice expenses. HCFA is also required to work closely with
physicians in developing the new values.
The GAO report
Issued on Friday, February 27, 1998, the GAO report is titled:
``HCFA Can Improve Methods for Revising Physician Expense Payments.''
The report identifies several key problem areas, and raises appropriate
criticisms of HCFA's work up through the June 1997 Notice of Proposed
Rulemaking, which include:
1. HCFA's failure to validate the data produced by the Clinical
Practice Expert Panels. GAO recommends that HCFA validate the data
using surveys of actual physician practices.
2. HCFA's use of statistical techniques to overcome the lack of
common ground rules between the various panels. GAO raises serious
questions about these statistical techniques.
3. HCFA's failure to use actual specialty specific practice costs
to formulate ``indirect'' practice expenses. GAO suggested that the use
of specialty specific indirect expense data would be more consistent
with the requirements of the law, which requires the use of actual
expense data.
4. HCFA's disallowance of certain costs, such as the costs
physicians incur when they bring their own staff to facilities located
outside their own office to assist in the care of patients. GAO
acknowledged that there may have been a shift in hospital and physician
practices that Medicare has not recognized in its reimbursement
methods.
5. HCFA's lack of a detailed plan to address the concerns raised in
the report. GAO raises concerns about HCFA's failure to have a specific
plan to address the many problems with the current data and
methodology.
If HCFA responds effectively to each of the points in the GAO
report, and if HCFA follows the mandates of the BBA, the Coalition
believes that the agency can design new relative values that will be
generally acceptable to the entire physician community.
HCFA'S activities since the enactment of the BBA
HCFA has conducted three public meetings since the BBA was enacted
the October ``validation'' panel meeting, the November ``indirect
expense'' conference, and December's ``cross-specialty'' panel meeting.
Each of these meetings focused on refining the methodology and data
that were the basis for the original June 1997 proposed rule. Based on
this experience, the Coalition does not think that HCFA is meeting the
directives of the BBA.
What HCFA should do to comply with the BBA
If generally accepted accounting principles (as required by the
BBA) are used, the process for allocating specialty specific aggregate
practice expenses to relative value units should be relatively
straightforward. HCFA should enter into a public-private partnership
with the physician community to jointly fund and help facilitate the
collection of practice expense data. The project should proceed in the
following way:
1. Realize that the practice expense relative values effective in
1999 (the first transition year) will change quite a bit as the
refinement proceeds and reach agreement on the process that will get us
to a final product by 2002 (final implementation year);
2. Develop interim values for 1999 based on the premise: ``first do
no harm.'' Even modest reallocations of payment should not occur until
HCFA has fully complied with the mandates of the BBA to use total costs
and an accounting methodology; and
3. Refine the system based on the key requirements of the BBA
actual data on total physician practice costs and generally accepted
cost accounting standards. Coopers & Lybrand, a well known national
accounting firm with significant health care industry experience, has
developed a method to allocate total costs to the individual code
level, using standard cost accounting techniques.
Consequences of a poorly designed system
If HCFA implements essentially the same proposal as last year, it
will produce both near and long-term threats to our Medicare system,
and, to the extent that many private insurers use the Medicare
physician fee schedule, the entire health care delivery system. Access
to quality health care for all patients, not just Medicare
beneficiaries, will be severely compromised. Specifically, such large
reductions may: (1) create a two-tiered health delivery system and (2)
threaten the survival of academic medical centers, endangering medical
education and research.
What Congress can do to ensure HCFA complies with the BBA
Congress can do two things to help solve this problem: (1) continue
active oversight of HCFA on this project to ensure that the BBA's
mandates are achieved, and (2) provide the necessary funding to HCFA to
carry out the GAO recommendations and the mandates of Congress. The
estimated costs of these tasks would be no more than $2 million.
Mr. Chairman, and members of the subcommittee, my name is Arthur L.
Day, M.D. I am a professor and practitioner of neurosurgery at the
University of Florida in Gainesville, Florida. I am here today on
behalf of the Practice Expense Coalition, a group that represents 43
physician specialty societies, medical organizations and major medical
clinics, and also on behalf of my own organizations, the American
Association of Neurological Surgeons and the Congress of Neurological
Surgeons, which are members of the Coalition. Mr. Chairman, the
Coalition is united by our common belief that the Medicare physician
fee schedule should accomplish two fundamental goals: (1) ensure that
Medicare beneficiaries have continued prompt and high quality access to
medical care and (2) provide a fair payment system based on accurate
and reliable data. The Coalition is concerned that, without substantial
correction, the Health Care Financing Administration's (HCFA) current
effort to develop new practice expense relative values will not meet
these important objectives.
The members of the Coalition appreciate your interest in this issue
and the opportunity to present testimony today. We recognize that the
task originally given to HCFA in the Balanced Budget Act of 1997 (BBA)
is complex. If properly carried out, however, the directives contained
in that Act will make it easier for the agency to complete its work.
Continued congressional oversight is critical to the project's
successful completion.
My testimony this afternoon will focus on four areas: (1) the
findings of the General Accounting Office (GAO) report, which under
congressional mandate reviewed HCFA's methodology and the reliability
of the agency's data, (2) HCFA's activities since the enactment of the
BBA, (3) the Coalition's recommendations of what HCFA should be doing
to develop reliable data and a sound methodology to ensure that
accurate practice expense relative values are developed by the year
2002, and (4) the consequences of HCFA's failure to develop a fair and
accurate payment system.
The GAO report
Issued on Friday, February 27, 1998, the GAO report is titled:
``HCFA Can Improve Methods for Revising Physician Expense Payments.''
In our opinion, this report is a reasonably balanced view of the
challenges and the problems that have beset this very complex project.
The report clearly validates Congress's efforts, by virtue of the
passage of the BBA, to give HCFA both more time to complete the
formulation of new practice expense relative values, and direction on
how HCFA must develop this new payment system. If HCFA responds
effectively to each of the points in the GAO report, and if HCFA
follows the mandates of the BBA, we believe that the agency can design
new relative values that will be generally acceptable to the entire
physician community.
The GAO report identifies several key problem areas, and raises
appropriate criticisms of HCFA's work up through the June 1997 Notice
of Proposed Rulemaking, which include:
1. HCFA's failure to validate the data produced by the Clinical
Practice Expert Panels. While GAO concluded that this process of
collecting ``direct'' practice expense data was acceptable, it stated
that HCFA should validate the data using surveys of actual physician
practices.
2. HCFA's use of statistical techniques to overcome the lack of
common ground rules between the various panels. The use of these
statistical adjustments is a key point of controversy, because most of
the redistribution in physician payment is derived from these
manipulations. The GAO raises serious questions about the techniques of
``linking'' and other ``data reasonableness'' rules used in the June
1997 proposed rule.
3. HCFA's failure to use specialty specific costs to formulate
``indirect'' practice expenses. While the Clinical Practice Expert
Panels focused on ``direct'' practice expenses, HCFA planned a survey
of 5000 physician practices to collect ``indirect'' expense data. This
survey was never completed, and HCFA was forced to look to other less
reliable sources. Although GAO did not measure the validity of the data
used, it did state that the use of specialty specific indirect expense
ratios would be more consistent with the requirements of the 1994 and
the 1997 statues which require the use of actual expense data.
4. HCFA's disallowance of certain costs. Many specialty physicians
bring their own staff to facilities located outside their own office to
assist in the care of patients. HCFA has disallowed nearly all of these
costs, arguing that they are already included in the hospital payment
rates. Although not every specialty uses its own staff in this way,
several recent studies demonstrate that some specialties, such as
neurosurgery, significantly utilize their own staff outside of the
office. The GAO report acknowledged that there may have been a shift in
hospital and physician practices that Medicare has not recognized in
its reimbursement methods.
5. HCFA's lack of a detailed plan to address the concerns raised in
the report. Throughout the report, GAO raises concerns about HCFA's
failure to have a specific plan to address the many problems with the
current data and methodology. Such a plan is essential if HCFA is to
comply with both the 1994 and the 1997 statutes.
Mr. Chairman, at this point I would like to address each of the
above issues in more detail.
1. Use of Expert Panels to Estimate Direct Costs.--In 1996, HCFA
convened a number of expert panels to collect information on direct
costs. These panels, known as Clinical Practice Expert Panels (CPEPs),
included physicians, practice managers and other health professionals,
and represented virtually every specialty. The panels met twice to
estimate direct costs and labor times for all physician services under
Medicare.
While GAO concluded that the process itself for collecting direct
cost information was acceptable, it also stated that HCFA should
validate the data using surveys of actual physician practices. While
this panel process can estimate this kind of information, many
questions remain about the data's accuracy. The Coalition agrees with
the suggestions in the GAO report that external validation is critical
to confirming the specific information derived from these panels.
If the information gathered from the panels is to be an ongoing
part of the practice expense data base, we believe that Congress should
insist on such validation. At the very least, HCFA should survey
physician practices and make any needed corrections based on these
surveys. This effort does not need to be time consuming or resource
intensive, but can be based on a limited number of surveys of physician
practices.
2. Statistical Techniques Used by HCFA.--Because of the lack of
common ground rules in the CPEPs, the results understandably varied
greatly. HCFA tried to correct this problem by using statistical
adjustments to the data, referred to as ``linking'' and ``scaling.''
HCFA also applied edits for ``data reasonableness.'' Each technique was
intended to adjust the data to establish more consistency between the
results that came from each panel. The use of these statistical
adjustments is a key point of controversy, since most of the
redistribution in physician payment was derived from these
manipulations. The very large cuts in payments for many procedures--for
neurosurgery some over 30 percent--were in large measure driven by
HCFA's decisions at this point in the process.
The GAO raises serious questions about ``linking'' and the ``data
reasonableness'' rules that HCFA used in the June 1997 proposed rule.
The Coalition agrees with this assessment. The application of these
techniques greatly altered the work product of the CPEPs. These
alterations were undoubtedly the greatest contributing factor to our
concerns that we expressed last year--concerns which ultimately led
Congress to change the practice expense law. By enacting the BBA,
Congress rejected such statistical manipulation by requiring the use of
actual physician practice cost data.
HCFA needs to completely revise or discard the ``data
reasonableness'' rules and fix its ``linking'' methodologies. Some
means must be identified to collate the expenses of quite diverse
physician specialties into a coherent payment system. It is still
unclear what HCFA intends to do.
3. Indirect Cost Issues.--HCFA proposes to divide physician
practice expenses into direct and indirect costs. To accomplish this,
separate data collection strategies were developed. While the CPEP
process focused on direct costs, HCFA planned a mail survey of 5,000
physician practices to collect indirect expense data. To ensure a
reasonable and accurate response rate, we urged HCFA to involve the
physician specialty societies in this process. These offers were
rebuffed by the agency, however, and the result was predictable. The
survey was so complicated that the response was woefully inadequate by
any standard--well below the response rate demanded by the Office of
Management and Budget (OMB). HCFA thereafter abandoned the survey, and
therefore had to use estimates of indirect expense rather than actual
data. The agency also decided to allocate expense data based on a
single direct/indirect cost ratio of 55/45 percent for all specialties.
Needless to say, the quality and accuracy of these estimates has been
highly controversial and has been refuted by several subsequent
studies.
While GAO did not assess the validity of the data used in
formulating these estimates, it did review allocation and definition
issues. Since there is no universally accepted way to allocate indirect
expenses, the GAO report recognized that HCFA's method for allocating
indirect costs to the individual procedure codes was an acceptable
approach. The report points out, however, that the use of specialty
specific indirect expense ratios (rather than a uniform ratio for all
specialties) would be more consistent with the law, which requires HCFA
to use actual practice expense data.
We believe that many of the controversies related to indirect
expenses could be avoided if HCFA used other widely accepted accounting
techniques to allocate practice cost data. These other allocation
methods do not artificially separate expenses into ``direct'' and
``indirect'' cost categories, so that the end result is more accurate
and less arbitrary. If HCFA insists on pursuing its current approach,
the Coalition concurs with GAO's recommendations that specialty
specific ratios should be derived, based on individual specialties'
actual practice expense data. We believe that Congress should insist
that HCFA comply with these recommendations.
4. Disallowance of Certain Costs.--As HCFA has defined practice
expenses, certain categories of costs have not been included. For
example, many specialty physicians bring their own staff to facilities
located outside their own office to assist in the care of patients.
HCFA has disallowed nearly all of these costs, arguing that they are
already included in the hospital payment rates. Certainly, not every
specialty uses its own staff in this way. Several recent studies,
however, demonstrate that some specialties (e.g., neurosurgery and
thoracic surgery) do substantially utilize their own staff for patient
care activities that occur outside of the office. These studies have
been provided to both HCFA and GAO, and can be made available to this
subcommittee as well.
The GAO report acknowledges that there may have been a shift in
hospital and physician practices that Medicare has not recognized in
its reimbursement methods. Hospitals may no longer provide the same
level of staff support that they did before when Medicare established
its current method of hospital expense reimbursement.
These expenses are very real to these physicians and they should be
incorporated into the Medicare physician fee schedule. HCFA should
therefore determine if there have been changes in hospital staffing
patterns and physicians' use of their clinical staff in hospital
settings, and include these costs in the new relative values.
5. Lack of Detailed Plan for Developing and Refining New Relative
Values.--Throughout the report, the GAO points out that there are many
unresolved issues that should be addressed prior to the May rulemaking.
