Physician Practice Expenses: What Does the Independent Research Show?

Dating back to 1990, every major independent study and analysis of physician practice expenses has concluded that the current charge-based method undervalues office-based services and overvalues most services provided in an inpatient setting. (Independent studies are those that are funded and conducted by researchers with no financial interest in the outcome). The studies used different methods to determine practice expenses: accounting based analysis of direct costs of specific services (PPRC); allocating costs on the basis of time (Hsiao,Braun, Becker, Latimer, Chen, Dunn); and allocating costs on the basis of physician work (Pope and Burge). Remarkably, all concluded that existing data may be used to construct practice expense relative values that are more resource-based than those used in the current Medicare fee schedule. All reached similar conclusions on the impact of resource-based practice expenses on payments per service and payments per specialty; under all approaches, office visits and other office-based services gain, while invasive procedures done in the hospital lose. The overall aggregate estimates from each study do not differ substantially from those that would result from HCFA’s proposed rule on resource-based practice expenses. Taken together, the studies strongly support a conclusion that HCFA’s proposed methodology produces practice expense relative values that are fundamentally valid, recognizing that further refinements and improvements are necessary.