We, MedPAC, and the Congressional Budget Office (CBO) have all suggested that CMS profile physician resource use and provide feedback to physicians as a step toward improving the efficiency of care financed by Medicare. In July 2008, Congress passed MIPPA, which directed the Secretary of HHS to establish a program by January 1, 2009, to provide physicians confidential feedback on the Medicare resources used to provide care to beneficiaries. MIPPA gave HHS the flexibility to measure resource use on a per capita basis, an episode basis, or both. In response to the MIPPA mandate, CMS is pursuing its Physician Resource Use Measurement and Reporting Program. (See table 1.) When profiling physicians on their resource use, five key decisions must be made: Which resource use measurement methodology to use. There are two main profiling methodologies: per capita and episode-based. Using both types of measures of resource use may provide more meaningful results by more fully capturing the relevant characteristics of a physician’s practice patterns. How to account for differences in patient health status. Accounting for differences in patient health status, a process sometimes referred to as risk-adjustment, is an important and challenging aspect of physician profiling. Because sicker patients are expected to use more health care resources than healthier patients, we believe the health status of patients must be taken into account to make meaningful comparisons among physicians. There are various risk-adjustment methods and the suitability of a given method will depend on characteristics of the physicians to be profiled and their patients. How to attribute resource use to physicians. Important attribution decisions include whether to assign a patient’s resource use to the single physician who bears the greatest responsibility for the resource use, to all physicians who bore any responsibility, or to all physicians who met a given threshold of responsibility, such as providing a certain percentage of the expenditures or volume of services. A single attribution approach may not be applicable for all types of measures or for all types of physician specialties. What benchmark(s) to use. Physician profiling involves comparing physicians’ resource use to a benchmark. There are differing opinions on what are the most appropriate and meaningful comparative benchmarks. How to determine what is a sufficient sample size to ensure meaningful comparisons. The feasibility of using resource use measures to compare physicians’ performance depends, in part, on two factors: the availability of enough data on each physician to compute a resource use measure and a sufficient number of physicians to provide meaningful comparisons. It is important to calculate resource use measures only for physicians with sufficient sample sizes in order to address concerns that a physician’s profile may be distorted by a few aberrant cases. There is no consensus on what sample size is adequate to ensure meaningful measures. Responding to the MIPPA mandate to establish a physician feedback program by January 1, 2009, CMS began in April 2008 to develop its program for reporting to physicians on their resource use. In the first phase of the program, CMS identified eight priority conditions and disseminated approximately 310 Resource Use Reports to physicians in selected specialties who practiced in one of 13 geographic areas. The reports generally included both per capita and episode-based resource use measures that were calculated according to five different attribution rules. The reports also contained multiple cost benchmarks relative to physicians in the same specialty and geographic area. In Phase II, CMS is proposing to expand the program by adding quality measures and reporting on groups of physicians as a mechanism for addressing small sample size issues. Using a per capita profiling method, we found that from 2005 to 2006, specialist physicians showed considerable stability in their practice patterns, as measured by resource use—greater stability than their patients, despite high patient turnover. We also found that our per capita method can differentiate specialists’ patterns of resource use with respect to different types of services, such as institutional services, which were a major factor in beneficiaries’ resource use. In particular, patients of high resource use physicians used more institutional services than patients of low resource use physicians. Using a per capita method to profile specialist physicians, we found that their practice patterns, as measured by the level of their resource use, was relatively stable over 2005 and 2006 by comparison with individual beneficiaries’ resource use (see figure 1). This is true despite the fact that our measure of physicians’ resource use is derived from their patients’ resource use and that the specific patients whom physicians see are not always the same from year to year. Among the physicians we studied, less than one-third of patients seen by study physicians in 2005 were also seen by the same physician in 2006. This stability suggests that per capita resource use is a reasonable approach for profiling physicians, because it reflects distinct patterns of a physician’s resource use, not the particular population of beneficiaries seen by a physician in a given year. We divided both physician and beneficiary resource use into five groups of approximately equal size (quintiles) and found that, on average across the four metropolitan areas and four specialties, 58 percent of physicians and 30 percent of beneficiaries were in the same quintile of resource use in 2005 and 2006. The pattern was even more pronounced for the top resource use quintile: 72 percent of physicians and 