This is the accessible text file for GAO report number GAO-09-647 
entitled 'Medicare Physician Payments: Fees Could Better Reflect 
Efficiencies Achieved When Services Are Provided Together' which was 
released on August 31, 2009. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

July 2009: 

Medicare Physician Payments: 

Fees Could Better Reflect Efficiencies Achieved When Services Are 
Provided Together: 

GAO-09-647: 

GAO Highlights: 

Highlights of GAO-09-647, a report to congressional requesters. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

GAO recommends that the Acting Administrator, CMS, ensure that 
physician fees reflect efficiencies occurring when services are 
commonly furnished together. GAO suggests that Congress consider 
exempting any resulting savings from federal budget neutrality so that 
savings accrue to Medicare. The Department of Health and Human Services 
concurred with GAO, stating it plans to review these services. The 
American Medical Association disagreed with aspects of our report, 
including exempting savings from budget neutrality. GAO continues to 
believe that Congress should consider such an exemption to help ensure 
appropriate payments for Medicare physician services. 

View [hyperlink, http://www.gao.gov/products/GAO-09-647] or key 
components. For more information, contact James C. Cosgrove at (202) 
512-7114 or cosgrovej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CMS Has Recognized Efficiencies in Some Services, but Has Not Focused 
on High-Spending Services: 

CMS's MPPR Policy Could Be Applied to Other Services Commonly Furnished 
Together and Expanded to Reflect Efficiencies in Physician Work: 

Conclusions: 

Recommendation for Executive Action: 

Matter for Congressional Consideration: 

Agency and Professional Association Comments and Our Evaluation: 

Appendix I: Estimating Potential for Further Savings from Efficiencies 
in Multiple Services: 

Appendix II: Examples of Vignette and Practice Expense Estimate: 

Appendix III: Comments from the Department of Health and Human 
Services: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Overview of Workgroup Process to Identify Misvalued Services 
Furnished by the Same Physician to the Same Beneficiary on the Same 
Day: 

Figure 2: Example of AMA Vignette for CPT Code 92235, Eye Exam with 
Photos: 

Figure 3: Example of AMA Practice Expense Estimates for CPT Code 92235, 
Eye Exam with Photos: 

Abbreviations: 

AMA: American Medical Association: 

CMS: Centers for Medicare & Medicaid Services: 

CPT®: Current Procedural Terminology: 

CT: computed tomography: 

DRA: Deficit Reduction Act of 2005: 

HHS: Department of Health and Human Services: 

MedPAC: Medicare Payment Advisory Commission: 

MPPR: multiple procedure payment reduction: 

RBRVS: Resource-Based Relative Value Scale: 

RUC: AMA/Specialty Society Relative Value Scale Update Committee: 

RVU: relative value unit: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

July 31, 2009: 

The Honorable Frank Pallone: 
Chairman: 
The Honorable Nathan Deal: 
Ranking Member: 
Subcommittee on Health: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Pete Stark: 
Chairman: 
Subcommittee on Health: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

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.[Footnote 1] 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).[Footnote 2] 
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.[Footnote 3] 

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.[Footnote 4] 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.[Footnote 5] 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 the 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 these service pairs. We also consulted 
with other experts from three medical specialty societies and reviewed 
AMA resource estimates of physician work and practice expenses. 
[Footnote 6] 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. 

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. 

Background: 

Medicare's physician fee schedule includes payments for over 7,000 
services, such as office visits, surgical procedures, and tests. 
[Footnote 7] 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. 

Process for Defining Medicare Fee Schedule Services: 

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.[Footnote 8] 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. 

Process for Developing and Updating Resource Estimates Used to Set 
Fees: 

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.[Footnote 9] 
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.[Footnote 10] 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.[Footnote 11],[Footnote 12] (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.[Footnote 13] 

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. 

