How Physicians Are Reimbursed?

Resource-based relative value scale (RBRVS) is a method used to determine how much money medical providers should be paid by Medicare and health plans. Medicare, under the Reagan administration, initiated in 1985 the development of a new, fair and a more transparent fee schedule. This led to a large study, jointly conducted by researchers at Harvard University and at the American Medical Association, to estimate the relative amounts of “work” physicians contribute to the services they render. The definition of “physician’s work” took into account the physician’s time, mental effort, judgment, technical skill, physical effort and psychological stress.

The results of the Harvard-AMA study, published in 1988, laid the groundwork for what is now known as the resource-based relative value scale (RBRVS).

Medicare implemented the RBRVS payment system on January 1, 1992.

How Physician Fees Are Determined

The RBRVS breaks down the total cost of providing a particular physician service into 3 components expressed in relative value units, commonly known as RVU’s:

  1. Physician’s work RVU (wRVU) ~ [accounts for 52% of the cost] – Costs include the relative time, effort, and skill for each service.
  2. The physician’s practice expense RVU (peRVU) ~ [accounts for 44% of the cost] – Costs associated with maintaining a practice, such as rent, equipment, supplies, and non-physician labor.
  3. Malpractice expense RVU (mRVU) ~ [accounts for 4% of the cost] – Accounts for the professional liability insurance of the physician.

Each of the three cost components is adjusted by geographic region that accounts for variations across market areas in the cost of living. So a procedure performed in Los Angeles is worth more than a procedure performed in Dallas.

The sum of these geographically adjusted RVU’s for a particular service then constitutes the total RVU of that service.

Finally, to convert this schedule into a fee schedule expressed in dollars, the total RVU of a given service is multiplied by a “conversion factor” – a dollar amount per RVU applied to all services in the relative value schedule.

The formula for calculating physician fee schedule payment amount is as follows:

Non-Facility Pricing Amount =

[(Work RVU x Work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x Conversion Factor (CF)

The conversion factor for CY 2011 was $33.9764 (CF in 2012 is $34.0376).

For example, the 2011 approved amount for CPT 99213 for Los Angeles, CA is calculated as:

Non-Facility Pricing Amount =

[(0.97 x 1.039) + (0.99 x 1.220) + (0.07 x 0.722)] x 33.9764

1.00783 + 1.2078 + 0.05054 = 2.26617 x 33.9764 = $77.00

The Pros and Cons of RVUs

Benefits of using RVUs:

  • Useful tool to compare the relative difficulty associated with the different procedures
  • Ability to benchmark data
  • Associate physician’s work to his/her relative time, effort, and skill needed
  • Accounts for cost of living variations – higher standard of living equates to higher RVUs

Criticisms against RVUs:

  • Payment is based on effort and does not include adjustments for outcomes, quality of service, severity, or demand. This system leads to overuse.
  • One effect attributed to the current RBRVS system is incentivizing specialists at the expense of primary care physicians (PCPs) — because specialist services require more effort and specialized training, they are paid at a higher rate. This leads to fewer people selecting to stay in the field of primary care.
  • The Specialty Society Relative Value Scale Update Committee (RUC) is largely privately run. RUC is secretive, with the meetings being closed to the public and uninvited observers.
  • The data are effectively copyrighted by the AMA, but its use is required by statute.
  • Although the RBRVS system is mandated by the Centers for Medicare and Medicaid Services (CMS) and the data for it appears in the Federal Register, the American Medical Association (AMA) maintains that their copyright of the CPT allows them to charge a license fee to anyone who wishes to associate RVU values with CPT codes. The AMA receives approximately $70 million annually from these fees, making them reluctant to allow the free distribution of tools and data that might help physicians calculate their fees accurately and fairly.

Committees With Influence

The following is a brief explanation of how codes for physician services are developed and priced. Our current payment system is based on procedure codes which are developed by a 17-member committee known as the CPT Editorial Panel. The AMA nominates 11 of 17-member group while the remaining seats are nominated by the Blue Cross and Blue Shield Association, the Health Insurance Association of America, CMS, and the American Hospital Association. The CPT Committee issues new codes twice each year.

Another committee, the Specialty Society Relative Value Scale Update Committee (RUC), meets 3 times a year to set new values, determines the Relative Value Units (RVUs) for each new code, and revalues all existing codes at least once every 5 years. The RUC has 29 members, 23 of whom are appointed by major national medical societies. The six remaining seats are held by the Chair (an AMA appointee) and a representative from the following areas:

  • AMA;
  • CPT Editorial Panel;
  • American Osteopathic Association;
  • Health Care Professions Advisory Committee; and
  • Practice Expense Review Committee.

Anyone who attends its meetings must sign a confidentiality agreement.

The influence of this secretive panel is enormous. The CMS, which oversees Medicare, typically follows at least 90% of its recommendations in figuring out how much to pay doctors for their work. Medicare spends over $60 billion a year on doctors and other practitioners. Furthermore, many private insurers and Medicaid programs also use the federal system in creating their own fee schedules.

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