This audit report summarizes the results of our review of the Health Care Financing Administration's (HCFA) methods for defining, and otherwise identifying, physician services that should be subject to payment limitations based on the site of service. Payment should continue to vary by site of service because practice expenses differ between office and non-office sites. We recommended that HCFA add a high-volume criterion to the existing definition of services routinely performed in physicians' offices and use the revised definition to identify physician services subject to the payment limitation. We also recommended that the payment limitation be expanded to include the inpatient hospital and skilled nursing facility settings. We estimate that our recommendations could result in annual program and beneficiary savings of approximately $170 million.