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Collecting new data for PE rate setting is likely to be challenging

• Larger practices and health care systems are more common now than they were a decade ago, and sharing of resources between practices and parent organizations likely will complicate accurate data collection.
• Getting people to respond to surveys is difficult, and this challenge will be compounded by the complexity of the topic and the need to construct a sample from a population whose members have many demands on their time.
• Collecting accurate data will be difficult because of inconsistencies across practices in expense terminology, accounting, and record-keeping.

A new data collection effort to measure PE would present a rare opportunity to rethink the methodology that is currently used to allocate indirect PE

• If new data are collected, it might be possible to improve the PE allocation algorithm itself. For example, the current indirect pool could be split into several subcategories of indirect PE that better capture variation in PE required to provide MPFS services.
• The current system generally assumes that PE scales as a function of physician work and direct costs. However, some components of PE might be better allocated on the basis of, for example, clinical time per visit or other characteristics of the service being performed.
• This approach could reduce the importance of physician specialty in rate setting and increase reliance on the indirect PE that is required to perform particular services.
• However, this approach would also place greater demands on collecting data that conform to precise category definitions.

As an alternative to collecting new PE rate-setting data from scratch, it would also be possible to use hospital cost information that is used for rate setting in the OPPS

• OPPS information could be used to inform MPFS PE rate setting in various ways, including flagging services that could be scrutinized as potentially misvalued procedures.

In this report, the authors address how the Centers for Medicare and Medicaid Services (CMS) can improve the methodology or update data used for setting practice expense (PE) rates for payments made under the Medicare Physician Fee Schedule (MPFS). The current system for setting PE payment rates relies, in part, on data collected in the Physician Practice Information (PPI) Survey, which generally reflects information from 2006. Because of changes in the U.S. economy and health care system since that time, there are concerns that continued reliance on measures that use PPI Survey data might result in misvalued PE rates. To the extent that future payment systems use MPFS rates as a starting point, misvalued PE rates might be problematic if they are not updated.

The research in this report, which is part of the second phase of a study, can be divided into three broad topics. First, the authors consider how updated PE data could be collected through a new large-scale national survey effort to replace the PPI Survey. Second, the authors consider a new framework for allocating PE, which they developed to better capture variation in PE resources that are required to provide services covered in the MPFS. Finally, the authors continue work begun in Phase I of the project and documented in a previous report, Practice Expense Methodology and Data Collection Research and Analysis, investigating the potential to make use of data collected to set rates in the Outpatient Prospective Payment System (OPPS). Throughout the report, the authors focus primarily on indirect PE, which includes such expenses as administration, rent, and other forms of overhead that cannot be attributed to any specific service.

• Chapter One

  Introduction

• Chapter Two

  Considerations for Survey-Based Collection of Practice Expense

• Chapter Three

  Practice Expense Components and Practice Characteristics

• Chapter Four

  Survey Instrument Model

• Chapter Five

  Technical Expert Panel Summary

• Chapter Six

  An Alternative Framework for Allocating Indirect Practice Expense

• Chapter Seven

  Using Outpatient Prospective Payment System Relative Values to Determine Practice Expense

• Chapter Eight

  Conclusion

• Appendix A

  Detailed Methods and Additional Results of Environmental Scan

• Appendix B

  Practice Expense Types

• Appendix C

  Content of Previously Administered Practice Expense Surveys

• Appendix D

  Survey Instrument Model

• Appendix E

  Supplemental Information for the Outpatient Prospective Payment System Analyses

• Appendix F

  Steps of the Current Algorithm Used in the Practice Expense Rate Setting