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THESECRETARYOFHEALTHANOHUMANSERVICES WASHINGTON.O.C.20»0I DEC 1992 TheHonorableDanQuayle PresidentoftheSenate Washington,D.C. 20510 DearMr.President: Iampleasedtoprovidethisreportinresponsetoscctiun4115ofPublicLaw101-508,the OmnibusBudgetReconciliationActof1990. Itrequiresstudyofregionalvariationsin impactofMedicarephysicianpaymentreformincluding: (1)factorsthatmayexplain geographicvariationsinMedicarereasonablechargesthatarenotattributabletovariations inphysicianpracticecosts(includingthesupplyofphysiciansinanareaandareavariations inthemixofservicesfurnished);(2)theextenttowhichthegeographicpracticecost indices(GPCIs)appliedunderthefeescheduleundersection 1848oftheSocialSecurity Actaccuratelyreflectvariationsinpracticecostsandmalpracticecosts(andalternative sourcesofinformationuponwhichtobasesuchindices);(3)theimpactofthetransitionto anational,resource-basedfeescheduleforphysicians'servicesunderMedicareonaccessto physicians'servicesinareasthatexperienceadisproportionatelylargereductionin paymentsforphysicians'servicesunderthefeeschedulebyreasonofsuchvariations;and (4)appropriateadjustmentsormodificationsinthetransitionto,ormannerofdetermining paymentsundersection1848oftheSocialSecurityAct.tocompensateforsuchvariations andassureaccesstophysicians'servicesforMedicarebeneficiariesinsuchareas. 1. FactorsThatMayExplainGeographicVariationinMedicareReasonableCharj^es Areviewoftheresearchliteraturewasconducted,andwesponsoredresearchtohelp determinethefactorsotherthanphysicianpracticecostdifferencesthatmayexplain differencesinMedicarereasonablechargesforphysicianservices. Theformalliterature frompaststudieshasdealtlargelywithphysicianpricingingeneral,ratherthanwith Medicarereasonablecharges. Resultsofvariousstudiesarcoftencontradictoryaboutthe influencesotherthanpracticecosts. Thereisfairlywideagreementthatotherimportant factorsincludedemandfactors,suchasthepopulationcompositionandthecharacterofthe insurancemarket,andphysiciansupplyfactors,suchastheageandspecialtydistribution Otherfactorsincludehospitalsupplyfactors,physici.intrainingandpracticecharacteristics WehaveacontracttoexaminepossiblecausesU\tvariationsmMedicareaveragealk)wcd charges. However,becausenosuitabledatabaseexists,thestudycannotcoverthe spectrumofcustomary,prevailingandrea.sonabie(CPR)chargesthatexistedpriorto physicianpaymentreform. Conceptually,thereh.\^heeiiachangefromaboutone-half Page•2--The'HonorableDanQuayle millionpractice-specificfeeschedules,differentiatedgenerallyaccordingtothelocation, specialtyandhistoricchargesofeachpractice,toasetof232localityfeeschedules. Fee schedulepaymentsaredifferentiatedbythestatutorilydefinedhistoricpaymentbasisfor eachlocalitycomparedtothenationalfeescheduleanditsgeographicadjustment factors,orGPCIs. Hencetheresearcherswillanalyzefactorswhichmayexplain variationsinaverageMedicareallowedcharges. 2. GPCIAccuracyinExplainingVariationsinPracticeCostsandMalpractice Costs,andAlternativeDataSourcesforIndices WehaveacontracttoexaminewhethertheGPCIsappliedundertheMedicarefee schedule(MFS)accuratelyreflectvariationinpracticecostsandmalpracticecosts. I'lie shareweightsandsomekeyinputfactorsarebeingvalidatedwithdataasreportedto theAmericanMedicalAssociation's(AMA)Socio-EconomicMonitoringSystem. Tlio.se datacomefromapproximately4,000practicingphysicianseachyearandarewidely regardedasoneofthebestavailablesourcesofinformationaboutphysiciancostsand incomesinvariousareasandspecialties. MWFeS,hatvheenAotMeAdtshaaitd,iinnpraerstp:ondingtotheJune5, 1991,ProposedRulesforthe 1992 "Forthemostpart,theAMAsupportsthemethodsbywhichgeographic adjustmentisaccomplishedthroughthenewfeeschedule. Wecontinuetohe concerned,however,byHCFA'snearlyexclusiverelianceonproxiesfor physiciansactualcosts. Werecognizethedifficultyinfindingdatabasesthat