Medicare Physician Payments: Medical Settings and Safety of Endoscopic Procedures
Published: 2002-10-18T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Every year millions of Americans covered by Medicare undergo endoscopic medical procedures in a variety of health care settings ranging from physicians' offices to hospitals. These invasive procedures call for the use of a lighted, flexible instrument and are used for screening and treating disease. Although some of these procedures can be performed while the patient is fully awake, most require some form of sedation and are usually provided in health care facilities such as hospitals or ambulatory surgical centers (ASC). Some physician specialty societies have expressed concern that Medicare's reimbursement policies may offer a financial incentive to physicians to perform endoscopic procedures in their offices and that these procedures may be less safe because physicians' offices are less closely regulated and therefore there is less oversight of the quality of care. For the 20 procedures reviewed, there was no evidence to suggest that there in any difference in the level of safety of gastroenterological and urological endoscopic procedures performed on Medicare beneficiaries in either physicians' offices or health care facilities, such as hospitals and ASC's. There was also no evidence found to suggest that the resource-based site-of-service payment differential has caused physicians to conduct a greater proportion of gastroenterological or urological endoscopic procedures in their offices for Medicare beneficiaries. If Medicare coverage for the office procedures in the study were terminated, few access problems would occur in most of the country because physicians perform the vast majority of the procedures that were studied in health care facilities.

section_title: Letter
paragraphs: Every year millions of Americans covered by Medicare undergo  endoscopic medical procedures in a variety of health care settings ranging  from physicians’ offices to hospitals. These invasive procedures call for  the use of a lighted, flexible instrument and are used for screening and  treating disease. Although some of these endoscopic procedures, such as  the sigmoidoscopic examination of the large bowel, can be performed  while the patient is fully awake, most require some form of sedation and  are usually provided in health care facilities such as hospitals or  ambulatory surgical centers (ASC). Some physician specialty societies  have expressed concern that Medicare’s reimbursement policies may offer  a financial incentive to physicians to perform endoscopic procedures in  their offices and that these procedures may be less safe because  physicians’ offices are less closely regulated and therefore there is less  oversight of the quality of care.
Medicare provides higher payments for medical procedures performed in  physicians’ offices than if they were performed in hospitals or ambulatory  surgical centers. These differences are based on relative resources used in  the delivery of medical services. Physicians conducting procedures in their  offices are responsible for providing clinical staff, supplies, and  equipment. However, physicians who conduct procedures in hospitals or  ASCs have fewer expenses, since these facilities provide many of the  necessary services. As a result, Medicare payments for procedures in  physicians’ offices are higher to account for the increased practice  expenses. These differences in Medicare reimbursements based on the  setting are known as “site-of-service payment differentials.” The payment  differentials have been phased in since 1999, and were fully implemented  in 2002. During this time, the site-of-service payment differentials have  increased for most endoscopic procedures.
Section 411 of the Medicare, Medicaid, and SCHIP Benefits Improvement  and Protection Act of 2000 (BIPA) directed us to examine the practice of  providing physician services that are ordinarily performed in health care  facilities—such as gastroenterological and urological endoscopic  procedures—in physicians’ offices. We were directed to (1) review safety  evidence regarding medical settings, (2) assess whether the practice  expense site-of-service payment differential has served as an incentive for  physicians to perform such procedures in their offices rather than in other  medical settings, and (3) assess whether access to care by Medicare  beneficiaries would be affected if these procedures were no longer  reimbursed by Medicare when conducted in physicians’ offices.