35 percent of beneficiaries remained in that quintile. If the level of physicians’ and beneficiaries’ resource use was purely random, only 20 percent would be expected to have remained in the same quintile. We also examined the stability of physicians’ resource use by specialty and found a similar pattern, although not to the same extent in all specialties. The average percentage of physicians who were in the same resource use quintile in 2005 and 2006 ranged from 48 percent for orthopedic surgeons to 60 percent for internists. Resource use in the top quintile was more stable and ranged from 69 percent for diagnostic radiologists to 74 percent for internists. (See table 2.) In each of the four metropolitan areas, physicians showed greater stability in their resource use than individual beneficiaries, although the percentages varied. For example, the percentage of physicians remaining in the top quintile ranged from 68 percent in Phoenix to 76 percent in Miami. For beneficiaries, the percentage in the top quintile ranged from 31 percent in Phoenix to 39 percent in Miami. (See table 3.) The greater stability of physicians’ resource use compared to beneficiaries’ resource use could be due to their individual practice styles, as well as to a range of other factors, such as participation in formal or informal referral networks. These networks have a range of providers, including other physicians, who treat their patients and refer them for treatment, testing, and admissions to hospitals. Beneficiaries seen by high resource use physicians generally were heavier users of institutional services than those seen by lower resource use physicians, and institutional services accounted for more than one-half of total patient expenditures. This pattern was consistent across three of the four specialties we studied, with orthopedic surgery being the exception. Institutional services were the major driver of Medicare expenditures for beneficiaries in physicians’ practices, accounting on average for 54 percent of expenditures. Services provided by a particular physician in our study directly to that physician’s patients accounted for only 2 percent of total expenditures or about $350 for each beneficiary in a physician’s practice. All other services—those provided by other physicians, home health care, hospice care, outpatient services, and durable medical equipment—accounted for the remaining 44 percent of expenditures. (See fig. 2.) Expenditures for institutional services for a physician’s patients grew as the level of physician resource use increased. Dividing the level of physician resource use into quintiles, we examined the relationship of physicians’ resource use and expenditures for services provided to their patients. Average expenditures for institutional services increased more steeply by physician resource quintile than expenditures for all other services. The four specialties all exhibited this pattern of increasing beneficiary expenditures for institutional services accompanying increasing physician resource use, although for orthopedic surgery the increase was small. The increase in average beneficiary expenditures for all other services that accompanied increasing physician resource use was similar for three of the four specialties and was steeper for internal medicine. We also examined the average number of physicians seen by the Medicare beneficiaries we studied and found that it was positively associated with increasing physician resource use. Overall, the number of physicians seen increased from an average of about 13 physicians per beneficiary in the lowest quintile of resource use to more than 23 in the highest. The increase in the number of physicians seen was accompanied by an increase in average beneficiary expenditures for institutional services that was steeper than the rise in other services. Through our review of selected literature and interviews with officials of health insurance companies, specialty societies, and profiling experts, we identified several key considerations in developing reports to provide feedback to physicians on their performance, including their per capita resource use. We also drew on information from these sources to develop an example of how per capita measures could be presented in a physician feedback report. We identified four key considerations in developing reports to provide feedback to physicians (see table 4). Our review of selected literature suggested that a physician feedback report should contain three basic elements: an explanation of the information contained in the report (which we will discuss in the context of transparency), measures describing the performance of the physician or physicians to whom the report is directed, and comparative benchmarks. Measures. Both the selected literature we reviewed and the officials we interviewed supported including measures of quality along with measures of cost, and ensuring that measures are actionable by providing information that can help physicians improve their performance. The officials we interviewed were divided as to whether these measures should reflect physicians’ performance at the individual level or the group level. Quality measures. All five of the insurers we contacted were profiling physicians in terms of quality and cost, and four of the five had adopted a model code for physician ranking programs that called for rankings to be based on quality as well as cost. Most of the specialty society officials we interviewed also called for the inclusion of quality measures in physician feedback reports, and some cautioned that focusing solely on costs could create perverse incentives—for example, encouraging physicians to reduce inappropriately the level of care provided to patients.