affordenoughgeographicdetail;toaffordprecisioninthemeasurementof practiceinputprices.OurownanalysisoftheadequacyoftheGPCIsinreflectirn: actualpracticeinputpricesprovidedfurtherevidencethatgeographicadjustment ofpaymentamountsisappropriate. Thisanalysisfurtherfoundthatthe individualGPCIswerecorrelatedwithactualpracticeinputprices(emphasis added)." Ourcontractorwillalsoexaminesomepossibledataalternativesforvariouscomponents oftheGPCIs,inparticularfornon-physicianemployeewagesandforofficerentandtor malpracticeexpenses. Onealternativefornon-physicianwagesthatwillbeanalyzed :s theMedicareHospitalWageIndex.Severalrentaldatasourcesarebeingexamineil,iv..: wehavethusfaragreedwiththePhysicianPaymentReviewCommission'sfindingth.i; theavailabledataarenotveryrepresentativeatarealevelsandseldomincludesmaii•: cuarlbcaunlaotironasnyisrauvraalilaarbelaes.forClmeaarnlyy,mtohreeraesriedaesnttihaalnreanntyalprporsopxeyctwievenaolwterunsaetiivne.theWeGl'a<ir! alsogatheringandanalyzingagreatdealofmorerecentinformationaboutphysician malpracticepremiums. Wealsohavelaunchedstudieswhichwillexamine 1990Ceir.;. resultsandothermorerecentdatathatcanformthebasisforthenextgeneralupd.i:;;.• orrefinementoftheGPCIs. Weanticipatethatwewillbeabletoprcipo.seagener.i' updatinginthespringof1994forimplementationmcalendar 1995,consistentwith section4118(c)ofPublicUiw 101-50S. Page3"The-HonorableDanQuayle I 3. ImpactonAccessinAreasThatExperienceDisproportionatelyLargeReductions inPaymentsforPhysicianServices Wehaveidentifiedthoseareaswhichareestimatedtofacecomparativelythelargestfee reductionsundertheMedicarefeeschedule. TheestimatescomparewhatMedicare mighthavepaidafter1992hadtherenotbeenphysicianpaymentreform. Using 1996 asthereferenceperiod,weidentifiedtheMedicarepaymentlocalitiesinwhichaverage paymentsperservicemaybeatleast 10percentlessundertheMFS,comparedto averagesundertheoldsystem. Ourcontractorisexaminingthecharacteristicsofthese localitiesfromseveralperspectives,includingthosefoundtobepossiblysignificantinthe analysisofvariationsinMedicarereasonablechargesdiscussedearlier. Byandlarge,theseareasarecharacterizedbyhigherthanaverageMedicarehistoric paymentlevels. SomeofthelargestreductionsareexpectedinManhattan, LosAngeles,MiamiandLasVegas. Most,butnotall,ofthehighestimpactareasare imneduircbaalncoarrelgaivregres.cityWseubwuorubladnaalrseoaspowihnteroeutthtehraetaisctaubaolveto-taavleMraegdeicaavraielapbailyimteynotfsfcir physicianservicesareexpectedtogrowevenintheseareaswhereaverageMedicare paymentsperservicemaydeclinethemost. Also,wenotethattheMedicare 10percent bonuspaymentsforphysicianservicesprovideanextraaccessincentivetocaregiversin UrbanandRuralHealthPersonnelShortageAreas. 4. AppropriateAdjustmentsorModifications Wehavenotyetseenanyreasonwhichwouldleadustoconcludethataccessto physicianservicesduringthetransitionperiodforMedicarephysicianpaymentreform shoulddiminish,evenintheareasfacingthelargestpaymentreductions. Aswas describedinourrecentReporttoCongress"MonitoringUtilizationofandAccessto ServicesforMedicareBeneficiariesunderPhysicianPaymentReform,"weare extensivelymonitoringforchangesinaccesstophysicianservicesbyMedicare beneficiaries. Untiltheresearchv/earesponsoringandmyreviewofapproachesfor simulatingagreatersupplyofprimarycarepractitionersarecompleted,weseeno justificafionforalteringeitherthestatutorytransitionperiodfortheMedicarephysici.m feeschedule,orthemannerofdeterminingpaymentsforphysicians'services. ResearchReportStatusSummary BySpring1993,weexpecttoreceivefromourcontractortheanalyseswehaveiniii:.;.