For our study, we selected 12 gastroenterological and 8 urological  procedures that are ordinarily performed in health care facilities for  Medicare beneficiaries. In 2001, there were about 4.8 million of these  gastroenterological procedures performed, of which about 156,000   (3.3 percent) were conducted in physicians’ offices. During this same year,  there were about 306,000 of these urological procedures performed, of  which about 12,000 (3.8 percent) were conducted in physicians’ offices. To  determine the relative safety of these procedures conducted in different  medical settings in the 50 states and the District of Columbia, we reviewed  the scientific literature maintained by the National Library of Medicine and  interviewed physicians; medical directors at Medicare carriers, which are  the CMS contractors that process and review Medicare claims; and a  representative of a trade association that represents the medical  malpractice insurance industry. We also attempted to obtain Medicare  claims data to determine whether patients who had endoscopic  procedures later encountered medical complications. However, such data  are not readily available. To assess whether the practice expense site-of- service differential has served as an incentive for physicians to conduct  office-based procedures, we analyzed CMS data on the percentage of  endoscopic procedures performed in physicians’ offices, hospitals, and  ASCs from 1996 through 2001. To determine whether access to care by  Medicare beneficiaries would be affected if these procedures were no  longer reimbursed by Medicare when conducted in physicians’ offices, we  analyzed CMS data on a geographic basis, leading to a focus on the New  York City area, which has a high utilization rate of physician office-based  endoscopic procedures. For this metropolitan area, we analyzed CMS  medical setting data and interviewed Medicare carrier directors and New  York state officials. We conducted our work from February 2001 through  October 2002 in accordance with generally accepted government auditing  standards. (See app. I for more information on our scope and  methodology.)
subsections: section_title: Background
paragraphs: In 2001, there were about 4.8 million gastroenterological procedures and  about 306,000 urological procedures performed on Medicare beneficiaries  nationwide that were conducted at least 90 percent of the time in health  care facilities and less than 10 percent of the time in physicians’ offices.  About 3.3 percent (or about 156,000) of these gastroenterological  procedures and 3.8 percent (or about 12,000) of these urological  procedures were conducted in physicians’ offices. About 35 percent of all  office-based gastroenterological endoscopic procedures were conducted  in the New York City metropolitan area.
subsections: section_title: Regulations and Guidelines for Endoscopic Procedures
paragraphs: Medicare regulates ASCs and other health care facilities that conduct  endoscopic procedures by requiring that they satisfy conditions related to  safety, facility design, staff expertise, and other factors in order to treat  Medicare beneficiaries.  If an ASC is accredited by a national accrediting  body or licensed by a state agency that provides reasonable assurances  that the conditions are met, CMS may deem it to comply with most  requirements. These conditions include, for example, the following:    Compliance with state licensure requirements.    An effective procedure for immediate transfer to hospitals of patients  needing emergency medical care beyond the capabilities of the ASC.
Safe performance of surgical procedures by qualified physicians granted  clinical privileges by the ASC under Medicare-approved policies and  procedures.
Ongoing comprehensive self-assessment of the quality of care with active  participation of the medical staff.
Use of a safe and sanitary environment, properly constructed, equipped,  and maintained to protect the health and safety of patients.
Provision of adequate management and staffing of nursing services to  ensure that nursing needs of all patients are met.
Maintenance of complete, comprehensive, and accurate medical records  to ensure adequate patient care.
Safe and effective provision of drugs and biologicals under the direction of  a responsible individual.
According to the American College of Surgeons, nine states have  guidelines or regulations pertaining to the safety of office-based surgical  procedures (including endoscopy) that address issues of Medicare  certification, state licensure, accreditation, and inspection of physicians’  offices:  In California, state licensure, Medicare certification, or accreditation is  required for all outpatient settings where anesthesia is used.  In Connecticut, state regulations require any office or facility operated by  a licensed health care practitioner or practitioner group to be accredited  by a nationally recognized body if sedation or anesthesia is used.  In Florida, the state is required to inspect a physician’s office where  certain levels of surgery (including endoscopy) are performed, unless a  nationally recognized accrediting agency or another accrediting  organization approved by the Board of Medicine accredits the office.  In Illinois, state regulations allow the delivery of anesthesia services by a  certified registered nurse anesthetist in the office only if the physician has  training and experience in these services.  In Mississippi, physicians conducting office procedures must register with  the state, maintain logs of surgical procedures conducted, follow federal  standards for sterilization of surgical instruments, and report any surgical  complications to a state board.  In New Jersey, state regulations have been developed to establish training  programs for physicians who utilize anesthesia in their office practices.  In Rhode Island, state regulations require licensure for offices in which  surgery, other than minor procedures, is performed. Accreditation by a  nationally recognized agency or organization is also required.
