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Demystify the Physician Fee Schedule

Understand how Medicare payments are made by learning how to calculate them.

By G.J. Verhovshek, MA, CPC
You probably already know that Medicare payments are based on relative value units (RVUs) assigned to each CPT®/HCPCS Level II code. But the 2011 National Physician Fee Schedule Relative Value File contains no fewer than 10 columns listing various RVUs, as shown on next page. This may leave you wondering exactly which of those RVU columns you should use, and how the Centers for Medicare & Medicaid Services (CMS) determines total payments.

RVU Totals Are the Sum of Three Parts

Payment rates for individual services are based on the sum of three separate RVU categories.

  1. Work RVUs “reflect the relative levels of time and intensity associated with furnishing a … service and account for approximately 50 percent of the total payment associated with a service,” according to CMS’ Medicare Physician Fee Schedule Payment System Fact Sheet. These RVUs are specifically to pay for physician effort. All work RVUs must be reviewed (and may be changed) at least once every five years.
  2. Practice expense (PE) RVUs reflect the cost of non-physician labor, and expenses for building space, equipment, and office supplies.
  3. Malpractice (MP) RVUs are meant to cover the cost of malpractice insurance for each procedure and service. These typically account for the smallest overall contribution to the total RVU value of a given procedure or service. MP RVUs must be reviewed (and may be changed) at least once every five years.

PE RVUs Depend on Place of Service

Work RVUs and MP RVUs for a particular code are consistent across all places of service. For example, the work RVUs for 10021 Fine needle aspiration; without imaging guidance are 1.27, regardless of whether the service is provided in the physician office, an inpatient hospital, or any other health care setting. Similarly, the MP RVUs are 0.22 regardless of the place of service.
Note: All RVUs in this article are based on the most recent 2011 National Physician Fee Schedule Relative Value File at press time. This file can be found on the CMS website.
Because the expense of providing a service may differ depending on where the service is provided (facility vs. non-facility), PE RVUs also may change depending on where the service is provided. To account for this, the fee schedule lists separate columns to describe “Facility” and “Non-facility” PE RVUs.
The fee schedule also provides separate columns listing “Transitional” PE RVUs and “Fully Implemented” RVUs. As the CMS Fact Sheet explains, “For CY 2011, indirect cost data that are used in the calculation of PE RVUs for most specialties were updated using the American Medical Association’s Physician Practice Information Survey (PPIS) data. The PPIS is a multispecialty, nationally representative indirect PE survey of both physicians and non-physician practitioners. Its use is being transitioned over a four-year period beginning in CY 2010.”
In other words, the “Transitional” RVUs reflect the current PE payment; while the “Fully Implemented” RVUs reflect what the PE RVUs will be at the end of the transition period (2014). The PE RVUs will be adjusted over each of the next three years until they reach the fully implemented amounts.
Returning to 11021, for instance, the fee schedule lists the following PE values:

Code Transitioned FullyNon-facilityPE RVUs ImplementedNon-facilityPE RVUs TransitionedFacilityPE RVUs Fully ImplementedFacilityPE RVUs
10021 2.7 2.77 0.58 0.64
From this example, we see that the current (transitioned) RVUs in the facility setting are 0.64; and in the non-facility setting (e.g., physician office), the current RVUs are 2.7. In 2014, these values will increase to 0.64 RVUs and 2.77 RVUs, respectively.

Sum the Parts for RVU Totals

To find the total RVUs for a particular code, add together the work RVUs, MP RVUs, and the transitioned PE RVUs appropriate to your site of service (facility or non-facility). The fee schedule lists these values for you (as well as the 2014 projected totals, including the fully implemented PE RVUs).

Code TransitionedNon-facilityTotal Fully ImplementedNon-facilityTotal TransitionedFacilityTotal Fully ImplementedFacilityTotal
10021 4.19 4.26 2.07 2.13
The difference in the total RVUs for the facility and non-facility settings is a function of the different PE RVUs assigned for each setting. If you’re billing 10021 in the physician’s office in 2011, the total RVUs on which you will be reimbursed are 4.19 (1.27 work RVUs + 0.22 MP RVUs + 2.7 transitioned non-facility PE RVUs). In the facility setting, the total RVUs are 2.07 (1.27 work RVUs + 0.22 MP RVUs + 0.58 transitioned facility PE RVUs).

GPCI Account for Regional Cost Differences

The Physician Fee Schedule is a national fee schedule, but the cost of living—as well as practicing medicine and providing medical services—varies from one location to another. To account for these differences, CMS applies separate Geographic Practice Cost Indices (GPCI) to each of the three relative values (work, MP, and PE) used to calculate payment. CMS is required to update the GPCIs every three years, and to phase in changes over two years.
The easiest way to find the GPCI for your location is by using the “Physician Fee Schedule Search” tool found on the CMS website. This tool allows you to search by code, locality (e.g., Baltimore, Los Angeles, Topeka, etc.), and type of information (e.g., RVUs, pricing information, or GPCI).
For example, if you’re in Atlanta and want to find the GPCI for your area, you can:

  1. Select “Geographic Practice Cost Index” from the “Type of Information” choices.
  2. Choose “Specific Locality” from the choices under “Select Carrier/Medicare Administrative Contractor (MAC) Option.”
  3. Choose “1020201: Atlanta, GA” from the “Carrier/MAC Locality” pull-down menu.
  4. Click the “Submit” button.

The results will show you the “GPCI WORK” for Atlanta is 1.006, the “GPCI PE” is also 1.006, and the “GPCI MP” is 0.890. The average GPCI value is 1, so we know that work RVUs and PE RVUs are paid slightly higher than average in Atlanta, while MP RVUs are paid at a lower than average rate.

Apply the Formula to Determine Final RVUs

To determine the true, total RVUs for a procedure or service in your area, apply the following formula:

(work RVUs x work GPCI) + (PE RVUs x PE GPCI) + (MP RVUs x MP GPCI)

Remember: To ensure accuracy, select the transitioned PE RVUs for your place of service (facility or non-facility).
For example, if you want to determine the final RVUs for 10021 when provided in a physician office in Atlanta, apply the formula as follows:
(1.27 work RVUs x 1.006 work GPCI) + (2.7 transitioned non-facility PE RVUs x 1.006 PE GPCI) + (0.22 MP RVUs x 0.890 MP GPCI) = 4.18962 RVUs
In the facility setting, the total is found by applying the same formula, but using the facility PE RVUs:
(1.27 work RVUs x 1.006 work GPCI) + (0.58 transitioned non-facility PE RVUs x 1.006 PE GPCI) + (0.22 MP RVUs x 0.890 MP GPCI) = 2.0569 RVUs
To demonstrate how locality affects the GPCI amounts (and the overall RVU total), let’s consider one more example, using a Seattle physician’s office as our location. Note how the GPCI (found on the CMS lookup tool) differ:
(1.27 work RVUs x 1.020 work GPCI) + (2.7 transitioned non-facility PE RVUs x 1.098 PE GPCI) + (0.22 MP RVUs x 0.785 MP GPCI) = 4.4327 RVUs

RVUs Times CF Gives You a Dollar Amount

To calculate payment, you must multiply the place-of-service and locality-specific RVU total by a dollar conversion factor (CF).
The CF is updated annually according to a formula specified by statute. The Physician Fee Schedule Payment System Fact Sheet explains, “The formula specifies that the update for a year is equal to the Medicare Economic Index (MEI) adjusted up or down depending on how actual expenditures compare to a target rate called the Sustainable Growth Rate (SGR).” On several occasions (including for 2011), Congress has acted to revise the CF when application of the formula would have resulted in drastic reductions to the CF.
The CF for 2011 is $33.9764. Although the CF may change annually, it is the same for all places of service and localities across the nation.
From our examples above, we already know the specific RVU totals for 10021 in the facility and non-facility settings in Atlanta, as well as a non-facility setting in Seattle. To arrive at a current payment amount, simply multiply these totals by the CF:
Atlanta, facility: 2.0569 RVUs x 33.9764 CF = $69.89
Atlanta, non-facility: 4.18962 RVUs x 33.9764 CF = $142.35
Seattle, non-facility: 4.4327 RVUs x 33.9764 CF = $150.61
For those of you who love math, here’s the entire formula we used to arrive at these figures:
[(work RVU x work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = final payment
Those of us who are less enamored with numbers can skip all the computation and simply use the Physician Fee Schedule Search tool to find payment information. If we select “Pricing Information” from the “Type of Information” pull down menu, select “1020201: Atlanta, GA” as our locality, and specify code 10021, the lookup tool will tell us the non-facility and facility price for the code—and they are, as we calculated, $69.89 and $142.35, respectively. We can also confirm that $150.61 is the correct payment for 10021 provided in the physician’s office in Seattle, and learn that the facility price in Seattle is $71.52.
With a few clicks, we can just as easily determine that an endoscopic retrograde cholangiopancreatography (ERCP) (43260 Endoscopic retrograde cholangiopancreatography (ERCP); diagnostic, with or without collection of specimen(s) by brushing or washing (separate procedure)) in a Miami facility will pay $421.49, or that radiological supervision and interpretation (S&I) of abdominal aortography (75625 Aortography, abdominal, by serialography, radiological supervision and interpretation) in Houston pays $215.66.
Now, the next time you wonder about Medicare payments, you’ll know where to find them, how those payments are calculated, and exactly what all those RVU columns in the Physician Fee Schedule mean.

The Medicare Physician Fee Schedule lists relative value units for facility and nonfacility services.

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G.J. Verhovshek, MA, CPC, is managing editor at AAPC.


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