Even though the BBA requires HCFA to report to Congress on the status
of the project by March 1, 1998, HCFA has yet to provide a detailed
plan for developing and refining new practice expense relative values.
This report should have included a presentation of data to be used in
developing the relative values, and an explanation of the methodology.
The purpose of the report was to give Congress and physician groups an
opportunity to review and comment on HCFA's work prior to the May
rule's publication, so that appropriate adjustments could be
entertained.
The delay in producing this report reduces the opportunity for
physician input to Congress. Given this year's short legislative
session, Congress will have limited opportunity to review these
comments or, if necessary, to intervene on the final proposal before it
is implemented on January 1, 1999. Congress must be given a detailed
status report prior to May, and we urge you to require this from HCFA.
HCFA's activities since the enactment of the BBA
The Balanced Budget Act of 1997 requires the agency to develop
``new resource-based practice expense RVU's'' that utilize ``generally
accepted cost accounting principles that recognize all staff,
equipment, supplies, and expenses, not solely those that can be linked
to specific procedures '' The law further requires HCFA to use ``actual
data'' in developing the new relative value units. Through its member
organizations, the Coalition has participated in three public meetings
held by HCFA since the BBA was enacted the October ``validation'' panel
meeting, the November ``indirect expense'' conference, and December's
``cross-specialty'' panel meeting. Each of these meetings focused on
refining the methodology and data that were the basis for the original
June 1997 proposed rule.
Based on this experience, we do not think that HCFA is meeting the
directives of the BBA. Congress has implicitly repudiated the project's
original direction, by enacting the new detailed requirements and
oversight mechanisms. Given this new statutory mandate, the Coalition
expects HCFA to significantly modify its methods of developing the new
relative values.
What HCFA should do to comply with the BBA
In our view, the specifications contained in the BBA and the
standards laid out in the GAO report provide the framework for a
successful transition to a new set of practice expense relative values.
If generally accepted accounting principles (as required by the BBA)
are used, the process for allocating specialty specific aggregate
practice expenses to relative value units should be relatively
straightforward, and can be accomplished in the time frame provided by
Congress.
The Coalition has offered to enter into a public-private
partnership with HCFA that would jointly fund and help facilitate the
various activities that must be completed if this change in practice
expense relative value units is to be successful. Every physician
interest should be included in that joint effort. Although we have
received no response from HCFA to this offer, we reiterate it today in
the hope that all sides will see the wisdom of such collaboration, and
we can proceed to implement it immediately.
Were HCFA to agree with us on this cooperative arrangement, we
believe that the work should proceed in the following way:
The first step is to agree that the practice expense relative
values effective in 1999 (the first transition year) will probably
change quite a bit as the refinement proceeds. Not every question has
to be answered in the May rulemaking, but everyone should clearly see
the process that will be in place to get us to a final product.
Next, the interim values for 1999 need to be determined. We
recommend that HCFA develop these interim values based on the premise:
``first do no harm.'' With such an inadequate data base, we do not see
how the agency could do otherwise. We realize that the four year
transition period for implementing the final relative values is
intended to ``soften the blow'' to any affected specialty, but we urge
that even modest reallocations of payment not occur until HCFA has
fully complied with the mandates of the BBA to use total costs and an
accounting methodology. We believe that there is enough data available
from several sources, and that an acceptable short term methodology can
be worked out, to allow a first step toward practice expense relative
values that are based on the resources actually used by physicians. We
must be mindful, however, that important data refinements and
methodological work remain to be done, and must be done, before the
completion of the transition period. Because there is still much
uncertainty, we recommend that HCFA ensure that the interim system's
redistribution impacts be very modest, so the many remaining issues can
be worked out without causing significant disruption to patient care.
Finally, HCFA should refine the system around the key requirements
of the BBA actual data on total physician practice costs and generally
accepted cost accounting standards. The Coalition recommends that the
total practice cost requirement be met by using the American Medical
Association's statistical monitoring system data as the starting point.
It is unlikely that we will find a more robust data base, although it
does have some limitations. For example, data from some specialties and
subspecialties (e.g., neurosurgery) are not included in the current
data base, so additional information needs to be collected. The
Coalition recently presented to HCFA an outline of how the AMA data
base can be used to allocate total costs to the individual code level,
using standard cost accounting methods. The approach was developed by
Coopers & Lybrand, a well known national accounting firm with
significant health care industry experience, and is relatively
straightforward. We would be happy to arrange for representatives from
Coopers & Lybrand to brief you and your staff in greater detail.
This is a process that can work and can be completed in the time
allowed, but it needs the concurrence of Congress and HCFA to be
accomplished.
Consequences of a poorly designed system
The importance of getting this project ``right'' cannot be
understated. For many specialties, including neurosurgery, last year's
proposed payment reductions were extreme. If HCFA implements
essentially the same proposal, it will produce both near and long-term
threats to our Medicare system, and, to the extent that many private
insurers use the Medicare physician fee schedule, the entire health
care delivery system. Access to quality health care for all patients,
not just Medicare beneficiaries, will be severely compromised.
Specifically, such large reductions may:
Create a Two-Tiered Health Delivery System.--Many physicians simply
cannot absorb these drastic reductions and continue to offer access to
world-standard medicine. To demonstrate the impact of these reductions,
organized neurosurgery conducted a survey of Medicaid and Medicare
rates in 20 states. If the June 1997 rule had been implemented, fees
for many common neurosurgical procedures performed on Medicare
beneficiaries would have equaled or dropped below Medicaid rates in 16
of these states. The problems that Medicaid beneficiaries face in
accessing medical care are well documented. If private insurers follow
Medicare's lead (as often they do) payment inequities will further
multiply, and other patients will find their medical care quality
similarly diminished.
Endanger Medical Education and Research.--The dramatic decrease in
Medicare payments proposed by HCFA will have a significant impact on
our nation's academic medical centers. For example, a 1997 study of
academic health centers conducted by the Association of American
Medical Colleges found that HCFA's original proposal would have reduced
practice expense reimbursement for the University of Pennsylvania's
Department of Neurosurgery by over 52 percent. If HCFA's new proposal
includes reductions of this magnitude, we risk undercutting these
centers' ability to provide high-quality, specialized education for
physicians. Moreover, these reductions could result in fewer dollars
for academic medical centers to distribute to their research
facilities. Such cuts could have devastating impacts on the kind of
superb academic medical centers that attract our brightest and hardest-
working young men and women. If we send the message that we no longer
consider education and research a national priority, we will sacrifice
one of our nation's greatest assets, our world-class teachers and
researchers.
What Congress can do to ensure HCFA complies with the BBA
Congress can do two things to help solve this problem: (1) continue
active oversight of HCFA on this project to ensure that the BBA's
mandates are achieved, and (2) provide the necessary funding for HCFA
to carry out the GAO recommendations and the mandates of Congress. The
estimated costs of these tasks would be no more than $2 million. We
fully understand that HCFA's administrative budget is very tight, and
the Practice Expense Coalition is therefore prepared to enter into a
public/private partnership to share in the cost of properly formulating
the new practice expense relative values.
In his recent testimony before the House Ways and Means Health
Subcommittee, William J. Scanlon, of the GAO stated that even ``though
HCFA has made considerable progress developing new practice expense
fees, much remains to be done before the new fee schedule payments are
implemented in 1999.'' We agree and we hope that your subcommittee will
provide the necessary resources for HCFA to get the job done right.
Thank you for the invitation to appear before the subcommittee. I
will be pleased to answer any of your questions.
STATEMENT OF TIMOTHY J. GARDNER, M.D., UNIVERSITY OF
PENNSYLVANIA, CHIEF OF CARDIOTHORACIC
SURGERY, AMERICAN ASSOCIATION OF THORACIC
SURGEONS
Senator Specter. We now turn to Dr. Timothy Gardner, chief
of the division of cardiothoracic surgery at the University of
Pennsylvania.
Welcome, Dr. Gardner.
Dr. Gardner. Thank you, Senator. I appreciate the
opportunity to address the committee on this very important
issue of reevaluation of the practice expense component of the
Medicare fee special schedule.
At the hospital of the University of Pennsylvania I am
responsible for the care of hundreds of patients entrusted to
us for cardiac and thoracic surgery, but also for the training
of surgical residents who will be the cardiothoracic surgeons
of the future.
The impact projections from HCFA on the practice expense
redistribution published last year is for a 32-percent
reduction in reimbursement for cardiac surgery. This reduction
would be added to reductions in Medicare reimbursement for
cardiac surgery which over the past 10 years have already
amounted to a 34-percent decrease in actual dollars. The
cumulative effect of the prior reductions and the additional
changes will be a 67-percent decrease in reimbursement when
adjusted for inflation.
Let me give you specific figures to clarify the impact of
HCFA's proposed changes. A busy cardiac surgeon with a
customary workload of 200 major open heart surgeries per year
would receive practice expense reimbursement of $92,000 under
HCFA's proposed formula. The most recent AMA socioeconomic
survey indicates that the average annual practice expenses for
surgeons, including cardiac surgeons, is $248,000 a year.
A cardiac surgeon with a caseload of 200 major surgeries
annually currently received $259,000 in practice expense
reimbursement at Medicare rates, but the proposed $92,000
practice expense reimbursement in HCFA's reformed schedule will
amount to only 38 percent of actual practice cost.
We have already heard from Dr. Day concern expressed in the
GAO's analysis that HCFA's work has a flawed methodology and
may result in conclusions that are not accurate or reliable,
and the GAO report concluded that the proposal by HCFA may
affect access to care as well as might influence physician
decisions regarding the care of Medicare beneficiaries.
Now, the accomplishment of cardiothoracic surgeons, along
with so many other medical specialist researchers and
scientists over the last 25 years, have really been astounding,
and our citizens have been the beneficiaries. We cannot expect
to sustain a commitment to the kinds of extraordinary advances
that have occurred in the fields such as these if it costs
doctors to take care of Medicare patients.
Of even greater concern to me as a medical school professor
and residency program director charged with ensuring the future
quality of surgeons, is how are we going to attract individuals
from among the best and the brightest of our young people who
will be willing to spend 12 to 15 years of additional education
after college to become cardiac surgeons, who will then begin
practice at an average age of 35 years, in a specialty that is
so demanding that few can remain fully active as surgeons into
their sixties?
One of HCFA's stated goals in this present environment is
to restore trust in the Medicare Program. That is the challenge
that has been given to the providers.
If the agency expects to restore the trust of all of us in
the medical community, a regulation as important as this one
has to be done properly. Resource-based practice expense reform
can be done properly. The agency should begin by using the best
data set available, namely the AMA socioeconomic survey, to
correct its current estimates and to develop interim values for
1999.
These interim values should then be refined through
additional surveys of actual costs of practices, particularly
the practices of specialists such as cardiac and thoracic
surgeons which are neither clearly defined nor well-represented
in the AMA data base. The estimates should be further refined
through limited onsite data gathering, as the GAO has
recommended.
We appreciate that HCFA has a heavy workload and may not be
able to conduct a proper study without supplementary funding.
We would therefore ask the committee to consider a modest
appropriation to HCFA which is targeted to this task with
specific directions that the agency must base its analysis this
time on real practice costs.
I would like to close by saying that I have participated in
the HCFA analysis of practice expenses, and I appreciate
greatly the leadership that Dr. McCann, who I have worked with
on various projects over the years, has provided to this very
difficult task. I think all of us involved in the process agree
that the complexity was almost beyond the scope of the group
that was given the task of performing it.
PREPARED STATEMENT
I also would like to say that somehow or other there is
something wrong with this becoming an argument between
different medical groups. If the primary care family practice
group is not being paid appropriately for their practice cost,
that should be corrected, but we should not do that at the
expense of specialists who will not be able to provide the same
quality of care in the future.
Thank you.
[The statement follows:]
Prepared Statement of Timothy J. Gardner, M.D.
Mr. Chairman, members of the Committee. Thank you for inviting me
to discuss the very important issue of revaluation of the practice
expense component of the Medicare Fee Schedule. I am Timothy J.
Gardner, William M. Measey Professor of Surgery and Chief of the
Division of Cardiothoracic Surgery at the University of Pennsylvania. I
am also chairman of the joint Professional Affairs Committee of the
Society of Thoracic Surgeons and the American Association for Thoracic
Surgery. These two organizations represent the board certified cardiac
and thoracic surgeons of the United States.
Congress last year, under the Balanced Budget Act, directed HCFA to
propose a rule for reimbursing practice expenses which would ``utilize,
to the maximum extent practicable, generally accepted accounting
principles'' and ``recognize all staff, equipment, supplies and
expenses, not just those which can be tied to specific procedures, and
use actual data on key assumptions.''
Congress also asked the General Accounting Office to report on the
adequacy of the data used by HCFA in developing the rule which it
proposed last year. GAO was not asked to, and did not consider, whether
HCFA was meeting the mandates of the Balanced Budget Act. This report
has recently been submitted to Congress.
The GAO notes that HCFA's proposed rule would reallocate
$2,000,000,000 annually in payments to physicians. The impact of
reallocations of payments of that magnitude is obvious. Surgeons and
other specialists will make decisions based on what HCFA publishes this
year. Surgeons will decide whether or not they can continue to support
highly qualified staff; senior surgeons will decide whether they remain
in practice; medical school graduates will make their choice of
specialty.