In South Carolina, guidelines address the safe delivery of anesthesia, the  presence of emergency equipment, procedures to transfer emergency  cases to hospitals, and physician training.  In Texas, regulations govern physicians in outpatient settings providing  general or regional anesthesia.
In addition, organizations such as the American Society for  Gastrointestinal Endoscopy and the Society of American Gastrointestinal  Endoscopic Surgeons publish safety guidelines that are similar to the  Medicare guidelines for ASCs. These guidelines are designed to ensure  that endoscopies are conducted safely regardless of whether they are  conducted in health care facilities or physicians’ offices. However, the  Medicare program does not regulate physicians’ offices and does not make  judgments about the safety of procedures conducted there.
section_title: Medicare’s Practice Expense Payments and Site-of-Service Differentials
paragraphs: In 1992, the Health Care Financing Administration (HCFA) began the  implementation of a resource-based physician fee schedule for the  Medicare program. The physician fee schedule is applicable to procedures  conducted in a variety of health care settings, including hospitals, ASCs,  and physicians’ offices. Under this fee schedule, physician payments are  based on relative amounts of resources needed to provide procedures  regardless of the health care setting. The physician fee schedule includes  three components. The physician work component (implemented in 1992)  provides payment for the physician’s time, effort, skill, and judgment  necessary to provide a service. The malpractice insurance component  reimburses physicians for the expense of their professional liability  insurance. The practice expense component compensates physicians for  direct expenses, such as clinical staff salaries, medical supplies, and  medical equipment and indirect expenses, such as administrative staff  salaries and other office expenses incurred in providing services.
Unlike the other two components, physician practice expenses can differ  depending on where the procedure is performed. In the office setting, the  physician is responsible for providing clinical staff, supplies, and  equipment needed to perform a service. In the facility setting, such as a  hospital or ASC, these are the responsibility of the facility. Medicare’s  practice expense payments to physicians can differ depending upon the  medical setting to reflect these differences. For medical facilities, practice  expense payments to physicians are generally lower, because Medicare  pays for nursing support, equipment, and supplies needed with a separate  facility fee. However, when these procedures are performed in an office,  Medicare pays physicians for these expenses in the practice expense  portion of the physician fee schedule. The differences in practice expense  payments for the same procedure are referred to as the site-of-service  differential. In 1999, HCFA began a now completed 3-year phase-in of the  site-of-service payment differential, as a part of the resource-based  practice expense system. In previous work, we found that HCFA used  acceptable methodology and relied on the best data available to develop  the practice expense component of its Medicare payment system of which  this payment differential is a result. Medicare’s higher payment for office- based procedures reflects the higher expenses to the physicians of  providing those procedures, but this payment may not cover all of their  expenses.
section_title: Level of Safety of Endoscopy Does Not Appear to Differ by Medical Setting
paragraphs: We found no evidence to suggest that the level of safety of  gastroenterological or urological endoscopy conducted on Medicare  beneficiaries differs by medical setting. In our search of the relevant  scientific literature maintained by the National Library of Medicine and in  discussions with Medicare carrier medical directors, physicians, and  physician specialty societies, we found no evidence of a higher occurrence  of medical complications from office-based gastroenterological and  urological endoscopic procedures relative to other medical settings.  Furthermore, according to a major trade association representing medical  malpractice insurance companies, the pricing policies of insurance  companies indicate that those companies do not believe that office-based  endoscopy poses additional safety risks.
