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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Lawrence S. Solomon, Martin T. Gahart, Vanessa Taylor, Wayne Turowski, Roseanne Price, and Mike Thomas made major contributions to this report.

Summary:
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.