It is important to get this right--to get it right the first time.
The message sent this year will drive decisions, irretrievably. If
there is an interim proposal, with the expectation of future review,
the Health Care Financing Administration must take care that the
initial proposal not do damage that is irremediable. To count on
corrections during the first year or two--on refinements that would
correct mistakes and undo damage--would be unrealistic.
THE REPORT OF THE GENERAL ACCOUNTING OFFICE
The General Accounting Office has done Congress and the medical
community a major service in pointing out several of the most egregious
flaws in the methodology used by the Health Care Financing
Administration. GAO reports that the linking process used to alter the
data from the Clinical Practice Evaluation Panels was faulty; that HCFA
should sample a sufficient number of medical practices to verify its
data and its assumptions; that reimbursement of staff paid for by
physician practices who work in hospitals should be reviewed and that a
new means of deriving indirect costs should be considered. These are
important recommendations. The title is central: ``HCFA Can Improve
Methods for Revising Physician Practice Expense Payments''. In a rule
of such importance, we believe ``can'' means ``must.''
The General Accounting Office also notes that the ``cumulative
effects of fee schedule changes could affect access to care'' and that
``total potential reductions of approximately 25 percent are
significant and could affect physician decisions regarding their care
of beneficiaries.''
The issue of access is important and very difficult. Cardiothoracic
surgery is the specialty which would have been most impacted by the
HCFA proposal last year, with reductions for some procedures as high as
40 percent. These reductions would come on top of reductions of 34
percent over the last 10 years--reductions which are actually more than
50 percent if calculated in constant dollars. The cumulative total
reductions for cardiac surgery would have been 54 percent in present
dollars 67 percent in constant dollars--if the HCFA proposal of last
year were enacted.
At present, cardiac and thoracic surgeons usually do not even know
the insurance status of their patients. Our patients come to us by
referral from other physicians, sometimes from hospital emergency
rooms. We treat every patient the same.
Most surgeons would rather leave practice than be compelled to
choose between private pay and Medicare patients, or even between the
insured and the uninsured. And that is the point. If surgeons cannot
afford to maintain highly qualified staff; if they know that quality is
suffering; if payment rates are once again reduced significantly--the
impact will be on the availability of highly trained surgeons a few
years from now. The years of training are long and strenuous. Qualified
surgeons are not created overnight. If a large number of senior
surgeons retire and the attractiveness of the field to new medical
school graduates is impaired, there will not be a sufficient number
competent surgeons to treat the increasing number of citizens who reach
the age where heart disease is prevalent 5 years from now.
Those decisions will be made on what the rule is that goes into
effect next January. Vague promises of review and refinement during a
``transition'' period will not change this. Surgeons and new medical
school graduates will base their decisions on what they see in the
Federal Register, not on expectations that what they see there isn't
for real and will be changed.
Given the consequences of error--of getting this wrong--we are very
concerned that the intent of Congress that HCFA use actual data and
include all costs is not being followed. HCFA has still gathered no
data on total costs and appears still not to recognize many critical
staff costs.
I. Practice costs of cardiac and thoracic surgeons
As the committee knows, these practice expense allowances were
originally set through a formula based on historical allowed charges--
those essentially set in the free market, paid by commercial insurers.
A resource-based system requires that the real costs of
representative practices be allocated to specific procedures. To do
this, you have to have data on total costs--data which HCFA has not
gathered.
In this absence, we need to look at other information available.
The American Medical Association Socioeconomic Survey shows mean
practice costs for ``other surgeons''--which includes cardiac and
thoracic surgeons--at $252,000 per surgeon. Research we have done--and
we are now undertaking a larger survey to provide more definitive
information--has shown average practice expenses among our specialty of
approximately $244,000.
Present practice cost reimbursement, under the 1998 fee schedule,
for a cardiac surgeon who performs 200 major operations a year, with an
additional 200 consults and another 200 chargeable office visits--a
case load higher than typical--is $259,600 per year--within 6 percent
of our best information on actual costs.
HCFA's June 1997 proposal would have reduced practice expense
reimbursement for a three-vessel bypass to $398; for a partial lung
removal to $280; and for a heart transplant to $620. (These were HCFA's
estimates at that time of the correct allowance for all practice
expenses incurred by the cardiac or thoracic surgeon, not just for the
hours required for the operation and the days of hospitalization, and
all other services provided in the full 90 day global period. For a
heart transplant, these allowances would also have to cover the time of
the transplant coordinator, which often extends to 6 months before the
transplant surgery is performed.)
Total practice expense reimbursement for the cardiac surgeon with
the case load outlined above, under this proposal, would have dropped
to $92,500--to about 38 percent of actual costs.
Practice costs, cardiac surgeon
Practice cost/surgeon (AMA other surgery)..................... $252,000
Present practice expense reimbursement \1\.................... 259,600
Proposed reimbursement \1\.............................. 92,500
\1\ At a case load of 200 major cardiac surgeries, 200 consults, 200
billable office visits.
For comparison, the AMA Socioeconomic Survey shows that the mean
practice expenses for a general family practitioner are $170,400 a
year. Under the HCFA proposal, practice expense reimbursement for a
general family practitioner with a case load of 6,000 office visits a
year (an average of 24 patients a day for 20 minute patient encounters)
would be $170,000 a year--full practice expense reimbursement.
These above comparisons are approximate, and should be refined. The
wide differential in the ratio of actual costs to proposed
reimbursement clearly indicates, however, that the 1997 HCFA proposal
was fatally flawed. Validation of any new proposal against actual
practice costs is essential before any radical changes are made in the
Medicare Fee Schedule. We are pleased that the General Accounting
Office has recommended such sampling to check the validity of HCFA's
estimates.
II. What has HCFA done since passage of the Balanced Budget Act?
Since passage of the Balanced Budget Act, HCFA has held three
meetings with physicians and convened one panel to discuss ways of
allocating indirect costs.
They have probably met the mandate of the Balanced Budget Act that
they ``consult with physician organizations.'' But that is all. No new
data or information have been gathered. We do not know what changes
they intend to make in their methodology, or their means of
extrapolating from the limited, and somewhat uncertain, information
they now have.
The General Accounting Office has confirmed our belief that there
are significant flaws and omissions in HCFA's methodology and that HCFA
has not yet stated how it intends to correct these errors.
HCFA apparently has no intention of collecting information on what
physician's real practice costs are. Without, at a minimum, spot-
checking the validity of the estimates they are now working from (as
GAO has recommended), economists tell us they cannot meet the mandate
of developing a rule based on generally accepted accounting principles.
(Even if it is conceded that the panel estimates on direct costs are an
acceptable starting point, there is no justification for the
manipulations HCFA made to the panel data; nor is there a way to
allocate indirect costs from direct costs, without reliable information
on total costs from which to determine the magnitude of indirect
costs).
HCFA's methodology--starting with estimates (not measurements) of
direct costs, then developing a theoretical ratio of indirect to direct
costs from an overall pool without recognition of differences in this
ratio between specialties, and then allocating the presumed pool of
indirect costs to procedures by formulae rather than data, lacks the
basic grounding in empirical information required. While the subsequent
validation panels have to some degree refined the estimates of direct
costs, these revisions have not cured the basic methodological flaw:
the absence of empirical data.
III. What would happen to access under the HCFA proposal?
At present there are no serious problems for Medicare patients to
access to either general medical or specialty care. This is a balance
that should not be upset casually.
What would be the effect upon Medicare patients with heart or lung
disease under a redistribution of reimbursement from specialty care to
general medical care of the magnitude proposed by HCFA?
The impact of severe reductions in practice expense reimbursement
for cardiac and thoracic surgery should be reviewed in context of
cumulative changes over the last then years. Reimbursement for open-
heart surgery--coronary artery bypass and surgery and other complex
heart procedures--has already been reduced sharply in the last 10
years. The national Medicare average allowed charge for three-vessel
by-pass and graft surgery was $3,781 in 1988; in 1998, it has been
reduced to $2,512. Adjusted for inflation, the allowed charge today is
$1,802. That is, reimbursement for this lengthy and complicated
procedure, where the life of the patient is at risk, has been reduced
34 percent in present dollars; in constant dollars--the real measure--
the reduction is more than 50 percent.
The allowed charge for lobectomy--removal of a part of one lung for
lung cancer or other diseases--has been reduced from $1,654 in 1988 to
$1,071 today--a reduction of 15 percent in present dollars and over 39
percent in constant dollars.
HCFA's 1997 proposal would have reduced the allowed charges for
these procedures by another 32 and 26 percent, respectively.
The cumulative reductions for heart surgery would have been 54
percent in present dollars and 67 percent in constant dollars.
The following table illustrates the reductions which have already
occurred over the 10 years from 1988 to 1998 and the further effect
last year's proposal would have had:
[In current dollars and constant 1988 dollars]
----------------------------------------------------------------------------------------------------------------
CABG x 3 (CPT 33512) Lobectomy (CPT 32480)
---------------------------------------------------
Year Constant Constant
Current 1988 Current 1988
----------------------------------------------------------------------------------------------------------------
1988........................................................ $3,781 $3,781 $1,654 $1,654
1997........................................................ 2,831 2,058 1,518 1,098
1998........................................................ 2,514 1,802 1,420 1,005
June 1997 HCFA proposal (at 1998 conversion factor)......... 1,714 1,230 1,071 768
----------------------------------------------------------------------------------------------------------------
As noted earlier, cardiac and thoracic surgeons do not currently
distinguish between Medicare and other patients. We typically do not
even know the insurance status of the majority of our patients (billing
and pre-authorization are handled by office staff). We treat the
uninsured or underinsured the same as private pay patients. Our
commitment is to treat patients irrespective of their ability to pay.
However, the impact of reductions in reimbursement that even
approach the magnitude discussed above would be substantial. Thirty-one
percent of the practicing cardiac and thoracic surgeons in the United
States are 55 years of age or older. These are the most experienced and
capable individuals in our profession. If a large number of these
surgeons retire, and many are already doing so, the work force may not
be sufficient to treat the anticipated increase in the number of
Americans who are over age 55. (There is no evidence that improvement
in preventive or other non-specialty care is reducing the need for
surgery or other advanced medical procedures. The need is largely age-
driven).
Years of strenuous advanced training are essential in our
profession. The early sacrifices are significant. At these reduced
rates of reimbursement, will the most talented individuals--those both
intellectually acute and gifted with the essential hand coordination--
enter into this profession? What will attract young physicians to this
field if they cannot afford to hire the staff they know is needed to
provide excellent outcomes?
We do not know the answer. We do know that in Canada and in some
European countries, shortages of cardiac surgeons have resulted in
waiting lists for operations which are currently performed in the
United States as soon as the decision is made for surgery and that some
patients die before they are scheduled. The General Accounting Office
is correct in warning that changes in reimbursement of the significance
proposed could affect coverage for Medicare beneficiaries and the
quality of care that physicians are able to provide.
Because of the long lead-time involved in training heart and lung
surgeons, a 4-year phase in of a bad proposal would not prevent the
damage to the specialty of cardiac and thoracic surgery. The incentives
put in place now will determine to a great extent the supply of cardiac
and thoracic surgeons four and 10 years from now.
IV. The use of physician-employed staff in hospitals
Some analyses of practice costs seem to assume that physicians who
practice primarily in a hospital setting have few practice costs. The
assumption seems to be that when a surgeon goes to the hospital, he or
she turns out the lights, puts the telephone on message recording, and
puts the staff on unpaid leave.
The reality, of course, is that our staffs are working in the
office while we are in the hospital. Staff must be there to take calls
from patients, to triage emergency calls, to handle all the pre-
authorization, insurance billing and other administrative work of an
office, at all times. HCFA staff or its research contractors are
welcome to visit without appointment, at our members' offices, at any
time.
One issue which has become contentious in the review of practice
expenses is allocation of the expense of clinical staff employed by
physicians who assist them in the hospital.
Within the last 5 years it has become common for physicians
providing highly-skilled and high intensity critical services such as
heart and lung surgery to employ their own staff to assist in patient
care in hospitals. There are two reasons for this. First, under the
cost-saving pressures of managed care and the hospital DRG payment
system, hospitals have reduced both the number and the skill levels of
hospital staff.
Second, and most important, advances in the technology and the
quality control required for complex surgery have made it more
important than ever that the surgical team function as a coordinated
unit, not as an assemblage of individuals. Surgeons work most
effectively and most safely with nurses and operating assistants who
work with them consistently.
Prospective payment through DRGs has caused hospitals to encourage
early discharge of patients. Thoracic surgeons have worked with their
hospitals to find safe and effective ways to shorten hospital length of
stay which, in the past 8 years, has decreased dramatically for all
patients following heart and lung surgery. However, with earlier
discharge from the hospital, care responsibilities have been shifted
from the hospital to the surgeon's office. Consequently, more nurses
have been hired to maintain postoperative surveillance and contact with
patients and to assist the surgeon during an additional number of
office visits during the early part of the 90 global period. Thus far,
surgeons have absorbed these new practice expenses. The drastic
reductions in practice expense proposed by HCFA will result in the
curtailment of these services and place the quality of care in
jeopardy.