Initiatives to Account for Efficiencies in Multiple Services: 

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.[Footnote 14] CMS expanded the MPPR 
to include certain diagnostic imaging services in 2006.[Footnote 15] 
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.[Footnote 16] 

Budget Neutrality: 

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.[Footnote 17] 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.[Footnote 18] 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. 

CMS Has Recognized Efficiencies in Some Services, but Has Not Focused 
on High-Spending Services: 

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. 

RUC Workgroup Examines Efficiencies in Services Commonly Furnished 
Together, but Does Not Target Services with Greatest Potential for 
Savings: 

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. 
[Footnote 19] 

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 figure 1). 

Figure 1: Overview of Workgroup Process to Identify Misvalued Services 
Furnished by the Same Physician to the Same Beneficiary on the Same 
Day: 

[Refer to PDF for image: illustration] 

1) Workgroup forwards service pairs to related specialty societies for 
proposals to combine services. 

2) Specialty societies survey their members and make proposals to the 
workgroup. 

3) If the specialty societies and the workgroup concur that services 
should be combined or revised, the proposed services are forwarded to 
the CPT Editorial Panel. 

4) The CPT Editorial Panel considers the proposals. Decisions to 
combine or revise services are forwarded to the RUC. 

5) The RUC recommends resource estimates for the new services after 
receiving input from specialty societies. 

6) CMS reviews RUC recommendations and issues a proposal in the Federal 
Register for up to 60-day public comment period. 

7) After reviewing comments, CMS issues its decisions in final rule. 

Source: GAO analysis. 

[End of figure] 

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.[Footnote 
20] 

Finally, the workgroup is required to undertake other tasks, including 
reviewing services because of technological changes or because of high 
growth, utilization, or intensity.[Footnote 21] 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. 

CMS's MPPR Policy Reflects Efficiencies but Is Limited in Scope: 

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.[Footnote 
22],[Footnote 23] 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.[Footnote 
24] 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.[Footnote 25] 
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.[Footnote 26] 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.[Footnote 27] However, CMS has not conducted such a 
review. 

CMS's MPPR Policy Could Be Applied to Other Services Commonly Furnished 
Together and Expanded to Reflect Efficiencies in Physician Work: 

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. 

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: 

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.[Footnote 28] 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. 

Potential Exists for Reducing about $175 Million Annually through 
Expanding the Current MPPR for Imaging Services to Reflect Efficiencies 
in the Physician Work Component: 

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.[Footnote 29] 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.[Footnote 30] 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).[Footnote 31] 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. 

Conclusions: 

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. 

Recommendation for Executive Action: 

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. 

Matter for Congressional Consideration: 

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. 

Agency and Professional Association Comments and Our Evaluation: 

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. 

HHS Comments: 

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. 

AMA Comments: 

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. 

RUC Workgroup's Efforts: 

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. 

Broader Application of MPPR: 

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. 

Exempting Savings from Budget Neutrality Requirement: 

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. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Acting Administrator, CMS, and relevant congressional 
committees. This report also will be available at no charge on the GAO 
Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions, please contact me at (202) 
512-7114 or cosgrovej@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix IV. 

Signed by: 

James C. Cosgrove: 
Director, Health Care: 

[End of section] 

Appendix I: Estimating Potential for Further Savings from Efficiencies 
in Multiple Services: 

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. 

Estimating Potential for Further Savings from Efficiencies in the 
Practice Expense Component of Multiple Services through Systematic 
Review of Medicare Claims Data: 

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. 
[Footnote 32] To conduct this review, we selected physician services 
that were paid under the resource-based payment methodology.[Footnote 
33] 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 times annually; 

* service pairs containing only the professional portion of a service; 
[Footnote 34] 

* service pairs that were already subject to payment policies that 
reduced payments for one of the services in the pair;[Footnote 35] 

* 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;[Footnote 36] 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.[Footnote 37] 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. 

Estimating Potential Savings from an MPPR to Reflect Efficiencies in 
Physician Work Component: 

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.[Footnote 38] 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.[Footnote 39] 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.[Footnote 40] 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. 

