Aug 4, 2020
Aspects of the practice expense (PE) valuation methodology used to determine the Medicare Physician Fee Schedule (MPFS) may contribute to misvalued payment rates. This report recommends policy changes for improving the rate setting of PE and updating indirect practice cost estimates. Improving payment accuracy would support improved payment policies in other areas of the U.S. health care system.
This report addresses concerns that aspects of the practice expense (PE) valuation methodology used to determine the Medicare Physician Fee Schedule (MPFS) contribute to misvalued payment rates. The fee for each service is denominated in relative value units (RVUs). The report proposes potential improvements in the current methodology used to allocate indirect practice costs in determining PE RVUs for a service and assesses alternative data sources that could be used to regularly update indirect practice cost estimates. A number of potential policy changes are recommended for improving the rate setting of PE. The most sweeping change would be to adopt relative values for total PE based on the Outpatient Prospective Payment System (OPPS), which is used to value outpatient hospital visits. Potentially, OPPS-based costs could be used to inform or replace the MPFS PE valuations. This change would reduce site of service payment differentials, simplify Medicare payment policy, and improve returns from rate-setting resources since cost information would be shared between the two Medicare payment systems. There are a number of methodological issues that would need to be resolved before this change could be implemented, but the potential benefits are great enough to justify investments to further develop this option. Alternatively, new data could be collected to update PE valuations using the current framework. The report proposes survey processes that could minimize survey burden in order to facilitate on-going data collection. Improving payment accuracy would support improved payment policies in many other areas of the country's health care system.
Updating Data Sources for Physician Practice Expense
Valuing Practice Expense Using Practice Characteristics
Developing Alternative Indirect Cost Allocation Bases
Changes to Specialty Adjustments
Valuing Indirect PE for Services Provided in Facility Settings
Using OPPS Costs to Determine PE Values
Summary, Policy Recommendations, Conclusions
Summary of the Current Algorithm Used in the PE Valuation Process
Defining Place of Service, Type of Practice, and Ownership
Supplemental Information for the OPPS Analyses
MGMA Specialty and PPIS Specialty Crosswalk