The task we face is to determine how much indirect expenses such as rent and utilities should be associated with a particular procedure. Unlike direct expenses where the resource inputs can be specifically linked to particular services, indirect expenses by their nature cannot be linked to specific services. The issue of how much rent or expenses for utilities that physician's practice incurs should be allocated to a by-pass surgery or an office visit requires some type of allocation method. No survey or study could determine the indirect costs of any of the more than 7,000 individual procedures. No universally accepted method for allocation of indirect expenses exists.
Accountants look for reasonable proxies and available data.
For example, a reasonable case can be made that the amount of rent and utilities associated with particular procedures should depend on the amount of time the physician or his staff spend doing the procedure. Preliminary impacts we released to the physician community in January of this year were based on allocating indirect expenses using these two approaches. We have continued to review those approaches to allocating indirect expenses as well as consider other alternatives. However, basically all the approaches we considered utilized formula-based methods in which indirect practice relative values are assigned to individual codes based on some factor, such as physician time, nonphysician time, direct practice expenses, or some combination of these factors. Our Notice of Proposed Rulemaking selects a method of allocating indirect costs that is driven by direct costs, an allocation method that we believe is sound.