[End of section] 

Appendix II: Examples of Vignette and Practice Expense Estimate: 

This appendix contains examples of a vignette and a practice expense 
estimate. The vignette (figure 2) is used by specialty societies to 
develop estimates of physician work resources for a service. The 
practice expense estimate (figure 3) describes the nonphysician 
clinical labor, supplies, and equipment resources required for each 
service. 

Figure 2: Example of AMA Vignette for CPT Code 92235, Eye Exam with 
Photos: 

[Refer to PDF for image: illustration] 

This illustration is from RBRVS Data Manager 2008: 

Vignette: 

An 82-year-old female with age-related macular degeneration noted 
blurred vision and on examination was found to have a hemorrhage in the 
macula Fluorescein angiography is ordered to determine the cause. 

Pre-Service: 

The patient's history is reviewed. Previous and current fundus photos 
are evaluated. Previous retinal fluorescein angiograms are reviewed. 
The patient and family are informed of the value of an angiographic 
fundus evaluation, and the risks and benefits are explained. The nurse 
starts the intravenous line for administration of the intravenous dye. 

Intro-Service: 

The transit, mid-phase, and late-phase angiographic frames are studied 
and an interpretation is developed. Angiographic findings are compared 
with previous studies, A report is prepared. 

Post-Service: 

The report is dictated. The referring physician is informed of the 
outcome. 

Source: 2008 American Medical Association. 

[End of figure] 

Figure 3: Example of AMA Practice Expense Estimates for CPT Code 92235, 
Eye Exam with Photos: 

[Refer to PDF for image: illustration] 

AMA/Specialty Society RVS Update Committee Recommendations: 

Location: In-office: 
CMS Staff Type,	Medical Supply, Or Equipment Code: 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 
		
Total Clinical Labor Time: 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 67. 
		
Service Period: 
Start When patient enters office for surgery/procedure. 		
		
Pre-service: 

Review charts; 
CMS Staff Type,	Medical Supply, Or Equipment Code: Certified Retinal 
Angiographer; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 2. 

Greet patient and provide gowning; 
CMS Staff Type,	Medical Supply, Or Equipment Code: Certified Retinal 
Angiographer; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 2. 

Obtain vital signs; 
		
Provide pre-service education/obtain consent; 
CMS Staff Type,	Medical Supply, Or Equipment Code: Certified Retinal 
Angiographer; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 5. 
	
Prepare room, equipment, supplies. 
		
Pre-service: Prepare and position patient/monitor patient/set up IV; 
CMS Staff Type,	Medical Supply, Or Equipment Code: RN/Other; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 10. 

Sedate/apply anesthesia. 		
		
Intra-service: 
		
Assist physician in performing procedure; 
CMS Staff Type,	Medical Supply, Or Equipment Code: Certified Retinal 
Angiographer; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 40. 
		
Post-service: 

Monitor patient following service/check tubes, monitor drains; 
CMS Staff Type,	Medical Supply, Or Equipment Code: RN/Other; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 
5. 		 

Clean room/equipment by physician staff. 	 

Complete diagnostic forms, lab and X-ray requisitions. 		 

Review/read X-ray, lab and pathology reports. 		 

Label and file photos/slides with patient chart; 
CMS Staff Type,	Medical Supply, Or Equipment Code: Certified Retinal 
Angiographer; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 3. 
	
Other clinical activity (please specify). 
		
End: Patient leaves office. 		 

Medical Supplies: 

Pack, ophthalmology visit (w-dilation); 
CMS Staff Type,	Medical Supply, Or Equipment Code: SA082
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Applicator, cotton-tipped, non-sterile bin; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SG008; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 2. 

IV infusion set; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SCO18; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

18 gauge filter needle; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SC027; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Needle, butterfly 20 to 25 gauge; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SC030; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Syringe 5-6 ml; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SC057
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Band aid 3/4"x3"; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SG021; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 2. 

