OBJECTIVE: The Centers for Medicare and Medicaid Services (CMS) has proposed methodological changes to the computation of 2007 physician fee schedule practice expense. The proposed changes appear to reduce payment for drug administration. This study explores the methodological design of these proposed changes and seeks to identify primary drivers within the methodology. METHODS: Various methods of computing practice expense for 2007 as proposed by CMS were collected and categorized in a methods database format. Data sources and formulas for each proposed method were identified. Current computation methods in effect for calendar year 2006 were then identified and divided into segments for purposes of comparison. Proposed methods were compared against each other and against the payment structure currently in effect. This comparative analysis highlighted methodological drivers. RESULTS: CMS initially proposed four methods of computing practice expense in 2007. Three potential data sources were identified: the Socioeconomic Monitoring System (SMS); the Medicare Economic Index (MEI); and the Clinical Practice Expert Panel (CPEP). The four proposed methods utilized various combinations of these sources. Each proposed formula was based upon a series of allocations that resulted in different percentages assigned to different subcomponents of the relevant methodology. Comparative analysis revealed significant differentials. Payments for drug administration in the physician's office would be reduced by all four proposed methods. Two primary methodological drivers were identified: allocation between direct expense and indirect expense within each formula and the volume-based allocation method, whereby specialty impacts are recognized but are then weighted by specialty-specific volume. CONCLUSIONS: Many physician fee schedule payment rates in 2007, including drug administration procedures, may be significantly impacted by proposed changes to the practice expense computation methods. It is vital for service provider decision-makers to monitor and understand relevant CMS proposals. Otherwise, if significant underpayment occurs in 2007, patient access may be negatively affected.