RBRVS revamping ignites outcry over practice expense formulas

Battle goes ballistic over competing statistical methods

Specialists may well be headed toward major payment cuts again in 1998 if HCFA moves forward with its highly controversial revision of its practice expense reimbursement model.

Based on a preliminary HCFA study obtained by Physician’s Payment Update, the span of difference between the "winners" and "losers" is vast — from 44% cuts for cardiac surgeons to 40% increases for dermatologists. Specialists across the board are up in arms; generalists are expressing their discontent; and the battle rages with a fury over what statistical methods are most appropriate.

Practice expenses represent one of the three components of the Resource-Based Relative Value Scale (RBRVS), Medicare’s payment schedule for physicians. RBRVS’ three parts are: physician work (54%), practice expenses (41%), and malpractice costs (5%). While the physician work piece is derived from actual measures of physician effort, practice expenses and malpractice costs are based on historical data.

"I’ve spoken to a lot of doctors about this, and what I’m finding is that HCFA’s credibility is on the line with this one," says David Marcus, PhD, director of medical economics for the Texas Medical Association in Houston. Judging from HCFA’s data and approach so far, says Marcus, "It’s not based on anything that exists in the real world."

There is irony in the current physician criticism of HCFA’s practice expense reform efforts. Physician groups have long argued that RBRVS’ expense data should be updated and based on more relevant indicators, but many didn’t expect the solution HCFA is now proposing. While highly technical in nature, the overall result could be sweeping. Watch closely for the proposed rule on practice expense revamping, which is scheduled for release in the May 1 Federal Register.

Here are phrases and terms you’ll hear during the practice expense revision debate:

Statistical methodologies. HCFA is using a four-step statistical methodology. The system involves computing specialty-specific practice expense RVUs for both direct and indirect costs, and then combining them. (For more explanation, see related story, p. 52.)

Direct and indirect costs. Overall, HCFA officials estimate that direct expenses constitute 55% of a typical practice’s expenses, and indirect expenses constitute 45%. This is based on HCFA’s analysis of data from two sources: the 1997 AMA Physician Marketplace Statistics, and focus group data from Abt Associates, a Washington, DC-based consulting firm contracted by HCFA for the project. These focus group data also are referred to as CPEP (Clinical Practice Expert Panels) data by officials familiar with the project.

Typically, direct costs include items such as salaries, rent or mortgage, and supplies, while indirect costs typically include depreciation, employee benefits, and allocated costs of other departments.

Behavioral offset. This is HCFA’s assumption that physicians will make up for payment shortfalls by increasing patient volume. Because of that assumption, payments would be trimmed automatically across the board by 2% to 4%.

Preliminary reports from HCFA indicate these projected payment effects (see table on p. 50 for more specific breakdown of effects):

• internal medicine — 1% to 4% increase;

• family practice — 9% to 19% increase;

• cardiology — 20% to 25% reduction;

• cardiac surgery — 32% to 44% reduction;

• general surgery — 10% to 19% reduction;

• dermatology — 17% to 40% increase.

"Even as preliminary estimates and even if only half right, the magnitude and nature of the reductions and redistribution being proposed by HCFA are simply unacceptable, especially since the administration is contemplating other policies that would simultaneously produce even further reductions in Medicare payments for surgical services," wrote Paul A. Ebert, MD, director of the Chicago-based American College of Surgeons, in a letter of response to Health and Human Services Secretary Donna Shalala.

Some criticize focus group data

In 1996, Congress — responding to the pleas of many physician groups — mandated HCFA to replace the current practice expense values with a resource-based approach. Through a contractor, HCFA used expert panels, or focus groups, to determine direct costs for various services. Indirect costs were estimated using the results of a national survey of physician practices. The survey failed after only 27% of physician practices surveyed responded, leaving HCFA to develop other methods for indirect costing.

The Chicago-based American College of Surgeons (ACS) is urging HCFA to delay proposing the rule. Other groups, however, say the revamping of practice expenses is so important that it shouldn’t be delayed. "The unfairness inherent in the current system demands that methodologically sound RBPEs [resource-based practice expenses] be implemented as soon as possible," says Alan Nelson, MD, executive vice president of the American Society of Internal Medicine in Washington, DC.

"Many of the groups calling for a delay have explicitly stated that they are concerned that RBPEs will reduce income for their physician members," Nelson says. "This suggests to us that even if a delay was granted, they would still oppose implementation of any RBPE methodology that will result in substantial redistribution of dollars."

There is no question that the ACS is focusing on payment impact. Here are several examples Ebert points out in his letter to Shalala:

• Medicare payments to the surgeon performing a heart transplant could decline by about 57% from what they are today.

• Medicare payments for coronary artery bypass operations could fall about 44%, while those for operations such as total hip replacement and delicate brain surgery could be reduced by nearly 40%.

• Payments for operations for colon cancer could fall by more than 25%, and those for a modified radical mastectomy by more than 17%.