GAO 

United States Government Accountability Office

Report to Congressional Requesters

MEDICARE 

PHYSICIAN 

PAYMENTS 

Fees Could Better 

Reflect Efficiencies 

Achieved When 

Services Are Provided 

Together 

July 2009 

GAO-09-647 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2009

MEDICARE PHYSICIAN PAYMENTS

Fees Could Better Reflect Efficiencies Achieved 

When Services Are Provided Together 

Highlights of GAO-09-647, a report to 

congressional requesters 

Medicare’s physician fees may not 

always reflect efficiencies that 

occur when a physician performs 

multiple services for the same 

patient on the same day, and some 

resources required for these 

services do not need to be 

duplicated. In response to a 

request from Congress, GAO 

examined (1) the Centers for 

Medicare & Medicaid Services’ 

(CMS) efforts to set appropriate 

fees for services furnished together 

and (2) additional opportunities for 

CMS to avoid excessive payments 

when services are furnished 

together. GAO examined relevant 

policies, laws, and regulations; 

interviewed CMS officials and 

others; and analyzed claims data to 

identify opportunities for further 

savings. 

What GAO Recommends

GAO recommends that the Acting 

Administrator, CMS, ensure that 

physician fees reflect efficiencies 

occurring when services are 

commonly furnished together. GAO 

suggests that Congress consider 

exempting any resulting savings 

from federal budget neutrality so 

that savings accrue to Medicare. 

The Department of Health and 

Human Services concurred with 

GAO, stating it plans to review 

these services. The American 

Medical Association disagreed with 

aspects of our report, including 

exempting savings from budget 

neutrality. GAO continues to 

believe that Congress should 

consider such an exemption to help 

ensure appropriate payments for 

Medicare physician services. 

CMS has taken steps to ensure that physician fees recognize efficiencies that 

occur when certain services are commonly furnished together, that is, by the 

same physician to the same beneficiary on the same day, but has not targeted 

services with the greatest potential for savings. CMS is reviewing the efforts of 

a workgroup created by the American Medical Association/Specialty Society 

Relative Value Scale Update Committee (RUC) in 2007 to examine potential 

duplication in resource estimates for services furnished together. However, 

the RUC workgroup has not focused on services that account for the largest 

share of Medicare spending. For this and other reasons, its methodology to 

identify and review services furnished together likely will result in limited 

savings. The workgroup’s process is also resource intensive because it 

depends on input and consensus from specialty societies. Independent of the 

RUC, CMS has implemented a multiple procedure payment reduction (MPPR) 

policy for certain imaging and surgical services when two or more related 

services are furnished together. Under an MPPR, the full fee is paid for the 

highest-priced service and a reduced fee is paid for each subsequent service to 

reflect efficiencies in overlapping portions of the practice expense 

component—clinical labor, supplies, and equipment. For example, a nurse’s 

time preparing a patient for a medical procedure or technician’s time setting 

up the required equipment is incurred only once. The MPPR produced savings 

of about $96 million in 2006 for imaging services. However, the scope of the 

policy is limited because the policy does not apply to nonsurgical and 

nonimaging services commonly furnished together, nor does it specifically 

reflect efficiencies occurring in the physician work component—the financial 

value of a physician’s time, skill, and effort. For example, when two services 

are furnished together, a physician reviews a patient’s medical records once, 

but the time for that activity is generally reflected in fees paid for both 

services. 

CMS has additional opportunities to reduce excess physician payments that 

can occur when services are furnished together and Medicare’s fees do not 

reflect the efficiencies realized. GAO’s review found that expanding the MPPR 

to reflect practice expense efficiencies that occur when nonsurgical, 

nonimaging services are provided together could reduce payments for these 

services by an estimated one-half billion dollars annually. GAO’s review also 

indicated that expanding the existing MPPR policy to reflect efficiencies in the 

physician work component of certain imaging services could reduce these 

payments by an estimated additional $175 million annually. Under the budget 

neutrality requirement, by law, savings from reductions in fees are 

redistributed by increasing fees for all other services. Thus, these potential 

savings would accrue as savings to Medicare only if Congress exempted them 

from the budget neutrality requirement, as was done in the Deficit Reduction 

Act of 2005 for savings from the changes to certain imaging services fees. 

View GAO-09-647 or key components.

For more information, contact James C. 

Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov. 
Page i GAO-09-647 

Contents 

Letter 1

Background 4 

CMS Has Recognized Efficiencies in Some Services, but Has Not 

Focused on High-Spending Services 7 

CMS’s MPPR Policy Could Be Applied to Other Services Commonly 

Furnished Together and Expanded to Reflect Efficiencies in 

Physician Work 13 

Conclusions 15 

Recommendation for Executive Action 15 

Matter for Congressional Consideration 16 

Agency and Professional Association Comments and Our 

Evaluation 16 

Appendix I Estimating Potential for Further Savings from 

Efficiencies in Multiple Services 20 

Appendix II Examples of Vignette and Practice Expense 

Estimate 25 

Appendix III Comments from the Department of Health and 

Human Services 27 

Appendix IV GAO Contact and Staff Acknowledgments 30 

Figures 

Figure 1: Overview of Workgroup Process to Identify Misvalued 

Services Furnished by the Same Physician to the Same 

Beneficiary on the Same Day 10 

Figure 2: Example of AMA Vignette for CPT Code 92235, Eye Exam 

with Photos 25 

Figure 3: Example of AMA Practice Expense Estimates for CPT 

Code 92235, Eye Exam with Photos 26 

 Medicare Physician Payments 
Abbreviations 

AMA American Medical Association 

CMS Centers for Medicare & Medicaid Services 

CPT® Current Procedural Terminology 

CT computed tomography 

DRA Deficit Reduction Act of 2005 

HHS Department of Health and Human Services 

MedPAC Medicare Payment Advisory Commission 

MPPR multiple procedure payment reduction 

RBRVS Resource-Based Relative Value Scale 

RUC AMA/Specialty Society Relative Value Scale Update 

 Committee 

RVU relative value unit 

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Page ii GAO-09-647 Medicare Physician Payments
Page 1 GAO-09-647 

 

United States Government Accountability Office

Washington, DC 20548 

 

July 31, 2009 

The Honorable Frank Pallone 

Chairman 

The Honorable Nathan Deal 

Ranking Member 

Subcommittee on Health 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Pete Stark 

Chairman 

Subcommittee on Health 

Committee on Ways and Means 

House of Representatives 

The Honorable Dave Camp 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

Spending on Medicare Part B physician services grew at an average annual 

rate of 6 percent from 1997 through 2008, more than twice the growth rate 

in the national economy over this period.1

 This rapid spending growth 

underscores the importance of ensuring that payments under Medicare’s 

physician fee schedule, which includes fees for each of over 7,000 services, 

such as office visits, surgical procedures, and tests, are appropriate and 

encourage efficient use of resources. 

