How are doctors reimbursed?

The Resource-Based Relative Value Scale (RBRVS) is a method used to determine how much money Medicare and health plans must pay medical providers. Medicare, under the Reagan administration, began in 1985 to develop a new, fair, and more transparent fee schedule. This led to a large study, conducted jointly by researchers at Harvard University and the American Medical Association, to estimate the relative amounts of “work” that doctors put into the services they provide. The definition of “doctor’s work” took into account the physician’s time, mental effort, judgment, technical skill, physical exertion, and psychological stress.

The results of the Harvard-AMA study, published in 1988, laid the foundation 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 medical service into 3 components expressed in relative value units, commonly known as RVU:

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

Each of the three cost components is adjusted by geographic region accounting for variations in the cost of living between market areas. So a procedure done in Los Angeles is worth more than a procedure done in Dallas.

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

Finally, to convert this schedule to a dollar rate schedule, 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 the Physician Fee Plan payment amount is as follows:

Non-facility price amount =

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

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

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

Non-facility price amount =

[(0.97 x 1.039) + (0.99 x 1.220) + (0.07 x 0.722)] x33.9764

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

The pros and cons of RVUs
Benefits of using RVU:

• Useful tool for comparing the relative difficulty associated with different procedures
• Ability to compare data
• Associate the physician’s work with its relative time, effort, and skill requirements
• Takes cost of living variations into account: a higher standard of living equals higher RVUs

Criticism of the UVR:

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

Committees with Influence
The following is a brief explanation of how codes for medical services are developed and priced. Our current payment system is based on procedural codes developed by a 17-member committee known as the CPT Editorial Board. The AMA nominates 11 out of a 17-member pool, 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 a year.

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

• LOVES;
• CPT editorial board;
• American Osteopathic Association;
• Health Professions Advisory Committee; and
• Practice Expense Review Committee.

Anyone who attends your meetings will be required to sign a confidentiality agreement.

The influence of this secret panel is enormous. CMS, which is overseen by Medicare, typically follows at least 90% of their recommendations in calculating how much to pay doctors for their work. Medicare spends more than $60 billion a year on doctors and other professionals. Additionally, many private insurers and Medicaid programs also use the federal system to create their own fee schedules.