The mortality rate for coronary artery bypass surgery has declined
from 4.5 percent in 1987 to 2.9 percent in 1996, at a time when the
average age of the patients and the severity of their disease and
comorbid factors have increased. The skill and unity of the operating
team is a major factor in obtaining and maintaining quality at this
level.
One issue is accountability; the surgeon is clearly and solely
responsible for the selection, training, and supervision of clinical
staff when they are his staff. Lines of responsibility are more diffuse
if the clinical staff are employed by the hospital. Second is
predictability. This is critical for all surgeons, but notably for
those who, as is common, have operating privileges at more than one
hospital. The surgeon must take his or her own team from one hospital
to the next to maintain quality.
These clinical staff members from the surgeon's team typically work
not only in the operating room, but with the patient in the hospital
delivering both pre and post-operative care. This is particularly
important in the intensive care unit and in the first several days
post-operatively, when the patient must be carefully monitored and the
surgeon notified immediately of any complication.
We do not have data on the number of clinical nurses who work with
our members in hospitals. (We would be willing to survey membership as
part of a private-public data-gathering effort.) Data on the employment
of physician assistants in surgery are, however, available from surveys
of The American Association of Physician Assistants and the Association
of Physician Assistants in Cardiovascular Surgery.
The AAPA has estimated that 1,002 of the 31,300 practicing
physician assistants in clinical practice specialize in cardiothoracic
surgery. A cardiothoracic PA will assist in the care of 180-250
patients a year. This leads to the conclusion that PAs alone (not
counting other clinical staff employed by surgeons) are involved in at
least 200,000 cardiac cases a year.
The APACVS survey shows that 72 percent of the PAs employed in
cardiovascular surgery are employed by solo or group physician
practices. An undetermined number of the remaining 28 percent, who work
in university teaching hospitals, are in actuality employed by the
university clinical practice plan.
Data recently submitted to HCFA from the American College of
Surgeons also show that 71 percent of the cardiac and 62 percent of the
general thoracic practices pay for staff who work with them in non-
office settings.
Data included in the APACVS survey show that virtually all of those
PAs have responsibilities in the operating room. More than 85 percent
have follow-up assignments with those patients in critical care and
other hospital postoperative care as long as these patients are in the
hospital.
This data has been submitted to HCFA and, most recently, to the
General Accounting Office, which has concluded that ``there may have
been a shift in hospital and physician practices that Medicare has not
recognized in its methods for reimbursing nonphysician clinical labor
expenses.'' We urge the Committee to monitor this issue closely, as the
failure to consider these costs in any revision of practice expenses
could have a severe impact on quality.
HCFA several times has noted that there is separate reimbursement
for services provided by PAs as assistants at surgery. This
reimbursement is not, however, available for PAs who work in the 110
teaching hospitals. Even where this reimbursement is available, it
covers only the services in the operating room, not the additional
services pre- and post-operatively. Of course, there is no separate
reimbursement for the nurses or other clinical personnel who also work
with surgeons in the hospital.
The General Accounting Office has raised two relevant issues:
whether some of the work being done by clinical staff represents a
shift of physician work warranting review of work RVU's; and, if
expenses have shifted from hospitals to physicians, whether there
should be a shift of resources from Part A to Part B. We agree that
both of these issues warrant examination. We would encourage a full
reappraisal of the work values for cardiac and thoracic surgery--which
we believe were undervalued by the Harvard School of Public Health, and
will recommend this as part of the next 5-year review.
But recognition that these are real costs of surgical and other
specialty practices should not be obscured by these questions.
Accounting for clinical staff employed by specialists, in the
reallocation of practice costs, does not increase Medicare
expenditures. It only grounds the resource-based revaluation in
reality.
Adequate recognition of the cost of these personnel to physicians
must be recognized. This is a matter not just of equity, but of
quality. We intend to maintain the record of quality which has reduced
mortality in CABG to current levels--we intend in fact to improve
further. We do not believe HCFA should ask us to turn back to standards
of care which we now know are unacceptable.
V. Development of interim values for 1998
It is now obvious that HCFA will not be able to meet the
Congressional directive and the present deadline of May 1998 for
development of a new practice expense proposal using, ``to the maximum
extent practicable, generally accepted accounting principles.'' Any
expectation that it might be possible to meet this requirement through
refinement of existing data should have been dispelled by the inability
of the cross-specialty panel meetings December 15 and 16 to reach
agreement on any point other than this one: that any extrapolations of
indirect expenses should start with specialty-specific data.
The data and information now available is not sufficient to provide
the basis for confidence in any rule which would significantly revise
the present Medicare Fee Schedule. The GAO has outlined problems with
the HCFA methodology and reported--correctly--that HCFA has not yet
developed a plan to correct these deficiencies. In addition to the lack
of data on total costs by specialty, the information from the
validation panels and the cross-specialty meeting has shown
conclusively that the linkage of CPEP data according to the E&M codes
and other revisions to CPEP estimates made in developing the June
proposal were based on assumptions, not data.
We hope that HCFA will recognize and communicate to Congress its
need for additional time to meet the Congressional mandate. This should
be preferable, for all parties, to presenting Congress and the medical
community, in May 1998, with a proposal which clearly does not meet the
statutory mandate.
If Congress and HCFA believe that HCFA should keep to the current
timetable, it is essential that HCFA correct at least the most obvious
flaws in the methodology used and utilize the best data now available--
the AMA Socioeconomc Survey--to validate its assumptions and to develop
interim values which will ``do no harm'' (in the words of Hippocrates.)
The Practice Expense Coalition, of which we are a member, has provided
HCFA with recommendations, prepared by Coopers & Lybrand, to develop
such interim values.
Over the next six months, this AMA data could be supplemented by
limited additional surveying of specialties, such as cardiac and
thoracic surgery, which are not well represented. Limited sampling as a
verification check, as recommended by the GAO, would also be
appropriate.
This is not a difficult or overwhelming task. Coopers & Lybrand has
outlined several options for the methods to be used in allocating
specialty practice costs to individual procedures. These code specific
allocations would need to be weighted by the frequency with which
different specialties use the same code; that is not difficult in an
age of computers.
Questions have been raised whether special modifiers are needed in
some situations; that is a question that could be referred to the AMA
Coding Committee or the Relative Value Update Committee [RUC] but which
need not delay development of an interim rule. We would be pleased to
enter a public-private partnership with HCFA to develop this
information; such a partnership would reduce the need for additional
Federal funds.
We would request that this committee consider a relatively small
appropriation to HCFA targeted to this work, with specific directions
that the agency must, this time, base its analyses on total practice
costs. The Practice Expense Coalition has asked Coopers and Lybrand to
develop a specific recommendation for the costs of this additional
work, which we will share with this committee. HCFA should be directed
to carry out this work within the next twelve months.
Unless Congress chooses to extend the present deadline, an interim
proposal would be required while HCFA does this work. We believe HCFA
could readily develop an interim proposal, based on the AMA SES data,
without need for additional funds.
I noted above that the HCFA proposal of 1997 would have reimbursed
an active cardiac surgeon for only 38 percent of actual costs.
We recognize that the resource-based relative value schedule, under
budget neutrality, will reimburse physicians for less than 100 percent
of their costs. But everyone accepts that the reimbursement must be
relative among specialties.
We do not know--HCFA may know but has not told us--how practice
expense reimbursement would relate to total practice costs for all of
medicine (or, in other terms, what budget neutrality would be for all
specialties treated equally). But even if the correct budget neutrality
factor is as low as 75 percent, the HCFA proposal is off by a factor of
two to one.
Given the impact of any mistaken proposal, the limitations of the
data now being used, and the need (identified by the GAO) for
improvements in methodology, we believe that Congress should direct
HCFA to limit the final impact of any interim proposal (calculated as
fully implemented) to no more than 10 percent of the allowed charge for
any procedure.
CONCLUSION
We recognize the difficulty and complexity of the tasks facing HCFA
in developing a new practice expense proposal and in refining other
components of the fee schedule to provide equity and justice, and to
maintain the quality of medical care, particularly as this pertains to
highly-advanced specialty care. The current practice expense proposal,
compounding the other faults of the RBRVS system, would clearly lead to
marketplace distortions within medicine, negatively affecting Medicare
patients. Surgeons cannot practice if their expenses, including those
of malpractice insurance, are not met. Practicing physicians will be
driven from practice and fewer medical students will choose the
additional years of training needed to qualify for advanced surgical
practice. With the continued aging of our population, the need for
specialty care will not diminish; primary care, however well practiced,
will not prevent the inevitable diseases of aging. Reduced access to
specialty care is not the solution to the problem.
The Society of Thoracic Surgeons and the American Association for
Thoracic Surgery pledge to work cooperatively with both HCFA and the
Congress as we address the complex issues of providing quality health
care to our aging population.
BUDGET NEUTRALITY
Senator Specter. How do you think we should do this, Dr.
Gardner?
Dr. Gardner. I think the question has to be asked as to
whether budget neutrality in this area is an appropriate
position to take, especially at a time when we are dealing with
a balanced budget, sir.
Senator Specter. Budget neutrality is indispensable if you
are going to balance the budget, unless you take it from some
place else.
Dr. Gardner. Well, I think the question is whether we are
willing to run the risk of slowing or stopping the advances
that we have made over the last 25 to 50 years in American
medicine by not paying for the advances and providing for the
access to care that our increasingly aging population is
expecting.
Senator Specter. When you talk about advances, you are
talking about family practitioners versus cardiologists? I
agree with you Dr. Gardner, we should not have to play one
group off against another, but the chore is how you do it.
I am impressed with your compliment of Dr. McCann, since he
is one of the authors here. We will get to that in a moment or
two.
A lot of people have been waiting for me in the hall, and
on this occasion I will only be gone for not more than 5
minutes and I regret the interruption, but this is more of the
roller skate job. I will be right back.
[A brief recess was taken.]
STATEMENT OF ALAN R. NELSON, M.D., EXECUTIVE VICE
PRESIDENT, AMERICAN SOCIETY OF INTERNAL
MEDICINE
Senator Specter. We will now proceed to hear from Dr. Alan
Nelson.
Dr. Nelson. Thank you, Mr. Chairman. ASIM appreciates the
leadership shown by this subcommittee in supporting the
practice expense provisions reported out of the committee last
year. We are especially pleased that the Balanced Budget Act of
1998 included the Finance Committee's downpayment provision,
which increased the practice expense provision for office
visits beginning January 1 of this year.
The BBA also included the Senate Finance Committee's
language that mandated a review by the GAO of HCFA's
methodology. The BBA directed HCFA to increase consultation
with physicians, and the agency has met that requirement.
HCFA is also meeting the BBA's mandate that it consider
actual cost data to the maximum amount practicable.
In March 3 testimony to the Ways and Means Committee the
GAO reported, and I quote, ``HCFA's general approach for
collecting information on physician practice expense was
reasonable, and HCFA's use of expert panels is a reasonable
method for estimating the direct labor and other direct
practice expenses.''
The GAO also found that the cost accounting methodologies,
mail surveys and onsite studies of actual cost data from
physician practice, all of which have been proposed by some as
alternatives to the expert panel approach, have, and I quote,
``practical limitations that preclude their use as reasonable
alternatives to the HCFA's use of expert panels.''
Now, this does not mean that the expert panel data are
perfect, of course. HCFA found that it was necessary to make
some adjustments to the data, including application of the
statistical linking formula to reduce variations in the panel's
estimates of labor costs. Without such adjustments, HCFA found
that the labor costs of office visits and other evaluation and
management services would be undervalued compared to most other
services.
The GAO agreed with the intent and desirability of HCFA's
adjustments, while at the same time noting that HCFA's linking
formula might be improved.
None of the recommended improvements would cause what the
GAO termed, quote, ``the needless costs and further delays that
would be required if HCFA started over with a different
methodology.''
The GAO also recommends HCFA monitor the impact of its rule
on access, and we agree, but it should not be assumed that the
overall impact on access is likely to be negative. In many
parts of the country Medicare payments now barely cover the
practice expense costs incurred by office-based primary care
physicians and, as a result, some Medicare patients may not be
able to easily find a new doctor if their previous doctor moves
or retires.
Resource-based practice expenses by raising payments for
office-based primary care services may well make it easier for
internists to accept new Medicare patients into their practices
and will assure a wider range of choices for Medicare
beneficiaries.
Even as we debate the methodologic issues, it is important
to recall why Congress mandated resource-based practice
expenses in the first place. Resource-based practice expenses
were being developed because Congress concluded that Medicare's
current charge-based practice expense payments are not fair.
Even with the welcome 1998 downpayment that increased
practice expenses for office visits, an internist would still
have to provide 30 midlevel office visits requiring at least 7
hours of face-to-face contact with patients to obtain the
practice expense payments that Medicare allows when an
orthopedic surgeon repairs a single lower leg fracture, and the
same internist would have to provide 53 office visits,
requiring at least 12 hours with patients, to receive the
practice expense payments that Medicare now allows when an
ophthalmologist repairs a detached retina.
Such disparities are especially surprising, given the fact
that the hospital bears a substantial amount of the direct cost
when a surgical procedure is provided in a hospital operating
room while the internist is paying 100 percent of the office
expense incurred while providing care to patients in the
office.
The GAO's verdict on HCFA's approach is clear. HCFA has met
the BBA's requirements. The basic methodology is reasonable.
Further refinements will give physicians an even higher degree
of confidence in the data. There are no practical alternatives
that can produce better data.