Physician fee schedule payments may be excessive for some services 

because efficiencies that occur when two or more services are furnished 

together are not reflected in the fee schedule, and thus Medicare 

essentially pays twice for the portions of these services that overlap. In 

setting payments for services under the fee schedule, the Centers for 

Medicare & Medicaid Services (CMS)—the federal agency that administers 

the Medicare program—estimates resources required to provide three 

separate components of each service: the physician work component 

(which reflects the physician’s time, skill, and effort); the practice expense 

1

Medicare Part B covers physician and other outpatient services. 

 Medicare Physician Payments 
 

component (which reflects operating expenses, such as rent, utilities, and 

the salaries of nurses, technicians, and administrative staff); and the 

malpractice component (which reflects the costs of obtaining professional 

liability insurance).2

 Each service is generally considered to be discrete 

and stand-alone. But when two or more services are furnished by the same 

physician to the same beneficiary on the same day, efficiencies may occur 

because some portions of the physician work component, the practice 

expense component, or both overlap and are incurred only once. For 

example, certain physician work activities—such as reviewing the 

patient’s medical history or dictating a report for the medical record and 

following up with the referring physician after a medical procedure—

occur only once. Similarly, certain practice expenses—such as a nurse’s 

time spent in obtaining the patient’s consent and preparing the patient for 

the procedure, or a technician’s time in setting up the required 

equipment—are incurred only once. However, payment for these 

overlapping portions is generally included in each fee, resulting in 

excessive payments by Medicare.3

You asked us to explore options to ensure that the physician fee schedule 

appropriately reflects efficiencies occurring across all types of services 

that are commonly furnished together. This report examines (1) CMS’s 

current efforts to ensure that Medicare physician fees reflect efficiencies 

in services commonly furnished together and (2) additional opportunities 

for CMS to avoid excessive payments for Medicare physician services 

commonly furnished together. 

To determine how CMS ensures that Medicare physician fees reflect 

efficiencies for services commonly furnished together, we reviewed CMS’s 

relevant payment policies and applicable laws and regulations. We 

interviewed officials from several organizations to discuss other instances 

where the physician fee schedule could better reflect efficiencies for these 

services. These organizations included CMS, the Medicare Payment 

Advisory Commission (MedPAC), and 7 of the 15 Medicare contractors 

 

2

On average, the physician work component accounts for about 52 percent of the total fee 

for each service, the practice expense component accounts for about 44 percent, and the 

malpractice component for about 4 percent. 

3

CMS also uses resource estimates for physician work and practice expenses to calculate 

indirect expenses—such as overhead, office equipment, and administrative staff salaries—

for each service; thus, duplication of these resource estimates when services are commonly 

furnished together further contributes to excess payments. 

Page 2 GAO-09-647 Medicare Physician Payments
 

that process and pay Part B claims.4 We also met with representatives 

from the American Medical Association (AMA) and AMA-sponsored 

physician panels that assist CMS in developing estimates of resources 

required to deliver physician fee schedule services to discuss their 

initiatives to refine resource estimates for services commonly furnished 

together. 

he 

e 

et 

se 

n 

f fees 

xample, 

pairs commonly furnished together. 

 

To determine additional opportunities for CMS to avoid excessive

payments for services that are commonly furnished together, we 

conducted a systematic review of all pairs of services furnished by t

same physician to the same beneficiary on the same day from 2006 

Medicare claims data.5

 We excluded pairs subject to an existing Medicare 

billing or payment policy that reflected efficiencies when these services 

were furnished together. From the remaining service pairs, we selected th

350 that accounted for the highest share of Medicare spending and m

with Medicare contractor Medical Directors and their staffs in five 

different states to determine whether efficiencies occurred in any of the

service pairs. We also consulted with other experts from three medical 

specialty societies and reviewed AMA resource estimates of physicia

work and practice expenses.6

 On the basis of these discussions and 

analyses, we estimated resulting savings to the Medicare program i

were adjusted to reflect efficiencies occurring in the service pairs 

identified by the contractors. Our estimate of savings is based upon the 

premise that providers do not change their practice patterns (for e

by scheduling services on different days) in response to these fee 

adjustments. Appendix I provides more detailed information on our 

methodology to estimate the potential for further savings from service 

4

The seven contractors we interviewed together process claims in 28 states across the 

nation. CMS is in the process of integrating the administration of Medicare Part A (which 

covers hospital and other inpatient services) and Part B to new entities known as Medicare 

Administrative Contractors. The transition must be completed by October 2011. 

5

For this report, we will use “services commonly furnished together” to mean services 

performed by the same physician to the same beneficiary on the same day. 

6

We interviewed experts from the American College of Cardiology and American College of 

Radiology who had published articles on appropriate payments for Medicare physician 

services. We also interviewed an expert from the American Society of Interventional 

Radiology to understand how certain interventional radiology procedures are valued by the 

AMA-sponsored physician panels, since these procedures are commonly furnished on the 

same day with other services. 

Page 3 GAO-09-647 Medicare Physician Payments
 

We examined the reliability of the claims data used in this report by 

performing appropriate electronic checks, including those for obvious 

errors, such as missing values and values outside of expected ranges. We 

also interviewed officials who were knowledgeable about the data, 

including CMS and Medicare contractor officials. We determined that the 

claims data we used were sufficiently reliable for purposes of our analysis 

because they are used by the Medicare program as a record of payments to 

health care providers. As such, they are subject to routine CMS scrutiny. 

We conducted our work from May 2008 through July 2009 in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on our 

audit objectives. 

Medicare’s physician fee schedule includes payments for over 7,000 

services, such as office visits, surgical procedures, and tests.7

 Most 

services are defined as discrete and stand-alone in that they may be 

furnished independently of other services, but a small number of services 

are defined as supplemental because they are commonly furnished along 

with other primary services. 

Background 

Process for Defining 

Medicare Fee Schedule 

Services 

Services under the Medicare fee schedule are described and defined by the 

AMA’s Current Procedural Terminology (CPT) Editorial Panel, and each 

service is assigned a five-digit identifier, or code. The CPT Editorial Panel 

revises and modifies CPT codes based largely on suggestions from 

specialty societies and the CPT Editorial Panel’s Advisory Committee.8

Code revisions require research from both CPT staff and specialty society 

members who assist the CPT Editorial Panel in its work. According to 

 

7

Not all of the services included under the physician fee schedule are performed by 

physicians; some services (such as chemotherapy services or routine tests) may be 

performed by nurses or technicians. 

8

Primarily composed of physicians from the specialty societies, the Advisory Committee 

makes recommendations to the CPT Editorial Panel for either the creation of new codes or 

revisions to existing codes. The CPT Editorial Panel meets three times a year, and its 

actions can result in three outcomes: (1) a new or revised code is approved, (2) the 

proposal is postponed pending further information, or (3) the proposal is rejected. 