Fluorescein inj (5m1 uou); 
CMS Staff Type,	Medical Supply, Or Equipment Code: SH033; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Povidone son, (Betadine); 
CMS Staff Type,	Medical Supply, Or Equipment Code: SJ041; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 10. 

Film, Tri-x 35mm BW (per exposure); 
CMS Staff Type,	Medical Supply, Or Equipment Code: SK030; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 24. 

Paper, photo printing (8.5 x 11); 
CMS Staff Type,	Medical Supply, Or Equipment Code: SK058; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 2. 

Photographic stop bath; 
CMS Staff Type,	Medical Supply, Or Equipment Code: SK065; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 8. 

Equipment: 		 

Electric table; 
CMS Staff Type,	Medical Supply, Or Equipment Code: EF030; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Exam Lane; 
CMS Staff Type,	Medical Supply, Or Equipment Code: EL005; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Topcon Retinal Camera, incl. monitor, printer, etc. ($78,000); 
CMS Staff Type,	Medical Supply, Or Equipment Code: ED008; 
CPT code: 92235; Code Descriptor: Eye Exam with Photos: 1. 

Source: American Medical Association. 

[End of figure] 

[End of section] 

Appendix III: Comments from the Department of Health and Human 
Services: 

Department Of Health & Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201 

July 6, 2009: 
James Cosgrove: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street N.W. 
Washington, DC 20548: 

Dear Mr. Cosgrove: 

Enclosed are comments on the U.S. Government Accountability Office's 
(GAO) report entitled: "Medicare Physician Payments: Fees Could Better 
Reflect Efficiencies Achieved When Services Are Provided Together" (GAO-
09-647). 

The Department appreciates the opportunity to review this report before 
its publication. 

Sincerely, 

Signed by: 

Barbara Pisaro Clark: 
Acting Assistant Secretary for Legislation: 

Attachment: 

[End of letter] 

Department Of Health & Human Services: 
Centers for Medicare & Medicaid Services: 
200 Independence Avenue SW: 
Washington, DC 20201: 

Date: July 2, 2009: 

To: Barbara Pisaro Clark: 
Assistant Secretary for Legislation: 

From: [Signed by] Charlene Frizzera: 
Acting Administrator: 

Subject: Government Accountability Office's Report: "Medicare Physician 
Payments: Fees Could Better Reflect Efficiencies Achieved When Services 
Are Provided Together" (GAO-09-647): 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO) draft report entitled "Medicare Physician 
Payments: Fees Could Better Reflect Efficiencies Achieved When Services 
Are Provided Together." 

Medicare has a longstanding policy of reducing payment for multiple 
surgical procedures performed on the same patient, by the same 
physician, on the same day. The multiple procedure payment reduction 
(MPPR) for surgery is largely based on the efficiencies recognized in 
practice expenses for pre and post-surgical services. 

In 1995, the MPPR was extended to six nuclear medicine diagnostic 
procedures performed on the same patient on the same day. For surgical 
and nuclear medicine diagnostic procedures, payment is made in full for 
the highest priced procedure, and at 50 percent for the second 
procedure. 

In 2006, the MPPR was extended to certain diagnostic imaging procedures 
performed on contiguous areas of the body in the same session. In such 
cases, most clinical labor activities and most supplies are not 
performed or furnished twice. The payment reduction applies to over 100 
procedure codes within 11 families of codes. When 2 or more procedures 
within a family are performed on the same patient in a single session, 
the technical component (TC) of the highest priced procedure is paid at 
100 percent; the TC of each subsequent procedure is paid at 75 percent. 
The reduction does not apply to the professional component. 

The GAO estimates that considerable additional savings may be realized 
by expanding the MPPR to additional non-surgical, non-imaging 
procedures and by applying the MPPR to physician work, as well as to 
practice expense. 

GAO Recommendation: 

The Centers for Medicare & Medicaid Services 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. 