subsections: section_title: Available Evidence Suggests Complications Are Few with Office-Based Endoscopy
paragraphs: Our search of relevant scientific literature maintained by the National  Library of Medicine and discussions with physicians revealed little  evidence of complications associated with office-based endoscopy for  gastrointestinal and urological procedures. The scientific literature on the  safety of office endoscopy is sparse; we were able to locate only one  published study. This study of upper gastrointestinal procedures  conducted in France showed very few complications over the course of  nearly 18,000 endoscopic procedures. In this study, there was one death  (the patient had previously diagnosed heart disease), one case of breathing  difficulty (considered avoidable by the authors), and five other minor  incidents. During the 10,000 exams performed over the last 12 years of this  17-year study, no clinically significant incidents occurred.
We discussed the safety of office-based endoscopy with physicians,  including representatives of three organizations critical of the CMS  practice expense site-of-service differential policy. We also discussed in- office safety issues with four Medicare carrier medical directors, including  those in New York where there is a relatively high proportion of office  procedures conducted. All of these officials, including the critics of the  policy, emphasized that the procedures as currently conducted are safe  and that complications are extremely rare.
section_title: Major Malpractice Insurance Companies Do Not Levy Surcharge on Physicians Who Conduct Office-Based Endoscopy
paragraphs: According to the Physician Insurers Association of America, a trade  association that represents the malpractice insurance industry, office- based endoscopy is not riskier than endoscopy conducted in health care  facilities. For example, two large New York malpractice insurance  companies do not levy a surcharge on physicians who conduct office- based surgery, including the endoscopic procedures included in our study.  One of these New York companies, which has the largest market share  nationwide (and 57 percent of the malpractice insurance market in New  York) does not consider office-based surgery an issue when setting rates  for its clients. The other New York company requires physicians who  conduct surgery in their offices to follow its company standards for  equipment and safety backup procedures, and it reserves the right to  conduct unannounced inspections of their offices. It does not, however,  impose a surcharge on physicians for office-based procedures. It does  require a surcharge for endoscopic procedures, but the amount does not  differ by medical setting.
section_title: Payment Differential Has Increased but Proportion of Office Procedures Has Not Increased
paragraphs: Although the site-of-service Medicare payment differential for the   12 common gastroenterological endoscopic procedures in our study has  increased since the practice expense component of the resource-based fee  schedule began to be implemented in 1999, the percentage of these  procedures performed in the office has not increased. The average  Medicare practice expense payments for the 12 gastroenterological  endoscopic procedures are presented in figure 1. The figure shows that  the payment differential has increased both because the average practice  expense payments for procedures performed in health care facilities have  decreased substantially (from $133 in 1998 to $59 in 2002) and because the  payment for office-based procedures has nearly doubled (from $143 in  1998 to $277 in 2002). The payment differential for urological procedures  has similarly increased since the average practice expense payments for  such procedures performed in health care facilities have decreased by  more than half (from $218 in 1998 to $83 in 2002) and because the average  payments for office-based procedures have more than doubled (from $218  in 1998 to $448 in 2002.)
The nationwide percentage of common office-based gastroenterological  and urological endoscopic procedures conducted on Medicare  beneficiaries has not increased (see fig. 2). For example, the percentage  of the gastroenterological procedures in our study conducted in the office  nationwide declined from about 4.8 percent in 1996 to 3.9 percent in 1998,  the last year of the old practice expense payment system, and to 3.3  percent in 2001 as the phase-in of the new practice expense system  approached completion. Similarly, the percentage of the urological  procedures in our study declined from about 5.7 percent in 1996 to 4.7  percent in 1998 to 3.8 percent in 2001.
From 1996 through 2001 in the New York City metropolitan area, where  about 35 percent of the nationwide Medicare-covered office procedures  were conducted, the proportion of office-based endoscopic procedures for  gastroenterology has remained fairly constant at slightly less than 30  percent. During the same period, the proportion of office-based urological  procedures in our study has declined from 11 percent to 8 percent.