Page 4 GAO-09-647 Medicare Physician Payments
 

AMA officials, the CPT process generally takes about 14 months from the 

time potential codes are first identified by specialty societies to the final 

revision or development of a new code. 

Process for Developing 

and Updating Resource 

Estimates Used to Set Fees 

CMS relies on the AMA/Specialty Society Relative Value Scale Update 

Committee (RUC)—an expert panel that includes members from national 

physician specialty societies—to develop and update on an ongoing basis 

the resource estimates upon which fees are based.9

 Specialty societies 

identify services for review, gather data on resource use, and make 

proposals to the RUC on resource estimates for services. Physician work 

estimates are developed using vignettes of each service furnished to a 

typical patient, where the specific physician activities are described for 

three phases—before, during, and after the service.10 Practice expense 

estimates considered direct—clinical labor (that is, the nurse’s or 

technician’s time), equipment, and supplies—are developed similarly for 

each of these phases.11,12 (App. II provides an example of a vignette and 

practice expense estimates for one service.) The RUC evaluates proposals 

submitted by the specialty societies and makes recommendations for final 

consideration by CMS. The RUC meets three times a year, and, on average, 

reviews approximately 300 codes annually. The RUC also assists CMS in 

the Five-Year Review process—a review of fees for all services that the 

 

9

Estimates for physician work are developed by the RUC, while estimates for practice 

expenses are first reviewed by a subcommittee of the RUC—the Practice Expense 

Subcommittee, then submitted to the RUC for final recommendation to CMS. 

10These phases are referred to as preservice, intraservice, and postservice. The RUC 

maintains a database that includes vignettes and physician work estimates for services that 

it has reviewed. 

11Indirect expenses—overhead, administrative labor, and office expenses—are calculated 

by CMS in proportion to direct expenses and the physician work or clinical labor involved 

in providing each service. 

12Medicare’s physician payment system ranks services on a common scale based on the 

amount of resources needed to provide each service relative to a benchmark service—

defined as a midlevel office visit. These relative resources are expressed as relative value 

units (RVU). (Thus, if a midlevel office visit has an RVU value of 1.0, a service with an RVU 

of 1.5 is estimated to be 50 percent more costly to provide.) RVUs for each service are 

converted into fees by adjusting them to reflect geographic differences in resource costs, 

then multiplying by a dollar conversion factor. For further details on the process CMS uses 

to set fees, see GAO, Medicare Part B Imaging Services: Rapid Spending Growth and 

Shift to Physician Offices Indicate Need for CMS to Consider Additional Management 

Practices, GAO-08-452 (Washington, D.C.: June 13, 2008), and Medicare Physician Fees: 

Geographic Adjustment Indices Are Valid in Design, but Data and Methods Need 

Refinement, GAO-05-119 (Washington, D.C.: Mar. 11, 2005). 

Page 5 GAO-09-647 Medicare Physician Payments
 

agency is required by law to conduct at least every 5 years to account for 

changes in medical practice.13

While CMS may reject or modify the RUC’s recommendations, from 1993 

through 2009, the agency accepted over 90 percent of the 

recommendations pertaining to 3,600 new and revised CPT codes. CMS 

may at times also make changes to fees for services independent of RUC 

recommendations. 

Initiatives to Account for 

Efficiencies in Multiple 

Services 

Efficiencies in multiple services that are furnished together may be 

factored into fees primarily in two ways. First, the RUC and specialty 

societies generally attempt to consider whether other services are 

typically furnished along with the service they are reviewing to avoid 

duplication of the resources associated with physician work and practice 

expenses that may be incurred only once. For example, certain activities 

included in the practice expense component, such as preparing the patient 

before a procedure and cleaning the room after the procedure, are 

performed only once when two services are furnished together. However, 

the RUC has not reviewed every service; therefore, estimates are outdated 

for a large portion of services and may no longer reflect current 

technology and medical practice. For example, resource estimates for 

certain image-guided surgeries were developed when a surgeon performed 

the surgery and a radiologist performed the related imaging, whereas in 

current medical practice, a single physician tends to do both tasks. 

Further, for supplemental services, the RUC ensures that the physician 

work and practice expense resources required before and after the service 

are not duplicated. 

Second, CMS has, independent of the RUC and specialty societies, 

implemented its own policies to recognize efficiencies occurring in certain 

services. CMS has a long-standing policy called a multiple procedure 

payment reduction (MPPR) to avoid duplicate payments for portions of 

practice expenses that are incurred only once when two or more surgical 

services are furnished together by the same physician during the same 

operating session.14 CMS expanded the MPPR to include certain diagnostic 

 

13See 42 U.S.C. § 1395w-4(c)(2)(B)(i),(ii). 

14Supplemental services are exempt from the MPPR. 

Page 6 GAO-09-647 Medicare Physician Payments
 

imaging services in 2006.15 Under the MPPR policy, the full fee is paid for 

the more expensive service, but a reduction is applied to the fees for each 

subsequent service. Generally, a 50 percent reduction is applied to fees 

for surgical services performed during the same operating session and a 

25 percent reduction is applied to fees for certain imaging services that are 

furnished together.16

Budget Neutrality By law, updates to fees are required to be budget neutral—that is, they 

cannot cause Medicare’s aggregate payments to physicians to increase or 

decrease by more than $20 million.17 As a result, any “savings” realized 

from reducing the fees for particular services do not accrue to the 

Medicare program but are redistributed across all services, resulting in a 

slight increase to the fees for all other services. In some instances, 

Congress has overridden budget neutrality to ensure that payment changes 

result in savings to Medicare. For example, through the Deficit Reduction 

Act of 2005 (DRA), Congress mandated that savings resulting from the 

MPPR for certain imaging services that were furnished together be 

exempted from budget neutrality.18 As a result, annual savings of 

approximately $96 million were not redistributed across all services, but 

accrued as savings to the Medicare program in 2006. 

CMS has taken steps to recognize efficiencies for services commonly 

furnished together through the use of the RUC process and the MPPR, but 

has not targeted services with the greatest potential for savings, and the 

RUC process depends on specialty societies. The MPPR is limited in scope 

because it does not apply to a broad range of services, nor does it capture 

efficiencies occurring in the physician work component. 

CMS Has Recognized 

Efficiencies in Some 

Services, but Has Not 

Focused on HighSpending Services 

 

15The MPPR applies only to the fee for the provision of the imaging test—generally 

performed by a technician. It does not apply to the fee for the interpretation of the imaging 

test—generally performed by a radiologist or other physician. 

16Although the reduction is applied to the entire fee for each subsequent service, 

according to the rules we reviewed, the MPPR reflects duplication in practice expenses, 

not physician work. See 56 Fed. Reg. 59,502, 59,514-15 (Nov. 25, 1991); 62 Fed. Reg. 33,158, 

33,171 (June 18, 1997); and 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 2008). 

17See 42 U.S.C. § 1395w-4(c)(2)(B)(ii). 