CMS Response: 

We concur with GAO's recommendation. In the 2009 Physician Fee Schedule 
final rule (73 FR 69882) we indicated that we plan to perform a data 
analysis of non-surgical Current Procedural Terminology codes that are 
often billed together (e.g., 60-70 percent of the time) to determine 
whether there are efficiencies that would justify a payment reduction. 
We further indicated that we plan to review physician work as well as 
practice expense inputs. We agree that we should focus on code pairs 
that have the most impact on Medicare spending. We also agree that 
monitoring physician behavior will be necessary if the MPPR is 
expanded. 

If reductions are warranted, we may propose either to expand the 
application of the MPPR or bundle additional services, as appropriate. 
Any proposed changes in our payment policy will be made through 
rulemaking and be subject to public comment. 

In order to facilitate analysis of the issues raised by the GAO, we 
strongly urge GAO to include, as an appendix to this report, all the 
specific code pairs identified and used by the GAO in preparation of 
this report. 

The Centers for Medicare & Medicaid Services appreciates GAO's analysis 
of the effects of expanding the MPPR, both in terms of the range of 
procedures and in applying it to physician work as well as to practice 
expense. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov: 

Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] Medicare Part B covers physician and other outpatient services. 

[2] On average, the physician work component accounts for about 52 
percent of the total fee for each service, the practice expense 
component accounts for about 44 percent, and the malpractice component 
for about 4 percent. 

[3] CMS also uses resource estimates for physician work and practice 
expenses to calculate indirect expenses--such as overhead, office 
equipment, and administrative staff salaries--for each service; thus, 
duplication of these resource estimates when services are commonly 
furnished together further contributes to excess payments. 

[4] The seven contractors we interviewed together process claims in 28 
states across the nation. CMS is in the process of integrating the 
administration of Medicare Part A (which covers hospital and other 
inpatient services) and Part B to new entities known as Medicare 
Administrative Contractors. The transition must be completed by October 
2011. 

[5] For this report, we will use "services commonly furnished together" 
to mean services performed by the same physician to the same 
beneficiary on the same day. 

[6] We interviewed experts from the American College of Cardiology and 
American College of Radiology who had published articles on appropriate 
payments for Medicare physician services. We also interviewed an expert 
from the American Society of Interventional Radiology to understand how 
certain interventional radiology procedures are valued by the AMA- 
sponsored physician panels, since these procedures are commonly 
furnished on the same day with other services. 

[7] Not all of the services included under the physician fee schedule 
are performed by physicians; some services (such as chemotherapy 
services or routine tests) may be performed by nurses or technicians. 

[8] Primarily composed of physicians from the specialty societies, the 
Advisory Committee makes recommendations to the CPT Editorial Panel for 
either the creation of new codes or revisions to existing codes. The 
CPT Editorial Panel meets three times a year, and its actions can 
result in three outcomes: (1) a new or revised code is approved, (2) 
the proposal is postponed pending further information, or (3) the 
proposal is rejected. 

[9] Estimates for physician work are developed by the RUC, while 
estimates for practice expenses are first reviewed by a subcommittee of 
the RUC--the Practice Expense Subcommittee, then submitted to the RUC 
for final recommendation to CMS. 

[10] These phases are referred to as preservice, intraservice, and 
postservice. The RUC maintains a database that includes vignettes and 
physician work estimates for services that it has reviewed. 

[11] Indirect expenses--overhead, administrative labor, and office 
expenses--are calculated by CMS in proportion to direct expenses and 
the physician work or clinical labor involved in providing each 
service. 