However, regardless of geographic area, these findings must be  interpreted with caution. It is too early to determine the full effects of the  new practice expense system’s payment differential, as it was not fully  implemented until 2002.
section_title: If Office Procedures Were Not Reimbursed by Medicare, Access to Endoscopy Might Be Most Affected in the New York City Area
paragraphs: We were directed by BIPA to assess whether the access to care by  Medicare beneficiaries would be adversely affected if gastroenterological  procedures conducted in physicians’ offices were no longer reimbursed by  Medicare. If this occurred, patients in most of the nation would not likely  experience access problems for the procedures in our study, given that  relatively few procedures are performed in the office setting. However,  some New York City metropolitan area Medicare patients might have  initial difficulty obtaining care. In 2001, 28 percent, or about 54,000, of the  gastroenterological procedures for Medicare patients in the New York City  area were conducted in physicians’ offices, accounting for about 35  percent of these office procedures nationwide. According to CMS data, the  New York City area has the largest proportion and total number of office- based gastroenterological procedures of any geographic area in the nation.  In our review of CMS data on the geographic dispersion of office  procedures, we have been unable to locate other areas of the country with  such a major reliance on the availability of office-based  gastroenterological endoscopy. If Medicare coverage for the common  endoscopic office procedures included in our study were withdrawn,  medical facilities might not have the capacity to absorb the displaced  patients in the short term, according to a New York State Department of  Health official and Medicare carrier directors.
However, in 1998, New York State eased requirements for approval of new  ASCs, and, as a result, medical facility capacity has recently begun to  increase in the state and in the New York City area. New York requires an  approved certificate of need (CON) in order to approve a new ASC. To  obtain a CON, the need for the services of a proposed ASC must be  demonstrated for specific geographic areas. According to a New York  State Department of Health official, the rules for CON approval were  relaxed significantly in March 1998, and nearly all applications are  currently being approved. Since March 1998, there has been an increase of  almost 200 percent in the number of ASCs in New York, including major  increases in the New York City area. CON approvals can be obtained in the  New York City area because most area hospitals are operating at capacity.  In the future, if ASCs are equipped to offer the gastroenterological  procedures included in our study, it is possible that they could  accommodate displaced patients, if they are located in areas accessible to  these patients. In contrast, only about 8 percent of the urological  procedures in the New York City area were conducted in offices, so the  elimination of Medicare reimbursement would likely have a minimal effect  on the delivery of these procedures.
section_title: Concluding Observations
paragraphs: Some critics of the Medicare site-of-service payment differential for  endoscopic procedures have questioned the practice of conducting them  as office procedures because of concerns about patient safety. They have  suggested that the differential provides an incentive to the physician to  provide endoscopic procedures in a setting—the physician’s office—that  is less safe than another setting, such as a hospital or an ASC. But in our  review of common gastroenterological and urological endoscopic  procedures, we found no evidence that safety problems are greater for  these procedures conducted in physicians’ offices. Furthermore, we found  that the proportion of common office-based gastroenterological and  urological endoscopic procedures included in our study has not increased  as the site-of-service differential has been phased in. However, because the  payment differential has been in effect only since 1999 and was not fully  implemented until 2002, it is too early to tell whether it will affect the  percentage of procedures conducted in the office in the future. If the  common office-based endoscopic procedures included in our study were  no longer reimbursed by Medicare, most areas of the country would not  develop patient access problems. However, the initial effects in the New  York City metropolitan area—where there is a predominance of office- based procedures—could be problematic, although the increase in ASCs in  the New York City area could mitigate patient access problems in the  future.
section_title: Agency Comments
paragraphs: CMS provided written comments on a draft of this report, and concurred  with the general findings in the study (see app. III). The agency provided  technical comments, which we have addressed where appropriate.
