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Practice Expense Measures Were Collected Ten Years Ago, and Much Has Changed in the U.S. Health Care System Since Then

• There has been an overall shift away from physician ownership of practices, which emphasizes the importance of putting in place a system that can update PE valuation models to accommodate ongoing changes to the health care system.

Current Methodology May Not Accurately Capture Some Components of PE

• Services with extremely low levels of direct expenses may be allocated less PE than other types of services, relative to the resources typically required to furnish the service.
• Many physicians work almost entirely in a facility setting, and many services are typically performed by physicians who are facility-based. Physicians who work in non-facility settings incur certain practice expenses that facility-based physicians typically do not; the current system does not fully account for these differences.
• There is no established mechanism for regularly updating the direct and indirect cost estimates for each service.

Payment Differentials Across Ambulatory Settings Create Payment Incentives That Are Inconsistent with Furnishing Medical Care in the Medically Appropriate Setting

• It is feasible to use hospital outpatient costs to inform or replace the PE valuation process. Moving toward a system that uses the same underlying data to establish relative values across site of service could reduce payment differentials or allow for any explicit payment differentials to be transparent to policymakers, providers, and patients.