PREPARED STATEMENT
ASIM believes that HCFA will be able to produce resource-
based practice expenses for implementation on January 1 of next
year that will more accurately reflect relative differences in
the actual cost of physician services than the current charge-
based relative value units. As a result, Medicare payments will
also be far more fair than they are today.
Senator Specter. Thank you very much, Dr. Nelson.
[The statement follows:]
Prepared Statement of Dr. Alan R. Nelson
INTRODUCTION
I am Alan R. Nelson, MD, Executive Vice President of the American
Society of Internal Medicine (ASIM). ASIM represents physicians who
specialize in internal medicine, the nation's largest medical specialty
and the one that provides care to more Medicare patients than any other
specialty. I am pleased to provide the Senate Appropriations Labor HHS
Subcommittee with internists' perspectives on the current state of
HCFA's efforts to develop resource-based practice expenses (RBPEs). Our
testimony will address the following questions:
Is HCFA meeting the spirit and intent of the provisions in the
Balanced Budget Act of 1997 (BBA) relating to practice expenses?
Are the basic process and methodology being used by HCFA for
developing RBPEs fundamentally sound, and if so, are there improvements
that still should be considered by HCFA as it develops the proposed
rule?
My testimony will refer to the findings and recommendations of a
report by the General Accounting Office (GAO) on HCFA's methodology for
developing physician practice expense payments, which was released on
February 27. ASIM's testimony also refers to recommendations that the
Medicare Payment Advisory Commission (MEDPAC) has made in its March 1
report to Congress.
ASIM's testimony today will explain why we believe that:
HCFA is meeting the spirit and intent of the BBA relating to
practice expenses, particularly the requirements that it consult with
physicians and consider data on actual costs to the maximum extent
practicable.
HCFA's basic methodology and data are valid, although some
improvements are appropriate.
It is not necessary for HCFA to start over and use an entirely
different approach to develop resource-based practice expenses, which
would needlessly increase costs and lead to further delay.
The GAO concurs with ASIM on each of these conclusions.
requirements of the balanced budget act of 1997
The Balanced Budget Act of 1997 directs the Secretary of the
Department of Health and Human Services to:
Phase-in implementation of resource-based practice expense (PE)
payments over four years, beginning on January 1, 1999;
Use generally accepted accounting principles and ``actual cost''
data to the ``maximum extent practicable'';
Consult with physicians and other experts.
Publish a new proposed rule and new practice expense relative value
units (PE-RVU's) by May 1, 1998, with a 90 day public comment period;
Begin moving payments to resource-based practice expenses,
effective on January 1, 1998, by implementing a ``down payment'' that
increased practice expense RVU's for undervalued office visits and
reduced them for procedures whose current PE-RVU's are overvalued
(based on a comparison of PE-RVU's to work RVU's).
It also directed the General Accounting Office (GAO) to submit a
report to Congress, within six months of enactment of the BBA, on the
data and methodology being used by HCFA to develop the new proposed
rule.
ASIM supported the practice expense provisions of the BBA. As you
will recall, ASIM testified last year in support of two key provisions
that originated in the Senate Finance Committee version of the BBA: the
GAO study of practice expenses and the ``down payment'' for office
visits. We thank the members of this subcommittee for your support of
those provisions.
CONSULTATION WITH PHYSICIANS
The record shows that HCFA has fully met the law's requirements
that it consult with physicians and other experts on the development of
the proposed rule. The actions that HCFA has taken since enactment of
the BBA include the following:
--A 60 day comment period was provided on a HCFA notice of intent to
issue a proposed rule on practice expenses, published in
October, 1997. The notice invited comments on how to use
generally accepted accounting principles, utilization rates of
equipment, and actual cost data in the development of the
proposed rule.
--The RVS Update Committee (RUC), which consists of specialty society
representatives and the American Medical Association (AMA), was
asked by HCFA in September of last year to participate in a
``mock'' validation panel. This provided specialty societies
with an opportunity to advise HCFA on how to structure the
validation process, and helped them prepare for the subsequent
validation panel meetings. The RUC had another opportunity to
question HCFA staff on methodological issues relating to the
development of the proposed rule at its February, 1998 meeting.
--Specialty societies nominated physicians, practice administrators,
and other experts to participate in panels that met this past
Fall to validate the data on direct practice expenses.
--Specialty societies, accountants, health services researchers, and
other experts participated in a conference held on November 21
that discussed how to apply generally accepted accounting
principles to the development of indirect PE-RVU's. (Indirect
costs are the general costs of running a physician practice
that cannot be specifically allocated to a particular
procedure).
--Specialty societies nominated physicians to serve on a cross-
specialty panel that met in December to advise HCFA on how to
develop direct practice expense RVU's for a list of high
volume, high cost physician services.
--HCFA staff have regularly solicited advice from specialty
societies, the AMA, and others on methodological issues
relating to development of the proposed rule.
It should be noted that the above actions to solicit the views of
physicians are in addition to the extensive consultation that occurred
prior to enactment of the BBA. The physicians, practice administrators,
nurses and other experts who were selected to serve on the Clinical
Practice Expert Panels (CPEP's) that developed the initial direct PE-
RVU's were selected from nominations made by specialty societies.
Specialty societies and the AMA were given an opportunity to review
preliminary data from HCFA as early as January, 1997. They were also
given an opportunity to submit comments during a 60 day comment period
on the proposed rule on RBPEs that was published in June 1997.
Physicians were also consulted by the General Accounting Office as
it prepared its report to Congress on HCFA's data and methodology. ASIM
was invited on three separate occasions to meet with the GAO to discuss
internists' views on the process, data and methodology being used by
HCFA. The AMA and other specialty societies were given similar
opportunities. Since HCFA will likely give great weight to the GAO's
recommendations, the GAO report provided another vehicle for physicians
to have input into HCFA's decision-making.
It should also be noted that physicians will have another
opportunity to comment on the new proposed rule and PE-RVU's that will
be published by May 1, 1998. It is likely that the 1998 PE-RVU's will
also be published as interim PE-RVU's that will be subject to yet
another comment period. The BBA also requires that HCFA make further
refinements in each of the transition years, which will provide
physicians with additional opportunities to advise HCFA on any
improvements that are needed. The RUC will soon be developing a
proposal to HCFA to participate in the refinement process, which if
accepted by HCFA, will provide an ongoing means for HCFA to consult
with the medical profession on refinements of the PE-RVU's.
By the time that the PE-RVU's begin to be implemented on January 1,
1999 physicians will have had far more opportunity to advise HCFA on
data and methodology than was the case when resource-based work RVU's
began to be implemented on January 1, 1992. As a result, the medical
profession should have a higher degree of confidence that their views
were considered in developing the PE-RVU's than may have been the case
when the resource-based relative value scale (RBRVS) for physician work
was first implemented. (It should be noted that many in the medical
profession expressed the same kinds of concerns about implementation of
the RBRVS that Congress is now hearing about practice expenses, but
that over time the RBRVS has become almost universally accepted by
physicians). The subsequent refinements that will occur during the four
year transition should give the profession an even higher degree of
confidence in the final PE-RVU's that will be implemented on January 1,
2002.
USE OF ACTUAL COST DATA AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
ASIM also believes that HCFA is in the process of fully meeting
Congress' intent that it consider use of actual cost data and generally
accepted accounting principles to the maximum extent practicable. As
noted previously, HCFA solicited comments on actual cost data,
equipment utilization rates, and generally accepted accounting
principles in its October notice of intent to issue a proposed rule.
The November 21 conference on indirect costs invited further discussion
of this issue. Witnesses who provided comments at the conference
offered a wide range of opinion on the extent by which the data being
used by HCFA was consistent with generally accepted accounting
principles, with several of the witnesses concluding that HCFA's
approach is consistent with generally accepted accounting principles.
HCFA is also using actual cost data from the CPEP's and validation
panels. Data from the AMA's Socioeconomic Monitoring Survey (SMS) can
also be used to determine specialty-specific proportions of direct and
indirect practice expenses. Independent sources of data on the pricing
of labor and equipment costs are also being used by HCFA to develop the
direct PE-RVU's.
Despite HCFA's efforts to consider data on actual costs, some
physician groups have repeatedly argued that HCFA's data are so
fundamentally flawed that the agency needs to start over and conduct a
new cost accounting analysis of physician practices, either through on-
site studies or through a survey process. They claim that the CPEP and
validation panel process was based on speculation, not actual cost
data, and that the requirements of the BBA will not be satisfied unless
HCFA undergoes a new study of the actual costs of physician practices.
ASIM firmly believes, however, that with some improvements, HCFA's
data and methodology will prove to be valid, and that it is not
necessary or desirable to conduct on-site studies or surveys of
physician practice costs, except possibly on a limited basis as part of
a refinement process.
ACCEPTABILITY OF HCFA'S BASIC DATA, METHODOLOGY
The GAO concurs that HCFA's basic methodology is fundamentally
sound.
The GAO report specifically concluded that the use of expert panels
is an acceptable method for estimating direct labor and other direct
PEs. It also concluded that alternative methods (including new surveys
of physician practice costs or an activity-based accounting
methodology) have their own practical limitations that preclude their
use in developing the proposed rule.
The GAO's report dismissed the argument that the CPEP's were not
representative of the physicians that provided the services whose
direct costs were being estimated, or that the panel members engaged in
``best guesses'' that had no factual validity. The GAO found instead
that many CPEP participants reviewed practice cost data on their own
practices prior to the CPEP's and came to the meetings prepared to
discuss the issues, using actual cost data, rather than basing their
estimates on pure speculation.
The GAO also concluded that mail out surveys, use of existing data,
and on-site gathering each has ``practical limitations that preclude
their use as reasonable alternatives'' to the expert panel approach.
The limitations it saw in the other methods include low or biased
response rates and high cost (the GAO noted that it cost the PPRC
$135,000 to survey one single multi-specialty practice). The report
also specifically says that activity-based accounting, one of the
alternatives favored by critics of HCFA's current methodology, ``does
not provide the specificity needed to adjust the MFS'' because it
allocates costs to broad categories of codes, not specific procedures.
Most importantly, in reference to cost accounting surveys and other
approaches that have been recommended by the Practice Expense
Coalition, the GAO report stated that ``starting over and using one
these approaches as the primary means for developing direct PE
estimates would needlessly increase costs and further delay
implementation.''
ASIM agrees with the GAO that the CPEP process is an acceptable
method of developing labor and other direct practice expenses, although
some additional work still must be done to validate the CPEP (and
validation panel) estimates and to link and standardize the labor cost
estimates across families of services. We agree with the GAO that
starting over and using mail surveys of physician practices, on-site
cost accounting analyses, or activity-based accounting would needlessly
increase costs and further delay implementation.
USE OF SURVEY DATA IN FUTURE REFINEMENTS
The GAO report suggested that gathering data from a limited number
of practices could be useful in pinpointing problems that should be
addressed during the refinement process, and in validating some of the
CPEP results for key procedures. It also suggested that gathering such
data might be useful in the subsequent refinement processes.
It may be appropriate to gather data from a limited number of
physician practices as one source of information to be used in future
refinements. A poorly designed survey could be prone to the same
limitations, such as poor response rates and under-representation of
small primary care practices, that led the GAO to preclude using such
data in the development of the proposed rule, however. The CPEP data
should not be thrown out based on data from a survey of a limited
number of practices on the costs of a few procedures.
The GAO's findings on the acceptability of the CPEP process, and on
the practical limitations of alternative approaches, should put to rest
the argument that HCFA has failed to meet the BBA's mandate that it
consider actual cost data and generally accepted accounting principles
to the ``maximum extent practicable.'' The discussion need no longer be
over whether an entirely new approach, requiring further delay, is
needed. Rather, the discussion now should be directed to what
improvements in HCFA's methodology are appropriate, as well as on how
the refinement process should be conducted.
SUGGESTED IMPROVEMENTS IN HCFA'S METHODOLOGY, DATA
Linkages
One of the most important--and potentially controversial--
recommendations in the GAO report concerns the formula used by HCFA to
link the labor costs of physician services. The GAO suggests that HCFA
consider other approaches to the statistical regression formula
proposed in the June 18 notice of proposed rule making.
HCFA's rationale for applying the regression formula was that the
relative relationships within the CPEP's are generally correct, but the
absolute time estimates need normalization. HCFA noted that absolute
numbers within some of the CPEP's may have reflected duplicate counting
of tasks that can be performed simultaneously, and that different
CPEP's may not have calculated absolute labor costs in the same manner.
As a result, HCFA observed that there was considerable variation in the
CPEP absolute estimates for the clinical and administrative staff
times, including variation in the estimates for services that were
evaluated by more than one CPEP.
ASIM believes that it is essential that such variation be
corrected. To illustrate, if one CPEP came up with absolute estimates
of clinical and administrative staff times that are 20 percent higher
than those derived by another CPEP for services that in fact involve
comparable labor costs, the result of using the ``raw'' CPEP
estimates--without statistical linking--would be that the services
rated by the former CPEP would be overvalued compared to those rated by
the other panel. In other words, since the purpose of a relative value
scale is to place all the relative value units on a common relative
scale, use of the ``raw'' CPEP estimates would not produce a common
scale of the costs of providing one service compared to another as the
law requires.