We are sending this report to the CMS Administrator and interested  congressional committees. We will also make copies available to other  interested parties on request. In addition, the report 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- 7101. Major contributors to this report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix provides detailed information on the gastroenterological  and urological procedures that we selected for our study. It also describes  the methods that we used to address the study’s main objectives.
We selected the 12 gastroenterological and 8 urological endoscopic  procedures that are ordinarily performed in health care facilities and that  we defined as being conducted at least 90 percent of the time in health  care facilities and less than 10 percent of the time in offices. These  gastroenterological and urological procedures are common types of  endoscopy. These procedures have a practice expense site-of-service  differential. The procedures included in our study accounted for about   30 percent of the total number of gastroenterological and urological  endoscopic procedures conducted for Medicare beneficiaries in 2001;  about 3.5 percent of the procedures in our study were conducted in  offices. Many of these procedures require the use of sedation and entail  some risks for patients. Our results are not generalizable to other  endoscopic procedures. Tables 1 and 2 provide detailed information on the  20 procedures included in our study.
To assess the safety of office-based endoscopy, we reviewed the scientific  literature and interviewed physicians; four Medicare carrier medical  directors in the New York City area; North Dakota; and Wyoming; a  representative of Physicians Insurance Association of America; an official  from a trade association that represents the medical malpractice insurance  industry; and representatives of two large New York malpractice insurance  companies. We also interviewed interest group representatives, including  members of the American College of Gastroenterology, American Society  for Gastrointestinal Endoscopy, American College of Surgeons, American  Gastroenterology Association, and American Urological Association. We  also reviewed regulations and guidelines on physician office-based  endoscopy in the nine states that have such regulations and guidelines.
These states are California, Connecticut, Florida, Illinois, Mississippi, New  Jersey, Rhode Island, South Carolina, and Texas.
To assess whether the practice expense site-of-service payment  differential acts as an incentive for physicians to conduct  gastroenterological and urological endoscopic procedures in their offices,  we analyzed data from the Centers for Medicare & Medicaid Services  (CMS) using the Part B Extract and Summary System on the medical  settings (office, inpatient hospital, outpatient hospital, and ambulatory  surgical center) for relevant procedures for 1996 through 2001. For the  gastroenterological and urological procedures in our analysis, we  developed averages of practice expense reimbursements for health care  facilities and offices for each year from 1998 through 2002.
To determine whether access to care by Medicare beneficiaries would be  affected if endoscopic procedures in physicians’ offices were no longer  reimbursed by Medicare, we analyzed CMS data (using the Part B Extract  and Summary System) on office-based endoscopy for the nation as a  whole and for the New York City area, which has the highest proportion of  office-based procedures in the nation. We interviewed Medicare carrier  medical directors in several locales with a range of population size and  density, including the New York City area, North Dakota, and Wyoming.
section_title: Appendix II: Medical Settings for Endoscopic Procedures in GAO Sample
paragraphs: Tables 3 and 4 summarize the percentages of gastroenterological and  urological endoscopic procedures in our sample performed in physicians’  offices, hospitals (both inpatient and outpatient), and ASCs for 1996  through 2001. In the data provided to us by CMS, there was another  medical setting category (“other”) that captured a broad variety of medical  settings, including nursing facilities, rural health clinics, and military  treatment facilities. The proportion of procedures conducted in these  settings was very low, about 1 percent or less. In 1999, some of the claims  data were coded incorrectly, and the Health Care Financing  Administration inaccurately assigned larger proportions to the “other”  category (from 5 to 9 percent). Because of this confusion, we have  eliminated the “other” category from the analysis for 1999 and the other  years to ensure consistency in comparisons. Our reanalysis affects the  results for 1999 because it is unclear where the claims categorized as  “other” should have been categorized. However, because of the relatively  few cases affected, we do not believe that this error affects our analyses or  conclusions.
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Lawrence S. Solomon, Martin T. Gahart, Vanessa Taylor, Wayne Turowski,  Roseanne Price, and Mike Thomas made major contributions to this  report.