Medicare Physician Payments: Fees Could Better Reflect Efficiencies Achieved When Services Are Provided Together
Published: 2009-07-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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  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). 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.
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  that process and pay Part B claims. 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.
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 the  same physician to the same beneficiary on the same day from 2006  Medicare claims data. 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 met  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 physician  work and practice expenses. On the basis of these discussions and  analyses, we estimated resulting savings to the Medicare program if fees  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 example,  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  pairs commonly furnished together. se  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.
subsections: section_title: Background
paragraphs: Medicare’s physician fee schedule includes payments for over 7,000  services, such as office visits, surgical procedures, and tests. 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.
subsections: section_title: Process for Defining Medicare Fee Schedule Services
paragraphs: 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.  Code revisions require research from both CPT staff and specialty society  members who assist the CPT Editorial Panel in its work. According to  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.
section_title: Process for Developing and Updating Resource Estimates Used to Set Fees
paragraphs: 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. 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. 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. (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  agency is required by law to conduct at least every 5 years to account for  changes in medical practice.
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.
section_title: Initiatives to Account for Efficiencies in Multiple Services
paragraphs: 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. CMS expanded the MPPR to include certain diagnostic  imaging services in 2006. 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.
section_title: Budget Neutrality
paragraphs: 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. 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. 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.
section_title: CMS Has Recognized Efficiencies in Some Services, but Has Not Focused on High- Spending Services
paragraphs: 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.
subsections: section_title: RUC Workgroup Examines Efficiencies in Services Commonly Furnished Together, but Does Not Target Services with Greatest Potential for Savings
paragraphs: 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 Five- Year 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.
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.
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).
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.
Finally, the workgroup is required to undertake other tasks, including  reviewing services because of technological changes or because of high  growth, utilization, or intensity. 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.
section_title: CMS’s MPPR Policy Reflects Efficiencies but Is Limited in Scope
paragraphs: 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. 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. CMS then  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.  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. 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  examine efficiencies that might be occurring in the physician work  component but are not reflected in the fee schedule. However, CMS has  not conducted such a review.
section_title: CMS’s MPPR Policy Could Be Applied to Other Services Commonly Furnished Together and Expanded to Reflect Efficiencies in Physician Work
paragraphs: 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.
subsections: section_title: 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
paragraphs: 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. 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  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.
section_title: Potential Exists for Reducing about $175 Million Annually through Expanding the Current MPPR for Imaging Services to Reflect Efficiencies in the Physician Work Component
paragraphs: 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. 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. 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). 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.,  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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendation for Executive Action
paragraphs: 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    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.
section_title: Matter for Congressional Consideration
paragraphs: 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.
section_title: Agency and Professional Association Comments and Our Evaluation
paragraphs: 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.
subsections: section_title: HHS Comments
paragraphs: 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.
section_title: AMA Comments
paragraphs: 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.
subsections: section_title: RUC Workgroup’s Efforts
paragraphs: 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.
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.
section_title: Broader Application of MPPR
paragraphs: 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  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.
section_title: Exempting Savings from Budget Neutrality Requirement
paragraphs: 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.
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.
AMA representatives also provided technical comments, which we  incorporated as appropriate.
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section_title: Appendix I: Estimating Potential for Further Savings from Efficiencies in Multiple Services
paragraphs: 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.
subsections: section_title: Estimating Potential for Further Savings from Efficiencies in the Practice Expense Component of Multiple Services through Systematic Review of Medicare Claims Data
paragraphs: 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. To  conduct this review, we selected physician services that were paid under  the resource-based payment methodology. 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    service pairs containing only the professional portion of a service;    service pairs that were already subject to payment policies that reduced  payments for one of the services in the pair;   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; 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. 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)  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.
section_title: Estimating Potential Savings from an MPPR to Reflect Efficiencies in Physician Work Component
paragraphs: 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. 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. 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. 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  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.
section_title: Appendix II: Examples of Vignette and Practice Expense Estimate
paragraphs: 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.
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: Acknowledgments
paragraphs: 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.