More specifically, with the exception of the panel that evaluated
evaluation and management services, the CPEP's generally came up with
absolute labor costs estimates that were too high, especially compared
to those for E/M services. HCFA implicitly recognized this, since the
regression formula had the effect of lowering the labor cost estimates
of non-E/M services.
The GAO report accurately quotes ASIM as believing that linking is
appropriate because some of the CPEP's uniformly assigned higher labor
time than the E/M CPEP. The GAO agrees that linking is desirable. The
report suggests, however, that HCFA's regression formula may have
created anomalies that are not supported by the CPEP data. As an
alternative to the regression formula, the GAO noted that HCFA is
looking at assigning uniform administrative staff times across broad
categories of codes, such as the time required to schedule an
appointment. It also suggests that shifting billing costs into the
indirect cost formula may reduce the need for statistical linking.
ASIM is not opposed to looking at an alternative to the regression
formula, if there are better approaches to establishing appropriate
linkages between the labor costs of E/M services and non-E/M services.
However, we believe that any alternative linking method must correct
the continued problem of non-E/M codes having excessively high
administrative cost estimates compared to E/M services. The validation
panels, and the cross specialty panel meeting that HCFA held in
December, did not correct the misalignment of the labor costs of non-E/
M services compared to E/M services. Therefore, it is essential that
HCFA establish an appropriate linkage in the new proposed rule. The GAO
report makes it clear that it too agrees that linking is desirable,
notwithstanding its criticisms of the regression formula.
Although it is unlikely that Congress would want to get involved in
the technical deliberations on linkage, Congress needs to be aware of
the impact this issue will have on whether or not the new proposed rule
satisfies the law's intent that practice expenses be based on the
resources involved in providing each physician service. If an
alternative to the statistical linking formula perpetuates the over-
valuation of the clinical and administrative labor costs of in-hospital
surgical procedures compared to office visits and other E/M services,
the new practice expense payments will still not accurately reflect the
resource costs of providing one physician service compared to another.
ASIM is committed to working with HCFA on developing an approach
that will assure that the labor costs of non-E/M services are
appropriately aligned with those of non-E/M services. If there is a
better way to achieve this than the statistical formula proposed in
June, then we have no objection to considering such an alternative. But
without knowing what alternative may be offered by HCFA, it is
premature to conclude that statistical linking is not necessary.
Scaling
The GAO supports HCFA's decision to scale the CPEP data to
independent data from the AMA's Socioeconomic Monitoring Survey.
Scaling means adjusting the proportion of direct costs from the
CPEP data so that they are consistent with the AMA SMS data. The SMS
data suggests that the direct costs can be divided as follows: labor
cost, 73 percent; medical supplies, 18 percent; and medical equipment,
9 percent. The CPEP estimates, in aggregate, came up with different
shares of direct costs: labor, 60 percent; medical supplies, 17
percent; and medical equipment, 23 percent. Thus, HCFA adjusted the
CPEP expenses for labor, medical supplies and equipment by scaling
factors of 1.21, 1.06, and 0.39 respectively.
Eliminating scaling would tend to help specialties with a higher
proportion of equipment costs, and disadvantage those with a higher
proportion of labor costs. Since the direct expenses of primary care
physicians typically have high proportions of labor costs, and lower
proportions of equipment costs, than surgical and medical specialists,
elimination of scaling likely would disadvantage internists and other
primary care physicians.
Indirect costs
The GAO report recommends that HCFA consider using specialty-
specific adjustment factors to determine the ratio of direct and
indirect costs; and consider moving administrative costs into the
indirect cost category. It also concludes that the basic approach of
allocating indirect costs based on physician work RVU's, direct PE
RVU's and malpractice RVU's, as proposed by HCFA, is acceptable. Some
physician groups had argued that the indirect costs should not be
allocated using such a ``proxy'' formula. ASIM agrees with the GAO
report's conclusion that HCFA's method for allocating indirect costs
based on the proposed formula is acceptable.
We do not have any conceptual problems with moving billing and
other administrative costs into the indirect cost category, but we
believe that this would necessitate treating those costs differently
than would be the case if they were allocated based on the physician
work+direct cost+malpractice RVU formula. Use of the formula used to
determine other indirect practice expense would inappropriately allow
surgical procedures with higher work RVU's to get substantially higher
billing costs than E/M services, even though the costs of billing for a
surgical procedure are not much different than for an office visit.
ASIM supports use of specialty-specific ratios of direct to
indirect costs, provided that there are adequate and valid data for
each specialty to accurately calculate specialty-specific ratios.
Use of physician nurses
The GAO report concluded that HCFA appropriately disallowed nearly
all expenses related to staff that accompany physicians to the hospital
since there is no available evidence that these expenses are not
already being reimbursed or are a common practice.
The American College of Surgeons (ACS) and the Practice Expense
Coalition, which represents surgical groups and medical specialties
that expect to experience reduced payments under RBPEs, have argued
that surgeons often bring their nurses into the hospital and that these
costs should be reimbursed by HCFA. The GAO indicated that HCFA is
reviewing limited data it has received on how widespread this practice
is, and that HCFA may reconsider its policy after review of such data.
ASIM recommends that HCFA independently validate any such evidence, to
determine if it is the usual practice for a typical Medicare patient,
before agreeing that such expenses should be allowed.
In testimony that was given on March 3 to the health subcommittee
of the Ways and Means Committee, the ACS and Practice Expense Coalition
cite a survey by the Lewin group that supposedly supports their
contention that it is a common practice in some specialties for
surgeons to bring their own nurses into the hospital. Their own data,
which were appended to the ACS statement, do not provide any credible
evidence to support this claim, however. This is because the response
rate to the Lewin survey was so low that it is impossible to base
Medicare policy on numbers that clearly have no statistical validity.
For instance, the finding that 50 percent of ophthalmologists pay for
staff in out-of-office settings was based on two respondents from that
specialty, one of whom reported that he or she paid for staff in out-
of-office settings. The 71 percent of adult cardiac surgeons that
allegedly use their staff in the hospital setting was based on
affirmative responses from only 10 cardiac surgeons, out of 14 total
respondents from that specialty. In every other specialty that was
surveyed, fewer than 10 respondents per specialty indicated that they
paid for staff in out-of-office settings. In no case did more than 15
physicians in any given specialty respond to the Lewin survey. (The ACS
and PE Coalition also did not indicate what the response rate was to
the Lewin survey, i.e., they did not report how many physicians in each
specialty were surveyed, only how many responded. Without knowing the
response rate, the results cannot be viewed as being statistically
valid).
Interestingly, even if one were to accept the Lewin ``data'' as
being statistically valid, in four of the surveyed specialties only a
third or fewer respondents indicated that they pay for staff in out-of-
office settings, which suggests that this is not the typical practice
in those specialties. By definition, a resource-based practice expense
relative value scale should be based on what is typical, not what is
atypical.
If the Lewin data are the best data that are available on this
issue, clearly HCFA was correct in disallowing expenses for physician
staff in out-of-office settings.
GAO RECOMMENDATIONS
Based on its overall analysis and findings, as discussed previously
in this testimony, the GAO report concludes with several
recommendations. ASIM's specific reaction to each recommendation is as
follows:
1. HCFA should use sensitivity analyses to test the effects of (1)
the limits HCFA placed on the panel's estimates of clinical and
administrative labor and (2) HCFA's assumptions about equipment
utilization. Where HCFA's adjustments or assumptions substantially
alter the rankings and RVU's of specific procedures, HCFA should
collect additional data to assess the validity of its adjustments and
assumptions, focusing on the procedures most affected.
ASIM generally concurs with this recommendation. It is not clear,
however, what additional data the GAO believes should be collected to
assess the validity of HCFA's assumptions. It is also important to
reiterate that GAO supported the intent of HCFA's adjustments.
2. Evaluate (1) classifying the administrative labor associated
with billing and other administrative expenses as indirect expenses (2)
alternative methods for assigning indirect expenses and (3) alternative
specifications of the regression model used to link the panels'
estimates. HCFA should determine how changes in one aspect of the
methodology, such as reclassifying some labor from direct to indirect
expenses, affect other aspects of the methodology, such as the
specification of the regression model to link the panels' estimates of
administrative labor and the method used to allocate indirect expenses.
ASIM generally concurs with this recommendation. We have some
concern, however, about using the current indirect cost allocation
formula to determine billing costs, should those costs be shifted into
the indirect cost category. We support looking at alternative
specifications for the regression (linking) formula, provided that any
change in the linking methodology address the misalignment of labor
costs of non-E/M services compared to E/M services. Elsewhere in its
report, the GAO concluded that linking is not only desirable, but that
``such a linking regression may be appropriate for use in developing
adjustments to the CPEP data for practice expense RVU's.'' (page 47 of
the GAO report).
3. Determine whether changes in hospital staffing patterns and
physicians' use of their clinical staff in hospital settings warrants
adjustments between Medicare reimbursements to hospitals and
physicians. Similarly, HCFA should determine whether physicians have
shifted tasks to nonphysician clinical staff in a way that warrants
examining the physician work RVU's
We believe that any data on use of physicians' nurses must be
independently validated by HCFA before changes are made to reflect
those costs in the physician PE-RVU's. As noted previously in this
statement, the data that was submitted by surgical groups to support
the contention that this is a widespread practice was based on
responses of fewer than 15 physicians in any given specialty (and as
few as two in one specialty). Such data are not sufficient to support a
decision by Medicare to allow these expenses. We agree that changes in
staffing patterns may have reduced the physician work RVU's for some
surgical procedures (in cases where the nursing staff are providing
services that in the past were provided by the surgeon).
4. Work with physician groups and the AMA to develop a process for
collecting data from physician practices as a cross check on the
calculated practice expense RVU's, and to periodically refine and
update the RVU's.
ASIM generally concurs, with the caveat that survey data to
validate the PE-RVU's may be biased by poor response rates and other
problems that the GAO identified with a survey process.
5. HCFA should monitor the impact of RBPEs on access, focusing on
procedures with the largest cumulative reduction, and consider any
access problems when making refinements to the practice expense RVU's.
ASIM concurs that the impact on access should be monitored.
Improvements in access to primary care services should also be
monitored.
APPLICATION OF THE ``DOWN PAYMENT'' TO THE TRANSITION YEARS
The BBA began the process of moving payments in the direct of
resource-based payments, by mandating a ``down payment'' in 1998 that
improved the practice expense RVU's for office visits, while lowering
them for some procedures. The legislative history of this provision,
which originated in the Senate Finance Committee but was also accepted
by the House conferees, shows that the intent was to increase the PE-
RVU's of office visits in 1998 as a first step toward the expected
increases that will occur when RBPEs are implemented on January 1,
1999. Congress clearly intended for the PE-RVU's, as adjusted by the
down payment, to be used in the subsequent years of the transition that
begins in 1999 (i.e. the down-payment adjusted PE-RVU's would be
blended with the resource-based PE-RVU's). Since other provisions in
the BBA postponed implementation of RBPEs for one year (followed by an
additional four year transition) the down payment was viewed by
Congress as being an essential first step to helping physicians whose
practice expense payments for office visits are undervalued.
In its notice of intent to issue a rule, HCFA indicated that the
1998 PE-RVU's, as adjusted by the down payment, would be the basis for
the subsequent blended transition. Some physician groups are now trying
to influence HCFA to re-interpret the law in such a way as to apply the
down payment only to the 1998 PE-RVU's. They argue that the charge-
based RVU's, which would be blended with the resource-based PEs
beginning in 1999, should revert back to the 1997 PE-RVU's that were in
effect prior to the down payment mandated by the BBA.
ASIM strongly opposes any such re-interpretation of the law and
congressional intent. If HCFA agreed to apply the down payment only in
1998, but not the subsequent transition years, this would not only
violate congressional intent, but would break faith with the members of
ASIM and other primary care groups that supported the compromise on
practice expense that was adopted last year. (We accepted a delay in
implementation and a four year transition, conditioned on the
requirement that HCFA begin making improvements in 1998 in PE payments
for office visits, with the understanding that such improvements would
carry into the transition years). It will also re-open the divisive
debate in Congress and within the medical profession on an issue that
Congress intended to settle last year. Finally, it could have the
effect of raising PE payments for office visits in 1998, then lowering
them in 1999--a ``ping pong'' effect that makes no rational sense.
The March 1 report to Congress of the Medicare Payment Advisory
Commission (MEDPAC) supports ASIM's interpretation of the down payment
provisions. Without expressing an opinion on this issue, MEDPAC
factually reports that:
``The $390 million limit on reallocation of practice expense
payments to office visits [from the down payment provisions] applies to
1998 only. Since 1998 practice expense values will be used during the
transition to resource-based practice RVU's, the adjustment to practice
expense RVU's required by the BBA will affect payment rates throughout
the transition, from 1999 through 2001.'' (Source: Medicare Payment
Advisory Commission, Report to the Congress: Medicare Payment Policy,
March 1998, Volume II, p. 98; emphasis added by ASIM).