18See 42 U.S.C. § 1395w-4(c)(2)(B)(v). 

Page 7 GAO-09-647 Medicare Physician Payments
 

CMS stated that it is reviewing the efforts of a workgroup recently created 

by the RUC to identify efficiencies in services that are commonly 

furnished together. In March 2006 MedPAC criticized the RUC for 

recommending more increases than decreases in resource estimates, 

largely because the RUC had focused on services that specialty societies 

believed were undervalued. In response, the RUC established the FiveYear Review Identification Workgroup in October 2006 to identify 

potentially misvalued services. The workgroup used several criteria to 

identify these services, one of which was to examine services commonly 

furnished together to determine if such services should be bundled to 

reduce duplication in the physician work component. The workgroup 

requested data from CMS on services commonly furnished together in 

2007. CMS forwarded a list of over 2,200 service pairs that were furnished 

together more than 50 percent of the time, but did not tell the workgroup 

how to prioritize its review of the services. Instead, the workgroup 

developed its own methodology, targeting service pairs that were almost 

exclusively furnished together. 

RUC Workgroup Examines 

Efficiencies in Services 

Commonly Furnished 

Together, but Does Not 

Target Services with 

Greatest Potential for 

Savings 

While the methodology represents a reasonable first step to identify 

potentially misvalued services, and the workgroup has expended 

considerable effort and resources in implementing it, the methodology will 

likely result in limited savings to Medicare. This is because the group did 

not systematically focus on services that accounted for a large share of 

Medicare spending, nor did it exclude supplemental services with limited 

potential for savings. 

The workgroup focused on service pairs in which the two services were 

performed together at least 90 percent of the time. The workgroup 

classified service pairs into two types: type A, in which both services in the 

pair were performed together at least 90 percent of the time, and type B, in 

which one service was performed with another service at least 90 percent 

of the time in a unidirectional relationship (that is, when the first service 

was performed, the second service was also performed at least 90 percent 

of the time, but when the second service was performed, the first service 

was not performed at least 90 percent of the time). The workgroup 

identified 22 type A and 31 type B service pairs where possible duplication 

was occurring in physician work.19

 

19The workgroup told us that it intends to review pairs that are performed together at a 

threshold below 90 percent after it completes review of the type A and B pairs. 

Page 8 GAO-09-647 Medicare Physician Payments
 

However, these service pairs would likely result in limited savings. First, 

19 of the 22 type A pairs and 20 of the 31 type B pairs included 

supplemental services for which further reductions in fees would likely be 

small. For example, in performing a three-dimensional heart wall imaging 

study (also known as a myocardial perfusion imaging study), physicians 

may take additional measurements of blood flow or heart wall function. 

These additional services are supplemental to the primary service and are 

therefore already priced to exclude overlap in practice expenses incurred 

before and after the service. Second, spending for the lower-priced service 

in the remaining pairs was minimal: $27 million for the remaining 3 type A 

services and $117 million for the remaining 11 type B services. Thus, 

potential savings from combining the remaining service pairs would likely 

be no more than half these respective amounts, assuming a 50 percent 

discount was applied to the lower-priced service—a generous assumption, 

since that is the maximum discount that CMS has applied to services 

under the MPPR. 

Another limitation of the workgroup’s review of services commonly 

furnished together is that its process is resource intensive. This element is 

inherent in a process based on input and consensus from specialty 

societies. The workgroup follows the RUC’s process in that it solicits 

proposals from specialty societies for potential revisions to the service 

pairs. The proposals must then be approved by the CPT Editorial Panel, 

the RUC, and CMS (see fig. 1). 

Page 9 GAO-09-647 Medicare Physician Payments
 

Figure 1: Overview of Workgroup Process to Identify Misvalued Services Furnished by the Same Physician to the Same 

Beneficiary on the Same Day 

Workgroup forwards

service pairs to related 

specialty societies for 

proposals to combine 

services. 

Specialty societies survey 

their members and make 

proposals to the 

workgroup. 

If the specialty societies

and the workgroup concur 

that services should be 

combined or revised, the 

proposed services are 

forwarded to the CPT 

Editorial Panel.

The CPT Editorial Panel 

considers the proposals. 

Decisions to combine or 

revise services are 

forwarded to the RUC.

After reviewing 

comments, CMS issues

its decisions in final rule.

CMS reviews RUC 

recommendations and 

issues a proposal in the 

Federal Register for up to 

60-day public comment 

period.

The RUC recommends

resource estimates for the 

new services after 

receiving input from 

specialty societies.

Source: GAO analysis.

To date, the workgroup has identified only a limited number of misvalued 

services commonly furnished together. Since the review of service pairs 

that was started in 2007, the workgroup has identified three misvalued 

services; at the workgroup’s recommendation, these (echocardiography) 

services were combined into a single code in 2009. The earliest any 

additional changes might be implemented for the type A and B service 

pairs first identified in 2007 would be 2010.20

 

20As of May 2009, specialty societies had recommended that each of the 22 type A and 31 

type B service pairs be combined into single codes. The CPT Editorial Panel and the RUC 

have reviewed 25 of these proposals, and the RUC has forwarded its recommendations to 

CMS. CMS officials stated that they will publish these proposals and the agency’s decisions 

in the proposed rule for 2010. (The proposed rule for 2010 was published on July 13, 2009.) 

The proposals on the remaining 28 service pairs are slated to be reviewed at upcoming CPT 

meetings. 

Page 10 GAO-09-647 Medicare Physician Payments
 

Finally, the workgroup is required to undertake other tasks, including 

reviewing services because of technological changes or because of high 

growth, utilization, or intensity.21 These reviews also require involvement 

from the specialty societies, in addition to their efforts to revise estimates 

of physician work and practice expenses an ongoing basis as well as for 

the Five-Year Reviews. Despite the demands of these tasks, the RUC has 

stated that CMS should continue to rely on the workgroup to identify 

opportunities for efficiencies, rather than implement an MPPR, which it 

perceives to be an imprecise tool for reducing duplicate payments for 

portions of services furnished only once. 

CMS’s MPPR Policy 

Reflects Efficiencies but Is 

Limited in Scope 

CMS’s MPPR policy reflects efficiencies for certain imaging and surgical 

procedures commonly furnished together, but it is limited in scope. CMS 

estimated that its use of the MPPR for certain imaging procedures 

produced savings of about $96 million in 2006.22,23 In this instance, 

Congress exempted these savings from the budget neutrality provision; as 

a result, the $96 million was not redirected to other services but accrued 

as savings to the Medicare program. 