-.! yoonureingiaonraelpovrartiaattitohnatintipmhey.sicWiaenlpoaoykmefonnt.v;rierfdortmo.woTrhkiisngincfloorsmelaytiaonndwiclolntbienuporuosvliydra'i::. CongresstoassurethatMedicarebeneficiariescontinuetohaveaccesstoquality physicianservices. Sincerely. Louis V. , la.,.,. M.D. THESECRETARYOFHEALTHANDHUMANSERVICES WASHINGTON,O.C.J0701 DEC I I 1992 TheHonorableThomasS.Foley SpeakeroftheHouseofRepresentatives Washington,D.C 20515 DearMr.Speaker: Iampleasedtoprovidethisreportinresponsetosection4115ofPublicLaw101-508,the OmnibusBudgetReconciliationActof1990. Itrequiresstudyofregionalvariationsin impactofMedicarephysicianpaymentreformincluding: (1)factorsthatmayexplain geographicvariationsinMedicarereasonablechargesthatarenotattributabletovariations inphysicianpracticecosts(includingthesupplyofphysiciansinanareaandareavariations inthemixofservicesfurnished);(2)theextenttowhichthegeographicpracticecost indices(GPCIs)appliedunderthefeescheduleundersection 1848oftheSocialSecurity Actaccuratelyreflectvariationsinpracticecostsandmalpracticecosts(andalternative sourcesofinformationuponwhichtobasesuchindices);(3)theimpactofthetransitionto anational,resource-basedfeescheduleforphysicians'servicesunderMedicareonaccessto physicians'servicesinareasthatexperienceadisproportionatelylargereductionin paymentsforphysicians'servicesunderthefeeschedulebyreasonofsuchvariations;and (4)appropriateadjustmentsormodificationsinthetransitionto,ormannerofdetermining paymentsundersection1848oftheSocialSecurityAct,tocompensateforsuchvariations andassureaccesstophysicians'servicesforMedicarebeneficiariesinsuchareas. 1. FactorsThatMayExplainGeographicVariationinMedicareReasonableCharges Areviewoftheresearchliteraturewasconducted,andwesponsoredresearchtohelp determinethefactorsotherthanphysicianpracticecostdifferencesthatmayexplain differencesinMedicarereasonablechargesforphysicianservices. Theformalliterature frompaststudieshasdealtlargelywithphysicianpricingingeneral,ratherthanwith Medicarereasonablecharges. Resultsofvariousstudiesareoftencontradictoryaboutthe Influencesotherthanpracticecosts. Thereisfairlywideagreementthatotherimportant factorsincludedemandfactors,suchasthepopulationcompositionandthecharacterofthe insurancemarket,andphysiciansupplyfactors,such.istheageandspecialtydistribution. Otherfactorsincludehospitalsupplyfactors,physiciantrainingandpracticecharacteristics. Wehaveacontracttoexaminepossiblecausesforv.iri.itionsinMedicareaverageallowed charges. However,becausenosuitabledatabaseexists,thestudycannotcoverthe spectrumofcustomary,prevailingandrea.sonable(Cl'l?)ehargesthatexistedpriorto physicianpaymentreform. Conceptually,thereh.isheen.iehangefromabouti)ne-half Page2-TheHonorableThomasS.Foley millionpractice-specificfeeschedules,differentiatedgenerallyaccordingtothelocation, specialtyandhistoricchargesofeachpractice,toasetof232localityfeeschedules. Fee schedulepaymentsaredifferentiatedbythestatutorilydefinedhistoricpaymentbasisfor eachlocalitycomparedtothenationalfeescheduleanditsgeographicadjustment factors,orGPCIs. Hencetheresearcherswillanalyzefactorswhichmayexplain variationsinaverageMedicareallowedcharges. 2. GPCIAccuracyinExplainingVariationsinPracticeCostsandMalpracticeCosts, andAlternativeDataSourcesforIndices WehaveacontracttoexaminewhethertheGPCIsappliedundertheMedicarefee schedule(MFS)accuratelyreflectvariationinpracticecostsandmalpracticecosts. The shareweightsandsomekeyinputfactorsarebeingvalidatedwithdataasreportedto theAmericanMedicalAssociation's(AMA)Socio-EconomicMonitoringSystem. Those datacomefromapproximately4,000practicingphysicianseachyearandarewidely regardedasoneofthebestavailablesourcesofinformationaboutphysiciancostsand incomesinvariousareasandspecialties. WMFeS,hatvheenAotMeAdtshaaitd,iinnpraerstp:ondingtotheJune5, 1991,ProposedRulesforthe 1992 "Forthemostpart,theAMAsupportsthemethodsbywhichgeographic adjustmentisaccomplishedthroughthenewfeeschedule. Wecontinuetobe concerned,however,byHCFA'snearlyexclusiverelianceonproxiesforphysicians actualcosts. Werecognizethedifficultyinfindingdatabasesthataffordenough