It must be remembered why Congress mandated resource-based practice
expenses in the first place, and why it decided to begin the process of
making improvements--through the down payment--in 1998. Congress
concluded--correctly--that the historical charge basis for determining
practice expense payments undervalued office-based services. Even with
the ``down payment'' that increased practice expense payments for
office visits, an internist would have to provide 81 mid-level
established patient office visits--requiring over 20 hours in face-to-
face contact with patients--before he or she would receive the practice
expense payments that Medicare allows for a single coronary bypass. The
same internist would have to provide 30 mid-level office visits--
requiring at least seven hours of face-to-face contact with patients--
to obtain the practice expense payments that Medicare allows for
treatment of a lower leg fracture. An internist would have to provide
53 office visits--requiring at least twelve hours with patients--to
receive the practice expense payments that Medicare now allows when an
ophthalmologist repairs a detached retina. Such disparities are
especially surprising, given the fact that the hospital bears a
substantial amount of the direct costs when a surgical procedure is
provided in a hospital operating room, while the internist is paying
100 percent of the office expenses incurred while providing care to
patients. Even allowing for the indirect costs incurred by surgeons in
keeping their offices running when they are in the hospital and pre-and
post-operative office visits, it defies logic to suggest that the
practice expenses of surgical procedures done in the hospital are so
much higher than those incurred by office-based internists.
The fact is that for many office-based services, Medicare payments
now barely cover the costs of providing those services. Improved
payments for the practice expenses of office visits and other
undervalued services will therefore help improve access for those
services. The down payment was a good first step to correcting the
existing inequities, and Congress should not go along with any attempt
to reverse the progress that is being made.
ASIM does not believe that it will be necessary for Congress to
enact legislation to clarify the intent of the down payment provisions,
since we believe that the intent of the BBA provisions are clear. But
if this issue is re-opened by HCFA, then we will urge Congress to step
in and enact a technical correction that makes it clear that the 1998
PE-RVU's, as adjusted by the down payment, will apply in the transition
years.
PAYMENTS FOR PROCEDURES PERFORMED WITH AN OFFICE VISIT
MEDPAC recommends that HCFA not adopt its proposal to reduce
payments for non-surgical procedures provided in conjunction with an
office visit or other E/M service. ASIM strongly concurs with the
MEDPAC's recommendation. HCFA's proposal to reduce PE-RVU's for such
procedures by 50 percent would result in payments that do not reflect
the resource costs of providing each procedure. There is no basis for
HCFA to arbitrarily assume that the costs of providing procedures in
conjunction with an E/M service are reduced by 50 percent from the
costs of the original procedure.
VOLUME-INTENSITY OFFSET
MEDPAC also opposes HCFA's proposal to include a volume and
intensity adjustment--otherwise known as a behavioral offset--in its
calculations of the PE-RVU's. In its June 18, 1997 propose rule, HCFA
stated that it intended to assume that 50 percent of the reductions in
payments for specific procedures will be offset by an increase in
volume and intensity. The effect of this assumption is to increase the
amount of reductions for some procedures, and reduce the expected gain
from others. ASIM agrees with MEDPAC's view that HCFA's experience with
implementation of the RBRVS does not support the need for such a volume
and intensity adjustment. Further, MEDPAC argues--correctly--that the
sustainable growth rate for physician services, also mandated by the
BBA, already corrects for any increase in the volume and intensity of
physician services. ASIM strongly urges Congress to advise HCFA that
application of a volume and intensity offset to the PE-RVU's is
inconsistent with the requirement that resource-based practice expenses
be implemented in a budget neutral manner.
PUBLIC-PRIVATE PARTNERSHIP
The Practice Expense Coalition has recommended, as an alternative
to HCFA's methodology, a so-called public-private partnership that
would assign PE-RVU's to services using a cost-accounting methodology
developed by Coopers and Lybrand under contract to the coalition. As we
understand the coalition's proposal, PE-RVU's would be determined by
determining the total costs of practices on a specialty-specific basis,
based on the AMA SMS data, and then allocating those total costs to
specific codes billed by that specialty using a cost-accounting
methodology.
This alternative would not be acceptable to ASIM. For one thing, we
do not think it is reasonable to expect that a coalition of specialties
with a vested interest in the outcome of a study can enter into a
partnership with HCFA that would produce unbiased results. Also, we
believe that the SMS data on absolute costs is itself distorted by the
inequities created by the current charge-based method for determining
practice expenses. Specialties that have gained unfairly under the
current methodology are likely to report higher practice revenue,
higher net income, and higher PEs than specialties that have been
disadvantaged by the charge-based formula. Therefore, using the SMS
data to construct the PE-RVU's would perpetuate the inequities that
exist in the current formula. By contrast, HCFA's methodology starts by
looking at what the relative costs are of providing each procedure
compared to all others on the same scale, without prejudging what the
impact would be on total revenue, net income, or costs for any given
specialty.
For the same reasons, the SMS data cannot be used as a validity
check on whether or not HCFA's methodology covers the total costs of
physician practices. Although the SMS data is useful in determining
such things as the relative proportion of direct and indirect costs by
specialty, it cannot and should not be assumed or expected that HCFA's
methodology will--or was intended to--cover the total costs of practice
for any given specialty as currently reported in the SMS data. Nor
should it be assumed that every specialty should get the same
percentage share of Medicare payments for their practice expenses as
reported in the SMS data. The law simply requires that HCFA's
methodology establish an appropriate relative relationship among all
services, based on relative differences in the practice costs required
to perform each procedure that take into consideration ``actual costs''
to the maximum extent practicable. It says nothing about covering
physicians' total costs as currently reported by the SMS data.
Finally, a public-private partnership that does not include
internal medicine, family practice and other primary care specialties
cannot produce representative and acceptable results. As currently
proposed, we doubt that that any of the organizations that represent
those specialties would agree to participate in the so-called public-
private partnership
We would support establishing a process to regularly involve the
medical profession in future refinements, however. The RVS Update
Committee (RUC), which as we noted earlier is a multispecialty
committee chaired and staff by the AMA that advises HCFA on refinements
in physician work RVU's for the Medicare fee schedule, intends to
submit a proposal to HCFA to assist in future practice expense
refinements. Although some changes in the RUC process and composition
may be necessary to accomplish this, ASIM believes that the RUC model
has proven to be the kind of public-private partnership that has
benefited both HCFA and the medical profession, and one that may be
applicable to practice expense refinements.
CONCLUSION
ASIM believes that HCFA is satisfying the intent of the BBA and
that it is not necessary or desirable for HCFA to start over with an
entirely different approach. The GAO recognizes the validity of the
CPEP process and HCFA's formula for allocating indirect costs. We agree
with the report's assessment of the practical limitations of the cost
accounting surveys and other alternatives that have been advocated by
others. We concur with the GAO that HCFA was correct in disallowing the
costs associated with nurses who accompany a surgeon into the hospital,
barring independently verifiable and statistically valid data that this
is a typical practice.
None of the GAO report's recommendations for improvement are
fundamentally inconsistent with the way HCFA is going about developing
RBPEs. ASIM believes that the GAO's suggestions for improvement are for
the most part appropriate, although we have some concern about
supporting alternatives to statistical linking until we are certain
that there is a better approach that would correct the misalignment of
labor costs for non-E/M services compared to E/M services. We also
support the need for establishing a refinement process that allows for
the collection of additional data. ASIM recommends that the
Appropriations Committee support adequate funding for HCFA's efforts to
develop and refine the RBPE methodology, including sufficient funding
to support the refinement efforts recommended by the GAO.
REPORT
Senator Specter. Ms. DeParle, why, when the report is due
on March 1, did we not receive it until this morning, March 10,
at 10:40 a.m?
Ms. DeParle. Sir, in order to get a report up to the
Congress, we have to get it cleared through a number of
different offices within the Administration. We should have
started sooner, and I apologize for being late.
Senator Specter. You knew all the offices you had to have
it cleared by before March 1.
Ms. DeParle. Yes, sir; we did. I apologize.
Senator Specter. It does not do the job, Ms. DeParle,
because we had this hearing set for March 10 and we are not
able to go through your report to have an intelligent hearing
when the report is not received.
Ms. DeParle. Again, sir, I apologize.
Senator Specter. Please don't. It does not matter. What has
to be done is that we need to receive the report so we can make
an evaluation. We have people who have traveled long distances
to come to this hearing, and we expected your report.
There has been a plea made on your behalf for more funding.
If you need more funding, that is something that this
subcommittee would be prepared to do. I find it unsatisfactory
to have letters that are written on November 25 answered on
February 13, and I suspect that it is not a coincidence that we
received the report today because the hearing was held today.
If the hearing had been held 3 weeks from now--I do not want to
speculate on when the report would have been received, but we
simply cannot do our job.
Last year--you were not there, it was not on your watch--
HCFA did not meet the timetable of May 1 and the new fees were
supposed to go into effect on January 1, 1998, so apologies are
just not relevant to what we are doing here. You have got to
tell us what you need to get the job done, then you have got to
meet the timetable. That timetable was established a long time
ago.
The issue which confronts the Congress is what to do by way
of oversight. I agree with the comments made today about
oversight. What would the GAO report, if those recommendations
were followed, enable us to do, Dr. Day?
Dr. Day. Well, I think first of all they would enable us,
if data was collected, to really assess what our practice costs
are so that the debates would be based on reality.
Senator Specter. Do you think the practice costs are not
adequately assessed by what HCFA has done?
Dr. Day. Absolutely not, especially for individual
specialties within it. We are lumped into a group.
Senator Specter. How about that, Ms. DeParle?
Ms. DeParle. Well, it was my understanding that the GAO
report actually said that our data collection was pretty good.
In fact, I think the GAO used the word acceptable.
Senator Specter. How about your methodology?
Ms. DeParle. Given the limitations in collecting data, the
GAO knew that we tried some different methods, and that they
thought the panels----
Senator Specter. How about it, Dr. Day? Can we at least
agree on what the GAO report said?
Dr. Day. I thought they said that their process of data
collection was fine, but that the actual data needed to be
validated by actual practice expense data.
Senator Specter. Did you do that, Ms. DeParle?
Ms. DeParle. We did. In my testimony, sir, I spoke about
the number of panels that we held this past fall to validate
the data.
Now, there is another issue that is related to this and I
think everybody has talked about this, which is continued
refinement of the data. This is one thing the GAO recommended.
Senator Specter. Continued refinement? How is that going to
affect the fee schedules which are established?
Ms. DeParle. I think what it means, sir, is that what they
are saying is, the way I read it, the gist of it was that the
data is about as good as you are going to be able to obtain to
get this done, but you should continue to work on refining data
as you go forward.
Senator Specter. Why? Are the fee schedules going to be
changed?
Ms. DeParle. Yes; I think that GAO recommended we would go
forward with our rule and implement it, but that we should
continue to refine the data. I assume that means that we could
recommend changes based upon the new data.
Senator Specter. Dr. Day, you did not have very long, but
does your written submission specify where HCFA did not
adequately handle the data?
Dr. Day. Yes; it does, and we believe we can get that data.
We have been consulting with Coopers & Lybrand, a very well-
known accounting firm.
Senator Specter. Do you have some time when we finish today
to sit down with my staff and Ms. DeParle and go over the
specifics of that and see if we can have a little arbitration
as to what is going on here?
Dr. Day. I would be delighted to.
Ms. DeParle. Sir, if I may, I am familiar with the Coopers
& Lybrand data, and I believe that Dr. Day's group has met with
Dr. McCann, and he tells me that they are in the process of
reviewing that data. So we can certainly meet again, but I do
think that we are aware of their recommendations, and we
appreciate them. It has been a helpful process.
Senator Specter. Aware of their recommendations and
appreciate them? I am not sure that exactly comes to grips with
the difference in approach. I would like you to sit down with
my staff afterward and see if we can move through it.
Dr. Gardner, you are very complimentary about Dr. McCann,
but you are a cardiothoracic surgeon. Cardiac surgery,
according to last year's charts, would lose 32 percent, if you
are a thoracic surgeon, you would lose 28 percent. Which one do
you choose, or are you right in the middle? [Laughter.]
It is a tremendous reduction. I have had a lot of
complaints from the losers in the 30-percent range, so
substantial. Dr. McCann, why so substantial, all in one fell
swoop?
Dr. McCann. Those numbers, those impacts were published in
a rule that--we put out a proposed rule, I am sorry, last June,
and it was put out for public comment. Subsequent to that, the
Congress passed the Balanced Budget Act. We put that out in
hopes of getting comments. It was based on the data we had in
hand. Many of the comments that you have heard in this
testimony today have suggested that we take a different
approach and look at different options.
Senator Specter. Have you changed your way of living after
hearing all the comments?
Dr. McCann. We are very sensitive to the concerns that have
been raised by everyone on this panel.
Senator Specter. How about my question?
Dr. McCann. We are working at the staff level to prepare
some options for our administrator to review, and that is
underway as we speak, taking into account, as an example, Dr.
Day's suggestion that we look at the Coopers & Lybrand approach
to developing practice expense. That requires an enormous
amount of computer work back at our Baltimore offices, and it
is underway as we are speaking.
Senator Specter. Dr. Nelson, internal medicine is just in
for a plus-three. Doesn't all of this pretty much boildown to
where you stand on this chart as to what your positions are
going to be? It would be contrary to human nature not to have
it that way. If you are getting hit very hard you are obviously
going to be disadvantaged here.
What is the reality of Congress providing oversight, Dr.
Brooks? How do we do that?
Dr. Brooks. Well, Senator, where the fee schedules proposed
are phased in over 4 years, that gives HCFA and the other
agencies time to try to reevaluate it and look and see if there
are----
Senator Specter. Four years. Does that mean one-fourth
change each year?