In principle, an MPPR can be implemented quickly to reflect efficiencies 

for services performed together. In developing the list of services to be 

selected for an MPPR, CMS does not formally solicit opinion from 

specialty societies or others until the MPPR is published as a proposed 

rule. For example, in developing the imaging MPPR, CMS—acting 

independently of the RUC and specialty societies, on MedPAC’s 

recommendation—identified imaging services that were commonly 

furnished together and determined an appropriate discount to account for 

efficiencies occurring in the practice expense component.24 CMS then 

 

21In addition to the workgroup’s task of examining services commonly furnished together, 

the RUC is examining other misvalued services. For example, in June 2008, CMS forwarded 

a list of several hundred codes for its review. The list included codes in three different 

categories: (1) 114 services with the fastest growth, (2) 2,900 services with physician work 

estimates that had been developed over 20 years ago, and (3) over 320 services with rapid 

growth in practice expenses. The April 2009 RUC meeting agenda included over 2,000 

pages of materials pertaining to these codes as well as other policies proposed by CMS. 

22Estimates of excessive payments that were avoided for surgical services subject to the 

MPPR have not been available since this policy was implemented over 10 years ago. 

23CMS recently expanded the imaging MPPR to include 10 additional services. 

24MedPAC, Report to the Congress: Medicare Payment Policy (Washington, D.C.: 2006). 

Page 11 GAO-09-647 Medicare Physician Payments
 

published these decisions in its August 2005 proposed rule for specialty 

society and public comment and finalized its decisions in November 2005 

after evaluating and responding to stakeholder comments. These changes 

went into effect on January 1, 2006. 

The MPPR as currently used by CMS does have limitations. First, the 

MPPR does not apply to nonsurgical and nonimaging services that are 

commonly furnished together. When CMS developed the MPPR for 

surgical services in 1996, it acknowledged that efficiencies likely also 

occur for nonsurgical services. However, other than the imaging MPPR, 

CMS has not implemented an MPPR policy for nonsurgical services.25

Contractors we interviewed identified many opportunities to expand the 

MPPR policy to areas where services are commonly furnished together. 

For example, they stated that similar efficiencies occur when certain types 

of tests—such as nerve conduction studies or pulmonary function, vision, 

and hearing tests—are performed together. However, as of July 2009, CMS 

had not published proposals to systematically review services commonly 

furnished together by focusing on the most expensive services with the 

greatest potential for savings to Medicare. 

Second, the MPPR only reflects efficiencies occurring in practice 

expenses, not in the physician work component, where certain physician 

activities may occur only once.26 For example, a physician’s review of a 

patient’s medical history and prior imaging or other test results before the 

service, and dictation of the final report for the medical record, occur only 

once. Under the current payment methodology, the time spent on these 

activities is included in each service because the services are assumed to 

be furnished separately. Several organizations we interviewed stated that 

an MPPR for the physician work component was warranted to avoid 

duplicate payments to physicians for activities that they perform only 

once. In its 2006 report, MedPAC similarly recommended that CMS 

 

25CMS stated, in the 2009 final rule, that it will conduct data analysis and seek input from 

the RUC, MedPAC, and specialty societies to determine if an MPPR should be expanded to 

other (nonsurgical and nonimaging) services. See 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 

2008). Officials also told us that they expect to publish proposals for expanding the MPPR 

to other services in the proposed rule for 2010. (The proposed rule for 2010 was published 

on July 13, 2009.) 

26Although the reduction is applied to the entire fee for each subsequent service, 

according to the rules we reviewed, the MPPR reflects duplication in practice expenses, 

not physician work. See 56 Fed. Reg. 59,502, 59,514-15 (Nov. 25, 1991); 62 Fed. Reg. 33,158, 

33,171 (June 18, 1997); and 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 2008). 

Page 12 GAO-09-647 Medicare Physician Payments
 

examine efficiencies that might be occurring in the physician work 

component but are not reflected in the fee schedule.27 However, CMS has 

not conducted such a review. 

Our review of Medicare claims data indicated the potential for reducing 

excessive physician payments by implementing an MPPR to reflect 

efficiencies generally occurring in the practice expense component of 

certain nonsurgical and nonimaging service pairs commonly furnished 

together. In addition, our analysis of certain imaging services indicated 

potential for further reducing excessive payments by implementing an 

MPPR to reflect efficiencies in the physician work component when these 

services are performed together. 

CMS’s MPPR Policy 

Could Be Applied to 

Other Services 

Commonly Furnished 

Together and 

Expanded to Reflect 

Efficiencies in 

Physician Work 

Potential Exists for 

Reducing at Least One-Half 

Billion Dollars in 

Excessive Payments 

Annually through an MPPR 

to Reflect Efficiencies in 

the Practice Expense 

Component 

Our systematic review of a sample of the most costly service pairs showed 

potential for annual savings of over one-half billion dollars with 

implementation of an MPPR to reflect efficiencies in the practice expense 

component. Contractor Medical Directors we met with determined that an 

MPPR was appropriate for 149 (over 40 percent) of the 350 most costly 

service pairs we reviewed with them. The contractor Medical Directors 

recommended these MPPRs to reflect efficiencies occurring in practice 

expenses for services that were furnished only once. The 149 service pairs 

included interventional radiology procedures, physical therapy services, 

and various tests, such as additional imaging, pulmonary function, vision, 

hearing, and pathology.28 For example, a cardiovascular stress test is 

commonly furnished with a three-dimensional heart imaging test. 

However, the Medical Directors cautioned that CMS would need to 

 

27MedPAC, Report to the Congress: Medicare Payment Policy. 

28Interventional radiology procedures generally include one or more surgical procedures 

that are accompanied by imaging services. While the surgical procedures are subject to the 

surgical MPPR, the imaging services are not. Physical therapy services are generally valued 

as 15-minute sessions. Officials from the AMA explained that time spent on preservice and 

postservice activities is spread across the number of services in a “typical” session to avoid 

duplication of practice expenses. However, we found that there was duplication of certain 

activities in the intraservice period. For example, time spent testing range of motion or 

muscle flexibility was duplicated in the physical therapy service pairs that we examined. 

Page 13 GAO-09-647 Medicare Physician Payments
 

carefully monitor utilization of these services to ensure that physicians did 

not change their behavior by scheduling services on different days to avoid 

reduced fees for those subject to an MPPR. 

Potential Exists for 

Reducing about 

$175 Million Annually 

through Expanding the 

Current MPPR for Imaging 

Services to Reflect 

Efficiencies in the 

Physician Work 

Component 

Our analysis of 118 imaging service pairs suggests that efficiencies in 

physician work occur when services are furnished together, and an 

MPPR policy that reflected these efficiencies could save Medicare over 

$175 million annually.29 We sought the advice of contractor Medical 

Directors and other experts, who agreed that efficiencies occur in 

physician work when two or more services are furnished together and that 

an MPPR would be appropriate to account for these efficiencies. Our 

savings estimate is based on reducing fees for the lower-priced service in 

each service pair to reflect efficiencies in physician time spent on 

activities performed before and after the service that are already included 

in the higher-priced service. For example, the service pair that accounted 

for the largest share of spending across all imaging service pairs was the 

physician’s interpretation of two computed tomography (CT) scans: 

CT of the abdomen with dye and CT of the pelvis with dye.30 Of a total of 

18 minutes allotted for interpretation of the second (lower-priced) service, 

8 minutes were allotted for activities such as reviewing the patient’s prior 

medical history before the service and reviewing the final report and 

following up with the referring physician after the service. Since time 

spent on these activities was already included in the first (higher-priced) 

service, we discounted the fee for the lower-priced service by 44 percent 

(that is, 8 minutes ÷ 18 minutes).31 While the results of our analysis cannot 

be generalized to all service pairs, the concept of applying an MPPR for 

the physician work component could be applied to other services. 