geographicdetail;toaffordprecisioninthemeasurementofpracticeinputprices. OurownanalysisoftheadequacyoftheGPCIsinreflectingactualpracticeinput pricesprovidedfurtherevidencethatgeographicadjustmentofpaymentamountsis appropriate. ThisanalysisfurtherfoundthattheindividualGPCIswerecorrelated withactualpracticeinputprices(emphasisadded)." Ourcontractorwillalsoexaminesomepossibledataalternativesforvariouscomponents oftheGPCIs,inparticularfornon-physicianemployeewagesandforofficerentandtor malpracticeexpenses. Onealternativefornon-physicianwagesthatwillbeanalyzedis theMedicareHospitalWageIndex.Severalrentaldatasourcesarebeingexamined,hi;; wehavethusfaragreedwiththePhysicianPaymentReviewCommission'sfindingth.i: theavailabledataarenotveryrepresentativeatarealevelsandseldomincludesmall: cuarlbcaunlaotrionasnyisrauvraalilaarbelaes.forClmeaarnlyy,mtohreeraersiedaesnttihaalnreanntyalprpor.osxpyectwievenaolwterunsaetiivne.theWeGi'.(ire1 alsogatheringandanalyzingagreatdealofmorerecentinformationaboutphysician malpracticepremiums. Wealsohavelaunchedstudieswhichwillexamine 1990Ceii.r. resultsandothermorerecentdatathatcanformthebasisforthenextgeneral upd.ir-: orrefinementoftheGPCIs. Weanticipatethatwcwillbeabletoproposeageiici.il updatinginthespringof1994forimplementationincalendar 1995,consistentwith section4118(c)ofPublicLaw 101-508. i ' Page3--TheHonorableThomasS.Foley 3. ImpactonAccessinAreasThatExperienceDisproportionatelyLargeReductions inPaymentsforPhysicianServices Wehaveidentifiedthoseareaswhichareestimatedtofacecomparativelythelargestfee reductionsundertheMedicarefeeschedule. TheestimatescomparewhatMedicare mighthavepaidafter1992hadtherenotbeenphysicianpaymentreform. Using 1996 asthereferenceperiod,weidentifiedtheMedicarepaymentlocalitiesinwhichaverage paymentsperservicemaybeatleast10percentlessundertheMFS,comparedto averagesundertheoldsystem. Ourcontractorisexaminingthecharacteristicsofthese localitiesfromseveralperspectives,includingthosefoundtobepossiblysignificantinthe analysisofvariationsinMedicarereasonablechargesdiscussedearlier. Byandlarge,theseareasarecharacterizedbyhigherthanaverageMedicarehistoric paymentlevels. SomeofthelargestreductionsareexpectedinManhattan, LosAngeles,MiamiandLasVegas. Most,butnotall,ofthehighestimpactareasare mineduircbaalncoarrelgairvegres.cityWseubwuorubladnaalrseoaspowihnteroeutthtehraetaisctaubaolveto-taavleMreagdeicaavraielapbailyimteynotfsfor physicianservicesareexpectedtogrowevenintheseareaswhereaverageMedicare paymentsperservicemaydeclinethemost. Also,wenotethattheMedicare10percent bonuspaymentsforphysicianservicesprovideanextraaccessincentivetocaregiversin UrbanandRuralHealthPersonnelShortageAreas. 4. AppropriateAdjustmentsorModifications Wehavenotyetseenanyreasonwhichwouldleadustoconcludethataccessto physicianservicesduringthetransitionperiodforMedicarephysicianpaymentreform shoulddiminish,evenintheareasfacingthelargestpaymentreductions. Aswas describedinourrecentReporttoCongress"MonitoringUtilizationofandAccessto ServicesforMedicareBeneficiariesunderPhysicianPaymentReform,"weare extensivelymonitoringforchangesinaccesstophysicianservicesbyMedicare beneficiaries. Untiltheresearchwearesponsoringandmyreviewofapproachesfor stimulatingagreatersupplyofprimarycarepractitionersarecompleted,weseeno jusfificationforalteringeitherthestatutorytransitionperiodfortheMedicarephysician feeschedule,orthemannerofdeterminingpaymentsforphysicians'services. ResearchReportStatusSummary BySpring1993,weexpecttoreceivefromourcontractortheanalyseswehaveinitiated onregionalvariationinphysicianpaymentreform. Thisinformationwillbeprovidedto youinareportatthattime. Welookforwardtoworkingcloselyandcontinuouslywith CongresstoassurethatMedicarebeneficiariescontinuetohaveaccesstoquality physicianservices. Sincerely, Louis \\ Snl!iv;iri, M.D. ensLIBRHRy 3 flDTS 0DDLL770 L