Do the Math: Relative Value, Resource Use, Reimbursement
Know how insurers account for physician payment.
By Julia Croly, MPA, CPC, CPC-P, CPC-I,
A fee schedule is the maximum fee determined as acceptable by the payer for a procedure or service, and which the provider agrees to accept as payment in full. It may also be called a fee allowance, fee maximum, or capped fee. Regardless of what you call it, it’s important to know how payments are calculated, and to be sure payments are both competitive with other insurance carriers and equitable for your geographic location.
Insurers use various fee schedule systems, but there are basic building blocks common to all. The first step to making sure your practice is being appropriately compensated is to review the type of system an insurer uses. Let’s take a look at the two most commonly used systems.
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 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 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).
Procedures such as surgeries and diagnostic testing have higher unit values than cognitive services, such as office visits.
Resource-based Relative Value Scale (RBRVS)
The RBRVS was developed in 1991 by the Health Care Financing Administration (HCFA), now the Centers for Medicare & Medicaid Services (CMS), as a mechanism to address the shortcomings of a relative value scale in assigning a unit value. It attempted to account for all of the resources providers use to deliver care: physical or procedural, education, cognitive, and financial. Simply put, the concept behind the RBRVS is to base payment for physician services on the relative cost of the resources required to provide them.
Under the RBRVS, the payment for each procedure code is the product of three factors:
- Nationally Uniform Relative Value Units (RVUs). 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.
- 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.
- 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 services. 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 there is now a single 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:
[(RVU work x GPCI work)
+ (RVU practice x GPCI practice)
+ (RVU malpractice x GPCI malpractice)]
x Conversion Factor
= Provider Payment
The RBRVS system has historically presented shortcomings. Originally developed for Medicare, not all procedures (such as childhood immunizations) had assigned RVUs. HFCA also did not assign units to anesthesia. To fill the gaps, other stakeholders (such as McGraw-Hill, St. Anthony’s, Medicode, 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 units and the conversion factor, as well as their method for updating the conversion factor.
Determine Whether Negotiating Is Warranted
Although RVUs and GPCIs are seldom bargaining areas, providers may want to negotiate conversion factors with their insurers. When establishing a conversion factor for primary care, the complex, cognitive ability required for the primary care providers to diagnose, prescribe, and coordinate treatment for patients with multiple problems may be considered.
The industry advantages to RBRVS are cost control and easier use and maintenance. In today’s consumer-driven age of healthcare, fee schedules provide patients with a simplified basis for comparing health plans. Fee and payment comparisons under new consumer-directed health plans further introduce a competitive and cost-containing influence into the healthcare system.
Julia Croly, MPA, CPC, CPC-P, CPC-I, has over 25 years experience in healthcare insurance and works as an independent healthcare consultant and educator in Honolulu, Hawaii. She served on the AAPC National Advisory Board from 2007-2011. She can be reached at firstname.lastname@example.org.