Our analysis focused on efficiencies in activities performed before and 

after each service, but there are also likely efficiencies occurring during, 

or within, the intraservice phase. For example, a practicing radiologist we 

interviewed stated that when two CT scans of contiguous body areas (e.g., 

 

29We could not estimate savings from an MPPR for the physician work component of all 

service pairs because the RUC had not reviewed these services and the data required for 

this analysis were missing. 

30AMA officials informed us that the RUC has recommended changes for this service pair 

that CMS could incorporate into the 2011 physician fee schedule. 

31Experts we interviewed agreed that this methodology was a reasonable way of estimating 

efficiencies in physician work. 

Page 14 GAO-09-647 Medicare Physician Payments
 

the abdomen and pelvis) are taken at the same time, the total number of 

actual CT images reviewed is lower than if each scan were performed 

separately. This is because an abdominal CT generally includes margins of 

the pelvis and vice versa, and the images of these overlapping margins are 

examined only once by the radiologist. Other efficiencies relating to 

technology advances, such as digital storage and retrieval of imaging, may 

also be realized during the intraservice phase. 

The RUC and specialty societies may be limited in their ability to help CMS 

quickly identify opportunities for further savings from efficiencies 

occurring when services are commonly furnished together. The RUC’s 

methodology for identifying additional services is not focused on finding 

savings for the Medicare program. Moreover, the RUC workgroup’s 

dependence on specialty societies limits its ability to make progress. CMS, 

on the other hand, has the tools in place to readily expand its MPPR policy 

to reflect efficiencies occurring in the practice expense and physician 

work components of services that are commonly furnished together. 

However, as of July 2009, the agency did not appear to have conducted a 

systematic review of claims data to identify opportunities with the greatest 

potential for further savings. Further, unless specifically exempted by 

Congress (as was done in the DRA for fee changes for certain imaging 

services), savings would be redistributed to other services in accordance 

with the budget neutrality provision, and the Medicare program would not 

realize savings. 

The Acting Administrator of CMS should take further steps to ensure that 

fees for services paid under Medicare’s physician fee schedule reflect 

efficiencies that occur when services are performed by the same physician 

to the same beneficiary on the same day. These efforts could include 

Conclusions 

Recommendation for 

Executive Action 

• systematically reviewing services commonly furnished together and 

implementing an MPPR to capture efficiencies in both physician work and 

practice expenses, where appropriate, for these services; 

• focusing on service pairs that have the most impact on Medicare spending; 

and 

• monitoring the provision of services affected by any new policies it 

implements to ensure that physicians do not change their behavior in 

response to these policies. 

Page 15 GAO-09-647 Medicare Physician Payments
 

Matter for 

Congressional 

Consideration 

To ensure that savings are realized from the implementation of an MPPR 

or other policies that reflect efficiencies occurring when services are 

furnished together, Congress should consider exempting these savings 

from budget neutrality. 

We obtained written comments on a draft of this report from the 

Department of Health and Human Services (HHS), which are reprinted in 

appendix III. We obtained oral comments from representatives of the 

AMA. 

Agency and 

Professional 

Association 

Comments and Our 

Evaluation 

HHS Comments HHS concurred with our recommendation and stated that CMS plans to 

perform an analysis of nonsurgical codes that are furnished together 

between 60 and 70 percent of the time to determine whether efficiencies 

occur in the physician work and practice expense component of these 

services. HHS stated that it would implement policies to reflect these 

efficiencies, as appropriate, and agreed that CMS should focus on service 

pairs that have the most impact on Medicare spending. HHS also agreed on 

the need to monitor physician utilization of services if the MPPR is 

expanded. HHS suggested that we include in an appendix to the report the 

specific service pairs that we identified. 

We did not include such an appendix because our report focuses on 

illustrating the value of CMS’s taking a more systematic approach, rather 

than focusing on specific service pairs, to ensure that the fee schedule 

reflects efficiencies when services are provided together. However, we 

will work with CMS officials and share information to aid in the agency’s 

efforts. 

AMA Comments AMA representatives expressed three broad concerns about the draft 

report. First, they disagreed with our assessment of the RUC workgroup’s 

efforts to ensure that services are appropriately coded and valued. Second, 

they stated that a broad application of the MPPR to account for 

efficiencies in practice expenses and physician work was not appropriate. 

Third, they opposed our matter for congressional consideration that 

suggests that any savings from implementing the report’s 

recommendations be exempted from budget neutrality requirements. 

Page 16 GAO-09-647 Medicare Physician Payments
 

AMA representatives disagreed with the report draft’s characterization of 

the efficacy of the RUC workgroup, noting that the RUC workgroup’s 

efforts have been aggressive, timely, and efficient. They also stated that 

the specialty societies had developed proposals to combine the type A and 

B service pairs that would result in significant savings should CMS 

implement them in 2010 or 2011. As an example, they projected that the 

proposals to combine 14 myocardial perfusion services of the workgroup’s 

53 type A and type B service pairs would result in annual savings of about 

$40 million from efficiencies occurring in the physician work component. 

In addition, they said that while they did not have an estimate, they 

believed that savings for the practice expense component would also 

likely be significant. Finally, representatives stated that in its review of 

potentially misvalued services, the workgroup may have already identified 

and made recommendations on some of the unique codes or pairs 

included in our list of 149 code pairs. 

RUC Workgroup’s Efforts 

We acknowledge in the draft the time and effort the workgroup has 

expended in identifying potentially misvalued services. However, based on 

our review of the workgroup’s processes and progress to date, we 

continue to believe that these processes are resource intensive and will 

likely limit CMS’s ability to quickly identify opportunities for savings from 

those service pairs that account for a high share of Medicare spending. In 

addition, as stated in the draft, the workgroup has not prioritized its 

review to systematically focus on services with the greatest potential 

savings for Medicare. While it is possible that some of the type A and type 

B service pairs the workgroup identified may be relatively costly, its 

methodology does not systematically focus on such services. We believe 

our assessment of the workgroup’s progress remains accurate—as of 2009 

the workgroup had identified only three misvalued services that were 

combined. Finally, from our list of 149 code pairs (which included 116 

unique codes), the workgroup had identified only one code pair and 21 

unique codes in its review of potentially misvalued codes. 