[12] Medicare's physician payment system ranks services on a common 
scale based on the amount of resources needed to provide each service 
relative to a benchmark service--defined as a midlevel office visit. 
These relative resources are expressed as relative value units (RVU). 
(Thus, if a midlevel office visit has an RVU value of 1.0, a service 
with an RVU of 1.5 is estimated to be 50 percent more costly to 
provide.) RVUs for each service are converted into fees by adjusting 
them to reflect geographic differences in resource costs, then 
multiplying by a dollar conversion factor. For further details on the 
process CMS uses to set fees, see GAO, Medicare Part B Imaging 
Services: Rapid Spending Growth and Shift to Physician Offices Indicate 
Need for CMS to Consider Additional Management Practices, [hyperlink, 
http://www.gao.gov/products/GAO-08-452] (Washington, D.C.: June 13, 
2008), and Medicare Physician Fees: Geographic Adjustment Indices Are 
Valid in Design, but Data and Methods Need Refinement, [hyperlink, 
http://www.gao.gov/products/GAO-05-119] (Washington, D.C.: Mar. 11, 
2005). 

[13] See 42 U.S.C. § 1395w-4(c)(2)(B)(i),(ii). 

[14] Supplemental services are exempt from the MPPR. 

[15] The MPPR applies only to the fee for the provision of the imaging 
test--generally performed by a technician. It does not apply to the fee 
for the interpretation of the imaging test--generally performed by a 
radiologist or other physician. 

[16] Although the reduction is applied to the entire fee for each 
subsequent service, according to the rules we reviewed, the MPPR 
reflects duplication in practice expenses, not physician work. See 56 
Fed. Reg. 59,502, 59,514-15 (Nov. 25, 1991); 62 Fed. Reg. 33,158, 
33,171 (June 18, 1997); and 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 
2008). 

[17] See 42 U.S.C. § 1395w-4(c)(2)(B)(ii). 

[18] See 42 U.S.C. § 1395w-4(c)(2)(B)(v). 

[19] The workgroup told us that it intends to review pairs that are 
performed together at a threshold below 90 percent after it completes 
review of the type A and B pairs. 

[20] As of May 2009, specialty societies had recommended that each of 
the 22 type A and 31 type B service pairs be combined into single 
codes. The CPT Editorial Panel and the RUC have reviewed 25 of these 
proposals, and the RUC has forwarded its recommendations to CMS. CMS 
officials stated that they will publish these proposals and the 
agency's decisions in the proposed rule for 2010. (The proposed rule 
for 2010 was published on July 13, 2009.) The proposals on the 
remaining 28 service pairs are slated to be reviewed at upcoming CPT 
meetings. 

[21] In addition to the workgroup's task of examining services commonly 
furnished together, the RUC is examining other misvalued services. For 
example, in June 2008, CMS forwarded a list of several hundred codes 
for its review. The list included codes in three different categories: 
(1) 114 services with the fastest growth, (2) 2,900 services with 
physician work estimates that had been developed over 20 years ago, and 
(3) over 320 services with rapid growth in practice expenses. The April 
2009 RUC meeting agenda included over 2,000 pages of materials 
pertaining to these codes as well as other policies proposed by CMS. 

[22] Estimates of excessive payments that were avoided for surgical 
services subject to the MPPR have not been available since this policy 
was implemented over 10 years ago. 

[23] CMS recently expanded the imaging MPPR to include 10 additional 
services. 

[24] MedPAC, Report to the Congress: Medicare Payment Policy 
(Washington, D.C.: 2006). 

[25] CMS stated, in the 2009 final rule, that it will conduct data 
analysis and seek input from the RUC, MedPAC, and specialty societies 
to determine if an MPPR should be expanded to other (nonsurgical and 
nonimaging) services. See 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 2008). 
Officials also told us that they expect to publish proposals for 
expanding the MPPR to other services in the proposed rule for 2010. 
(The proposed rule for 2010 was published on July 13, 2009.) 

[26] Although the reduction is applied to the entire fee for each 
subsequent service, according to the rules we reviewed, the MPPR 
reflects duplication in practice expenses, not physician work. See 56 
Fed. Reg. 59,502, 59,514-15 (Nov. 25, 1991); 62 Fed. Reg. 33,158, 
33,171 (June 18, 1997); and 73 Fed. Reg. 69,726, 69,882 (Nov. 19, 
2008). 