Dr. Brooks. As I understand it, that is correct, so that
when we are talking about these large percentage reductions my
understanding is that although it is 30 percent over the total,
it is delayed during that time. During that time the Congress
and HCFA and the other agencies have a chance to look at that
data to reevaluate it and find out if there are problems, but
the fact of the matter is that there is a set amount of dollars
that is going to be used.
Senator Specter. What internal mechanisms are there, Ms.
DeParle, that you faced as to how you are going to listen to
inputs of other information to make adjustments in the charts?
Ms. DeParle. Well, there are not any right now, but I think
an important point was made by you when you talked about the
transition. Under the law before the Balanced Budget Act we had
to, as you put it, do this in one fell swoop, and it had to be
budget-neutral.
Senator Specter. May I suggest you address that question
very promptly, and establish a timetable immediately after you
put out your suggested changes. I also suggest you meet with
the groups no later than 30 days afterward, and take into
account what they have to say?
This subcommittee may be reconvened, but Dr. Gardner said
it was a complexity, I think beyond--I forget what you said, I
think capacity, a complexity beyond the capacity of the panel.
Forget about the Senate.
Dr. Gardner. You know, sir, the reason I gave you some of
the bottom-line figures on the impact on cardiac surgery in
addition to the background reductions is to emphasize the
severity of the impact on our specialty, and I do not think
that the cottage industry approach that HCFA was forced to take
because of failure of the national survey and a lack of,
perhaps what they felt was time or staffing, should be allowed
to determine the course here.
Senator Specter. What should be done now Dr. Gardner?
Dr. Gardner. I think we should step back and do a study
that is acceptable to an accounting approach.
Senator Specter. Who is going to do the study, would you
propose?
Dr. Gardner. I think it should be contracted out. I think
it should be contracted to a professional firm that can do this
and not expect the HCFA staff to do it, and I think that we
should let the cards fall where they are.
Senator Specter. So you want to start from scratch?
Dr. Gardner. I think that the issues are actual practice
costs, and the distribution of direct versus indirect costs,
and whether that can be allocated.
Senator Specter. But you are saying start from scratch.
Dr. Gardner. Yes, sir.
Senator Specter. But in HCFA we are supposed to have an
agency to do just that, are we not?
Dr. Gardner. Sir, my experience with HCFA is fairly
superficial. I have been there a few times. My impression is
they are chronically overworked.
Senator Specter. What about that, Dr. McCann?
Dr. McCann. We do have a lot to do. [Laughter.]
Senator Specter. Are you chronically overworked?
Dr. McCann. At the moment, yes, sir.
Senator Specter. How about you, Ms. DeParle? You have not
been there long enough to be chronically overworked.
Ms. DeParle. It feels like it has been a long time.
[Laughter.]
Senator Specter. Well, I would like to have you, lady and
gentleman, sit down with my staff to try and deal with some of
the specifics as to where you are heading, especially with what
Dr. Day has said.
I know it takes a long time, but the methodology is very
perplexing here as to how we are supposed to provide remedies.
We are going to see these figures, and I would like to see in
writing your review process so people have a chance in a
formalized way to come in and tell you what they do not like
and be specific, and have you rule, and if you need more help I
think the subcommittee would be prepared to do it.
Ms. DeParle. Thank you.
Senator Specter. Ms. DeParle, if you would stay for a few
minutes. We obviously on this subcommittee are enormously
concerned with how all of this is handled, but we need some
help from the professionals as to how we come to terms with it.
Ms. DeParle, I want to take up a number of questions with
you on matters that have been outstanding in your Department.
Ms. DeParle, what is the status of your unit's response on
the Salitron issue that I was talking to you about?
Ms. DeParle. Yes; I was talking to your staff about this in
one of the breaks. I heard about this issue for the first time
yesterday. I understand you had a recent letter in to me which
I had not seen until yesterday.
As I understand the issue, what you have been interested
in----
Senator Specter. I wrote to you on January 21, 1998, and
February 12, 1998, and you saw it for the first time yesterday?
Ms. DeParle. Yes, sir.
Senator Specter. Why?
Ms. DeParle. I do not know why, sir. I am trying to review
the congressional correspondence, but I have not seen this, and
I had not heard of this issue.
As I understand it, it is a device that can be helpful to
people with something called Sjogren's disease, and it has been
an issue around HCFA for some time, several years in fact. The
agency has performed a technology assessment but has not found
evidence that the device could be useful.
I asked staff yesterday to request another technology
assessment.
Senator Specter. I understand the regulations are very old
and, doubtless, outdated.
Ms. DeParle. I believe you are referring to a regulation
that the agency put out in 1994, yes, sir. It was a proposed
rule I think, sir, that never became final.
Senator Specter. Would you take a look at it, and would you
answer two questions for me, why you do not see your mail from
January 21, and what the substantive answer is?
Ms. DeParle. Yes, sir; I certainly will.
[The information follows:]
Salitron System
With respect to the incoming letters from Senator Specter
regarding the Salitron System, I did not see the February 12
letter even though I had instructed staff to provide me with
copies of all correspondence from Members of Congress.
Unfortunately, a mistake was made within our correspondence
control system.
PROPOSED RULE
Senator Specter. I am told by staff that you are prepared
to testify that you will withdraw the regs if you are asked, is
that true?
Ms. DeParle. Yes, sir; I talked to Mr. Sauerwein about this
during the break. From my understanding of this issue the
problem relates to--or your problem relates to a regulation, or
a proposed rule that was put out in 1994. It is now 1998.
We never went final with the rule, and I would not intend
to go final with a rule that has been out that long, so I would
be prepared to withdraw it.
Senator Specter. Ms. DeParle, why did you not tell me that
when I asked you the question about this matter generally,
without a specific question as to whether you are prepared to
withdraw it?
Ms. DeParle. I am sorry, sir, I did not know that is what
you wanted to know.
Senator Specter. Mr. Sourwine points out that it is in the
letter. Is there any other relevant information that you have
on this subject that I have not asked you specifically about? I
really find this a little hard to understand. We are not in a
courtroom. You are not a hostile witness. If you are prepared
to withdraw the regulation, why don't you say so?
Ms. DeParle. Sir, the letter that I remember looking at
yesterday was a letter that asked more generally about what the
status was. I did not remember that you wrote a letter asking
about pulling the regulation.
Senator Specter. The letter says, of February 12, a formal
withdrawal in the Federal Register would clarify the Medicare
coverage for the device is up to the regional carriers, and the
decision is reached on a national coverage policy. That is what
the letter says.
Ms. DeParle. I am sorry, sir, I was not--as I said, I did
not look at this until yesterday, and I was not familiar with
the specifics of the letter. I know you wrote two letters on it
that I saw yesterday.
Senator Specter. But if you saw it yesterday, and you saw
the line about withdrawal--I just do not understand, Ms.
DeParle. The letter talks about withdrawal. You are prepared to
withdraw it, but I have to ask a specific question before we
get there.
Is there anything else about that issue which is relevant
that this subcommittee ought to know about?
Ms. DeParle. Well, no, sir. I was just trying to say that
the staff who have looked at this--again, my knowledge is from
yesterday--tell me that they have tried a number of times to
find a suitable use for this device, and to find some evidence
that it would help people. However, they have not been able to,
and so they are concerned about this particular device. That is
the only other thing that I can tell you.
I requested yesterday that they request another technology
assessment, because there was one done, as you probably know,
back in 1990. I thought that, given your continued interest in
it, that we ought to at least update our technology assessment
and see what the experts were saying about the device, so I did
request that. This is the only other thing I know about.
Senator Specter. OK.
I had written to you on January 27, or to Secretary
Shalala, about the final regulations implementing the Medicare
salary equivalency rule and again got a letter dated yesterday,
and this is on behalf of a specific constituent, and when I
receive these requests from constituents I am not intimately
familiar with all of the ramifications, but really pass on the
problems which are created to try to get an expert evaluation.
But as I said in my letter of January 27, I am advised that
the promulgation of the final rule will cause undue financial
hardship because they will have to change their reimbursement
systems to comply with the rule, only to change the
reimbursement system later this year, when HCFA promulgates a
second series of regulations required by the Balanced Budget
Act of 1997.
Are they correct that there will be another series of
regulations issued later this year?
Ms. DeParle. Yes, sir; they are.
Senator Specter. Are they correct they are going to have to
revamp their reimbursement system to comply with the new set of
regulations?
Ms. DeParle. I think I have talked to some of the same
people, sir, and I believe they probably will.
Senator Specter. Do you think that is fair to change the
regulations twice in such a short period of time to cause that
kind of extra expense?
Ms. DeParle. This rule originally went out in March, sir,
and in fact the agency----
Senator Specter. March 1997?
Ms. DeParle. Yes; the agency staff, given the Balanced
Budget Act, had--and I discussed this with Mr. Sauerwein back
in January, I believe.
The agency staff had originally decided not to go forward
for two reasons, first, because of concerns about issuing two
rules so quickly, a final rule on this and the BBA rules at the
same time, and second, frankly, as you have heard today, our
staff is very busy and is often not performing up to the
standards that you and other Members would like on the issues
that we have on our plate, so for those reasons we were not
going to go forward.
However, Senator Harkin in particular felt very strongly
that this rule had some savings, that it was a program
integrity issue, and asked that we go forward with it, so we
have done so.
Senator Specter. Well, is there any way to give some
regulatory relief to the specific entities, constituents which
are burdened by a revised set of regulations in such a short
period of time?
Ms. DeParle. I do not know, sir, but I would be willing to
talk to you and your staff about a way to do it. I am not sure
there is any way to give relief and also honor the commitment
to Senator Harkin.
Senator Specter. Well, do you have waiver authority to make
adjustments on a showing of hardship in an area of this sort?
Ms. DeParle. I do not know, sir, but let me find out and
get back to you soon with that.
[The information follows:]
HCFA's Waiver Authority Involving Salary Equivalency
With respect to whether it is possible to waive the salary
equivalency guidelines in certain circumstances, or for certain
providers, we believe that we do not have the authority to
change or waive the salary equivalency guidelines regulation's
effective date of April 10 for one provider or a group of
providers. Existing regulations do provide for exceptions to
the guidelines for unique circumstances or special labor market
conditions, although any exceptions may reduce the savings from
these guidelines. These exceptions are available to providers
of services. For instance, the guidelines apply to payments
that the Medicare Program makes to skilled nursing facilities,
home health agencies, and other providers, for therapy services
provided under arrangement. HCFA pays the entity (the provider)
that claims the therapy costs in its cost report. This means a
provider can apply for an exception if (1) That provider files
the cost report with HCFA and (2) it contracts with another
entity to provide therapy services, because the guidelines do
not apply to therapists directly employed by the provider.
NEW REGULATIONS
Senator Specter. As I say, this is a constituent inquiry,
and I do not know the details, but if you are going to have
another set of regulations coming out, and if you agree with
their representation that it costs extra expense, that seems to
me something which ought not to be done if it can be possibly
avoided. So I would appreciate it if you would take a look at
it.
If you conclude that it is a matter of fairness--you are
nodding in agreement.
Ms. DeParle. I will take a look at it.
Senator Specter. There will be double expenses for them to
comply with the new set of regulations, correct?
Ms. DeParle. There will be more expenses. I do not know if
they are double. The concern I have----
Senator Specter. But more expenses.
Ms. DeParle. Yes, sir; I think it stands to reason there
will be.
My concern is that, frankly, I talked to the same groups,
and I had the conversation with Senator Harkin, and he feels
very strongly that because there are savings attached to this
regulation, it saves money for the Medicare trust fund, that--
--
Senator Specter. Well, how much are the savings, if you can
quantify that?
Ms. DeParle. It has been a couple of months since I looked
at this, but I want to say it is several hundred million
dollars, which is not huge in the realm of Medicare, but it is
a substantial amount. Let me get back to you with the exact
numbers.
My staff is saying $260 million.
Senator Specter. Over how long a period of time?
Ms. DeParle. Well, I think this would only have effect for
a couple of years, because, as you said, the Balanced Budget
Act makes some other changes.
Senator Specter. Well, it would not last for a couple of
years if there will be another change in regulations this year,
would it, and let the record show you are consulting with staff
and you have $260 million figure, but over how long a period of
time is that?
Ms. DeParle. I do not know, sir. Let me get back to you
with an answer.
[The information follows:]
Salary Equivalency Rule's Projected Savings
The estimated cost savings associated with salary
equivalency guidelines, involving Medicare part A and B, is
$260 million during fiscal years 1998 through 2000. This
estimate is based on the effective date of April 10, 1998.
REGULATIONS
Senator Specter. When a constituent comes and says, they
just put out some regulations and there are going to be some
more coming out later this year. Why do we have to change our
systems twice, in an age where there is so much regulation? I
miss the regulatory reform bill before governmental
administrations. We are all committed, the President, Secretary
of Health and Human Services, I think you, too, Ms. DeParle are
committed to try to keep the regulations to a minimum point
necessary to get the job done. Thank you.
Ms. DeParle. Yes, sir; and I understand your concerns about
this one. Thank you.
CONCLUSION OF HEARING
Senator Specter. Thank you all very much for being here,
that concludes our hearing. The subcommittee wil stand in
recess subject to the call of the Chair.
[Whereupon, at 5:20 p.m., Tuesday, March 10, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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