AMA representatives stated that a “blanket reduction” of 25 percent for the 

149 code pairs based on duplication in time spent on certain preservice 

and postservice tasks was not appropriate. They contended that for an 

average service, the intensity of time spent on tasks in the preservice and 

postservice phases is less than the intensity of time spent on intraservice 

tasks. AMA representatives added that in some instances a 25 percent 

reduction may be too high, whereas in other instances it might be more 

appropriate. They said that for some of the newer codes, the RUC had 

already taken any potential efficiencies into account, but for some of the 

old codes, which have not been revalued by the RUC, the 25 percent 

Broader Application of MPPR 

Page 17 GAO-09-647 Medicare Physician Payments
 

discount may be more reasonable. The AMA representatives also stated 

that the RUC workgroup’s efforts result in a more accurate and credible 

system of coding and valuation of services and thus is more effective than 

the application of “arbitrary policies” such as an MPPR. 

In the draft report, we acknowledge the limitations of our approach and 

state that the results of our analysis cannot be generalized to all service 

pairs. Our draft also states that the discount of 25 percent we applied to 

the 149 code pairs is consistent with the imaging MPPR that reflects 

efficiencies in the practice expense component. We do not recommend 

that CMS adopt our specific methodology; rather we present it as an 

illustration of potential efficiencies occurring in the physician work 

component that can be uncovered through a systematic review of service 

pairs. However, we continue to believe that CMS should undertake a 

systematic review of services and, where appropriate, expand the MPPR to 

ensure that physician fee schedule payments reflect efficiencies when 

services are performed by the same physician to the same beneficiary on 

the same day. 

AMA representatives disagreed with the draft’s statement that spending 

on physician services has recently grown at an average annual rate of 

6 percent, and opposed our suggestion that Congress consider exempting 

any savings from implementation of the report’s recommendations from 

federal budget neutrality requirements. AMA representatives told us that 

the growth rate of per beneficiary spending on Part B physician services 

has slowed to an annual rate of 3 percent in 2006 and 2007. Regarding our 

suggestion that Congress consider exempting any savings from budget 

neutrality, AMA representatives expressed concern that the exemption 

would have an adverse effect on primary care services that could benefit 

from the redistribution of savings and stated that savings would be spent 

on other programs. 

Exempting Savings from 

Budget Neutrality Requirement 

We agree that the annual rate of growth in per beneficiary spending on 

physician services slowed somewhat in 2006 and 2007, but even taking this 

into account, annual spending from 1997 to 2008 grew an average of 6 

percent. We recommend that Congress consider exempting potential 

savings from budget neutrality to help ensure the fiscal health of the 

Medicare program. As we noted in the draft, there is recent precedent for 

exempting savings from budget neutrality. We agree that primary care 

services are important, but Congress has other mechanisms for altering 

payment for these services. 

Page 18 GAO-09-647 Medicare Physician Payments
 

AMA representatives also provided technical comments, which we 

incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to the Acting 

Administrator, CMS, and relevant congressional committees. This report 

also will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you or your staffs have any questions, please contact me at (202) 512-

7114 or cosgrovej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

James C. Cosgrove 

listed in appendix IV. 

Director, Health Care 

Page 19 GAO-09-647 Medicare Physician Payments
Appendix I: Est

Savi

imating Potential for Further 

ngs from Efficiencies in Multiple Services 

Page 20 GAO-09-647 

Appendix I: Estimating Potential for Further 

Savings from Efficiencies in Multiple Services

In this appendix, we describe the processes we used to determine 

opportunities for the Centers for Medicare & Medicaid Services (CMS) to 

avoid excessive payments for services commonly furnished together. 

To determine additional opportunities for CMS to avoid excessive 

payments for services that are commonly furnished together, we 

conducted a systematic review of Medicare claims data using the 2006 

Medicare Physician/Supplier Part B 5 Percent Standard Analytic File.1

 To 

conduct this review, we selected physician services that were paid under 

the resource-based payment methodology.2

 We generated a list of all 

service pairs that were furnished by the same physician to the same 

beneficiary on the same day and made the following exclusions: 

• service pairs with low utilization—those that were billed fewer than 5,000 

times annually; 

• service pairs containing only the professional portion of a service;3

Estimating Potential 

for Further Savings 

from Efficiencies in 

the Practice Expense 

Component of 

Multiple Services 

through Systematic 

Review of Medicare 

Claims Data 

 

1

The 5 Percent Standard Analytic File contains final action claims data submitted by 

noninstitutional providers, including physicians, physician assistants, clinical social 

workers, nurse practitioners, independent clinical laboratories, ambulance providers, and 

stand-alone ambulatory surgical centers. 

2

Thus, we excluded Part B services provided or ordered by physicians but paid under other 

fee schedules, such as prescription drugs, laboratory, and Durable Medical Equipment. We 

estimated that these services account for approximately one-third of total Medicare 

spending on physician-billed services. 

3

Certain services, including imaging tests, have two separate portions—a professional 

portion that represents the physician’s interpretation of the test, and a technical portion 

that represents the actual performance of the test, generally by a technician. As such, the 

professional portion reflects the physician’s work. We excluded services with a 

professional portion since CMS currently does not have policies in place to recognize 

efficiencies in physician work. 

 Medicare Physician Payments 
Appendix I: Estimating Potential for Further 

Savings from Efficiencies in Multiple Services 

• service pairs that were already subject to payment policies that reduced 

payments for one of the services in the pair;4

• service pairs containing supplemental services, which are priced to 

exclude duplication of physician work and practice expenses that are 

already included in the primary service;5

 and 

• service pairs containing duplicate services. 

The remaining list of service pairs was our universe of pairs that 

represented opportunities for savings from efficiencies that resulted when 

the two services were furnished together.6

 To target our review to the 

service pairs that accounted for a large share of Medicare spending, we 

ranked the service pairs based on spending for the lesser-priced service 

(since the multiple procedure payment reduction (MPPR) and other 

policies usually apply to that service) and selected the 350 costliest service 

pairs based on total spending. We met with contractor Medical Directors 

and their staffs in five different states to determine if there were 

efficiencies taking place in the practice expense component when these 

service pairs were furnished together. To ensure consistency of review 

across the five contractors, we developed a standard set of questions that 

each contractor followed in evaluating the service pairs. We asked 

contractors to examine service descriptions and definitions, as well as 

coding instructions from the Current Procedural Terminology (CPT) 

 

4

These policies fell into three broad categories: (1) the National Correct Coding Initiative, 

which disallows payment for the second service because it is either a component of the 

first service or cannot reasonably be performed with the first service; (2) the global surgery 

payment policy, which generally disallows separate payment for certain services—such as 

evaluation and management—performed before and after a surgical service over a defined 

period of time, because reimbursement for these evaluation and management services is 

included in the surgical fee; and (3) the multiple procedure payment reduction (MPPR), 

which reduces payment for the second and subsequent services for certain surgical and 

imaging services. CMS officials we met with concurred that while they routinely issue 

payment policies on other individual services that are performed together, the three 

policies that we identified are the most comprehensive. 