[27] MedPAC, Report to the Congress: Medicare Payment Policy. 

[28] Interventional radiology procedures generally include one or more 
surgical procedures that are accompanied by imaging services. While the 
surgical procedures are subject to the surgical MPPR, the imaging 
services are not. Physical therapy services are generally valued as 15- 
minute sessions. Officials from the AMA explained that time spent on 
preservice and postservice activities is spread across the number of 
services in a "typical" session to avoid duplication of practice 
expenses. However, we found that there was duplication of certain 
activities in the intraservice period. For example, time spent testing 
range of motion or muscle flexibility was duplicated in the physical 
therapy service pairs that we examined. 

[29] We could not estimate savings from an MPPR for the physician work 
component of all service pairs because the RUC had not reviewed these 
services and the data required for this analysis were missing. 

[30] AMA officials informed us that the RUC has recommended changes for 
this service pair that CMS could incorporate into the 2011 physician 
fee schedule. 

[31] Experts we interviewed agreed that this methodology was a 
reasonable way of estimating efficiencies in physician work. 

[32] The 5 Percent Standard Analytic File contains final action claims 
data submitted by noninstitutional providers, including physicians, 
physician assistants, clinical social workers, nurse practitioners, 
independent clinical laboratories, ambulance providers, and stand- 
alone ambulatory surgical centers. 

[33] Thus, we excluded Part B services provided or ordered by 
physicians but paid under other fee schedules, such as prescription 
drugs, laboratory, and Durable Medical Equipment. We estimated that 
these services account for approximately one-third of total Medicare 
spending on physician-billed services. 

[34] Certain services, including imaging tests, have two separate 
portions--a professional portion that represents the physician's 
interpretation of the test, and a technical portion that represents the 
actual performance of the test, generally by a technician. As such, the 
professional portion reflects the physician's work. We excluded 
services with a professional portion since CMS currently does not have 
policies in place to recognize efficiencies in physician work. 

[35] These policies fell into three broad categories: (1) the National 
Correct Coding Initiative, which disallows payment for the second 
service because it is either a component of the first service or cannot 
reasonably be performed with the first service; (2) the global surgery 
payment policy, which generally disallows separate payment for certain 
services--such as evaluation and management--performed before and after 
a surgical service over a defined period of time, because reimbursement 
for these evaluation and management services is included in the 
surgical fee; and (3) the multiple procedure payment reduction (MPPR), 
which reduces payment for the second and subsequent services for 
certain surgical and imaging services. CMS officials we met with 
concurred that while they routinely issue payment policies on other 
individual services that are performed together, the three policies 
that we identified are the most comprehensive. 

[36] We identified supplemental services as those listed in Appendix D: 
"Summary of CPT Add-on Codes" and Appendix E: "Summary of CPT Codes 
Exempt from Modifier 51", of the 2008 AMA CPT Manual. 

[37] The total list of service pairs generated before any exclusions 
was approximately 165,000 pairs. After the exclusions, that number 
dropped to approximately 64,000. We then selected the top 350 service 
pairs that accounted for at least one-half of 1 percent of the total 
savings potential from the 64,000 service pairs. 

[38] Preservice describes the activities involved prior to performing a 
specific procedure, such as obtaining a patient history; intraservice 
reflects the primary service performed, such as interpretation of an 
imaging test; and postservice includes activities performed following a 
procedure, such as signing a final report and discussing the findings 
with the referring physician. 

[39] Physician time does not account for either the complexity and 
intensity of a procedure and the risk to the patient or the physician's 
skill required, but the time spent on activities in both the preservice 
and postservice phases is likely to be duplicated for procedures 
performed together by the same physician on the same patient on the 
same day. 

[40] For example, if a service takes a total of 20 minutes, and the 
time spent on the preservice and postservice phases was 3 minutes and 2 
minutes, respectively, the discount would be 25 percent. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: