Learn the Three Rs of Physician Payment

Relative value, resource use, reimbursement

By M. Julia Croly, MPA, CPC

A fee schedule is the fee determined by the payer deemed acceptable for a procedure or service, which the provider agrees to accept as payment in full. It may also be called a fee allowance, fee maximum or capped fee. Insurers use various types of fee schedule systems but, for the most part, there are basic building blocks common to all.

Relative Value Scale Payment Systems

A relative value scale payment system assigns a weighted unit value to a CPT® code based on the cost and intensity of the service. The weight is multiplied by a conversion factor to determine the fee that the insurer will pay the provider. The conversion factor is typically based on historical cost experience, and is updated periodically to reflect growth in actual expenses. Services requiring greater resources are assigned a higher number of units, and therefore assigned a higher fee.

Example: Assuming the conversion factor is negotiated to be $20 per unit, a service that is assigned a unit value of 30 will be reimbursed at $600 (30 units x $20 per unit), while a service with a unit value of 50 will be reimbursed at $1,000 (50 units x $20 per unit).

Procedures such as surgeries and diagnostic testing have higher unit values than cognitive services such as office visits.

Resource Based Relative Value Scale (RBRVS)

RBRVS was originally developed in 1991 by HCFA (now called CMS) because Medicare was created in 1965 as a mechanism to address the shortcomings of a relative value scale in assigning a unit value. It attempted to take into account all of the resources that providers use to deliver care: physical or procedural, education, cognitive and financial. Simply put, the concept behind RBRVS is to base payment for physician services on the relative cost of the resource required to provide them. RBRVS works as follows:

The payment for each procedure code is the product of three factors:

(1) Nationally Uniform Relative Value Units (RVU). The RVU for each procedure code has three components: one for physician work, a second for practice expense and a third for malpractice. Each RVU is a number that quantifies the sophistication and resources necessary to perform the procedure.

(2) A Geographic Adjustment Factor. Each of the RVU components (work, practice and malpractice) is adjusted by a geographic practice cost index (GPCI). GPCIs were employed to account for variation in costs in different parts of the United States. GPCIs reflect the relative costs of the physician work, practice expense and malpractice insurance in each fee schedule area compared to the national average.

(3) A Nationally Uniform Conversion Factor. The conversion factor is a dollar figure used to convert the geographically adjusted RVU to a payment amount. Originally, HCFA used three different conversion factors to derive fees. One factor was used for surgical services, one for non-surgical services and yet another for primary care. Each procedure code was classified into one of these three types of service. In some instances, HCFA defined surgical and non-surgical services differently than CPT®. In CPT®, codes 10000-69999 are classified as surgical. In the 1990s, HCFA classified approximately 350 of the codes in this range as non-surgical. Over time, this dilemma has been overcome so that there is now simply one conversion factor used to calculate billing for all services.

Under RBRVS, the general formula for determining the fee schedule amount for a given procedure code is as follows:

[(RVU work x GPCI work)

+ (RVU practice x GPCI practice)

+(RVU malpractice x GPCI malpractice)]

x Conversion Factor

= Provider Payment

Historically, the RBRVS system presented shortcomings. Originally developed for Medicare, not all procedures (such as childhood immunizations) had RVUs assigned. Additionally, HFCA did not assign units to anesthesia. To fill the gaps, other players, such as McGraw-Hill, St Anthony’s and the American Society of Anesthesiologists, researched and published recommended units.

Regardless of the method chosen, insurers need to give the provider information regarding the source of the units and conversion factor, as well as their method of updating the conversion factor.

Determine Whether Negotiating Is Warranted

Although RVUs and GPCIs are seldom areas of bargaining, providers may seek to negotiate conversion factors with their insurers. Establishing a conversion factor for primary care may take into consideration the complexity of the cognitive ability required for the primary care providers to diagnose, prescribe and coordinate treatment for patients with multiple problems.

The RBRVS Benefit

The industry advantage to RBRVS clearly includes cost control, ease of use and maintenance. In this consumer-driven age, these fee schedules afford patients a greatly simplified basis for comparing health plans. Fee and payment comparisons under the new consumer-directed health plans, furthermore introduce a competitive and cost-containing influence into the health care system without regulation.

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