5

We identified supplemental services as those listed in Appendix D: “Summary of CPT Addon Codes” and Appendix E: “Summary of CPT Codes Exempt from Modifier 51”, of the 2008 

AMA CPT Manual. 

6

The total list of service pairs generated before any exclusions was approximately 165,000 

pairs. After the exclusions, that number dropped to approximately 64,000. We then selected 

the top 350 service pairs that accounted for at least one-half of 1 percent of the total 

savings potential from the 64,000 service pairs. 

Page 21 GAO-09-647 Medicare Physician Payments
Appendix I: Estimating Potential for Further 

Savings from Efficiencies in Multiple Services 

manual and from CMS, and use their clinical judgment and knowledge to 

assess whether there were efficiencies occurring because certain practice 

expenses were incurred only once before and after each service in the 

service pairs. We also asked contractors to determine the payment policy 

that best captured these efficiencies. For example, contractors determined 

whether the services in each pair should be combined into a single code, 

there should be no payment for one service in the service pair because it 

was inherently included in the other, or an MPPR should be applied. If an 

MPPR should be applied, contractors determined the approximate 

discount that was most appropriate. Since all five contractors determined 

that an MPPR was the most appropriate payment policy to reflect 

efficiencies in all 149 of the 350 service pairs they identified as having 

potential, we estimated total savings to the Medicare program by applying 

the appropriate discount to spending for the lower-priced service in each 

pair. 

Our estimate of savings is conservative for several reasons. First, we 

excluded services that were billed multiple times on the same day by the 

same physician, since our focus was on potential savings when two unique 

services were furnished together. To the extent that there is overlap of 

physician work and practice expenses in the preservice and postservice 

phases of these duplicate services, an MPPR should be applied to account 

for this overlap. Second, we generally applied a discount of 25 percent or 

less to the service pairs to mirror CMS’s discount on imaging service pairs, 

although, in certain instances, a higher discount was warranted based on 

the extent of duplication in practice expenses. 

Page 22 GAO-09-647 Medicare Physician Payments
Appendix I: Estimating Potential for Further 

Savings from Efficiencies in Multiple Services 

To estimate potential savings from applying an MPPR to account for 

duplication of physician work activities occurring before and after each 

service in the service pairs, we first examined the American Medical 

Association (AMA) database—the Resource-Based Relative Value System 

(RBRVS) Data Manager—to determine if data on these activities were 

available for all service pairs. The RBRVS Data Manager contains vignettes 

describing the physician’s work for a specific procedure for a typical 

patient in three phases: preservice, intraservice, and postservice.7

 The 

AMA/Specialty Society Relative Value Scale Update Committee (RUC) 

bases its estimates of physician work and practice expenses on these 

vignettes. Because we found that vignettes were missing for a large 

proportion of services, we used physician time—the amount of time it 

takes a physician to perform a service—as a proxy for physician work, and 

discounted the fee for the lesser-priced service in each service pair for the 

extent of overlap in physician time spent on the preservice and postservice 

phases across the two services.8

 Using the physician time file on the CMS 

Web site, we calculated this discount as the sum of time spent on the 

preservice and postservice phases of the lesser-priced service divided by 

total time for that service.9

 We limited our analysis to the imaging service 

pairs that we had identified from our review of Medicare claims data 

because we wanted to examine a homogenous group of services where the 

activities included in the pre- and postservice phases were generally the 

same across different imaging services, and therefore the time spent on 

pre- and postservice phases was also likely to be relatively uniform across 

this group of services. We applied the discount to the professional fee of 

imaging services, since the professional fee captures the physician’s work 

in interpreting the imaging service. We discussed our approach with 

several experts in the Medicare physician payment system. These included 

an experienced contractor Medical Director; a Medicare Payment Advisory 

Estimating Potential 

Savings from an 

MPPR to Reflect 

Efficiencies in 

Physician Work 

Component 

 

7

Preservice describes the activities involved prior to performing a specific procedure, such 

as obtaining a patient history; intraservice reflects the primary service performed, such as 

interpretation of an imaging test; and postservice includes activities performed following a 

procedure, such as signing a final report and discussing the findings with the referring 

physician. 

8

Physician time does not account for either the complexity and intensity of a procedure and 

the risk to the patient or the physician’s skill required, but the time spent on activities in 

both the preservice and postservice phases is likely to be duplicated for procedures 

performed together by the same physician on the same patient on the same day. 

9

For example, if a service takes a total of 20 minutes, and the time spent on the preservice 

and postservice phases was 3 minutes and 2 minutes, respectively, the discount would be 

25 percent. 

Page 23 GAO-09-647 Medicare Physician Payments
Appendix I: Estimating Potential for Further 

Savings from Efficiencies in Multiple Services 

Commission (MedPAC) official who is an expert in Medicare physician 

payment policy; and a practicing radiologist and leading expert in the field 

who has written extensively on Medicare payment policy and 

reimbursement issues. They concurred that our methodology was a 

reasonable approach to estimating potential savings from an MPPR for 

physician work. 

Page 24 GAO-09-647 Medicare Physician Payments
Appendix

Prac

 II: Examples of Vignette and 

tice Expense Estimate 

Page 25 GAO-09-647 

Appendix II: Examples of Vignette and 

Practice Expense Estimate 

This appendix contains examples of a vignette and a practice expense 

estimate. The vignette (fig. 2) is used by specialty societies to develop 

estimates of physician work resources for a service. The practice expense 

estimate (fig. 3) describes the nonphysician clinical labor, supplies, and 

equipment resources required for each service. 

Figure 2: Example of AMA Vignette for CPT Code 92235, Eye Exam with Photos 

Source: 2008 American Medical Association.

 Medicare Physician Payments 
Appendix II: Examples of Vignette and 

Practice Expense Estimate 

Figure 3: Example of AMA Practice Expense Estimates for CPT Code 92235, Eye 

Exam with Photos 

Source: American Medical Association.

Page 26 GAO-09-647 Medicare Physician Payments
Appendix III: Comments from the Department Appendix III: Comments from the of Health and Human Services 

Department of Health and Human Services 

Page 27 GAO-09-647 Medicare Physician Payments 
Appendix III: Comments from the Department 

of Health and Human Services 

Page 28 GAO-09-647 Medicare Physician Payments
Appendix III: Comments from the Department 

of Health and Human Services 

Page 29 GAO-09-647 Medicare Physician Payments
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 30 GAO-09-647 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov 

In addition to the contact named above, Phyllis Thorburn, Assistant 

Director; William A. Crafton; Iola D’Souza; Richard Lipinski; and 

Elizabeth T. Morrison made key contributions to this report. 

 Medicare Physician Payments 

GAO Contact 

Acknowledgments 

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