How the CMS Physician Fee Schedule Determines Your Work’s Worth

Discover the Key to Earning More Under CMS’ Reimbursement Rates

Some equations are so famous, almost everyone recognizes them, even if they can’t explain them, such as Einstein’s equation for mass-energy equivalence: ‎E=MC2 or the Pythagorean Theorem: a2+b2=c2.

But here’s an equation not widely recognized, and even many among those it affects the most—hard-working healthcare providers like you—would be hard pressed to explain it:

(wRVU x wGPCI) + (peRVU x peGPCI) + (mRVU x mGPCI) = tRVU

Got that? It’s key to understanding the Medicare Physician Fee Schedule, as well as fee schedules other payers use. So if you can’t explain that equation, read on.

Once you finish, you’ll see how it demystifies Medicare’s fee schedule for CPT® codes—and how you can make the most of it to maximize your revenue.


A Rapid Review of Medicare Reimbursement Practices

Nearly 30 years ago, as part of the Omnibus Budget Reconciliation Act (OBRA) of 1989, Congress changed the way Medicare pays physicians.

Before Medicare, as Ira Burney and colleagues explained in a 1979 article in Health Care Financing Review, physicians were “predominantly” paid using schedules of fees set in several ways, including “relative value studies with conversion factors.” After Medicare started in 1965, “the CPR method”—so named for using “customary, prevailing, and reasonable” charges—“became more widely used.” CPR was actually a dual fee schedule—one specific to the provider’s charges; the other, to those of other local providers—and “physicians retain[ed] virtually complete control.”

But by the 1980s, critics of CPR argued it was “inherently inflationary, inconsistent and unfair,” favoring high-tech procedures, urban settings, and specialists, as David Juba wrote in Health Care Financing Review in 1987. Increasing national health expenditures also helped fuel re-evaluation of Medicare’s payment method.

OBRA 1989 replaced CPR-based reimbursement with a physician fee schedule based on relative value. But unlike pre-Medicare fee schedules, this schedule would be tied not to charges but to resource costs.

Based on a model studied by Harvard economist William Hsiao and colleagues, the resource-based relative value scale (RBRVS) attempts to measure physicians’ work objectively and consistently across disciplines. It marked “the first major change in establishing how physicians were paid for their services” since 1965, writes Gregory Przybylski in Neurosurgical Focus.


RVUs: Backbone of the Physician Fee Schedule

Physician-Fee-ScheduleThe RBRVS measures physicians’ work and costs in relative value units (RVUs). CMS determines Medicare reimbursement rates for CPT® codes by associating each code with a certain amount of RVUs.

CMS defines the total RVU as the sum of three distinct RVUs:

  • Work (wRVU) – reflects the relative time and intensity associated with providing a service—the “technical skill and effort, mental effort and judgment, and stress,” as the National Health Policy Forum described it
  • Practice Expense (peRVU) reflects such operation and maintenance costs as rent, equipment, supplies, and staff expenses; and differs for facility (hospital) and non-facility (office) settings
  • Malpractice (mRVU) –  reflects malpractice insurance costs

CMS multiples each RVU by a Geographic Practice Cost Index (GPCI) reflecting geographic variations in practice expenses and malpractice insurance costs. The University of California, San Francisco Medical Group expresses it as this equation, cited earlier:

Total-RVU = (wRVU x wGPCI) + (peRVU x peGPCI) + (mRVU x mGPCI)

CMS then multiplies the total RVU by a Conversion Factor (CF), which is updated every year (for 2018 it is $35.99), to determine how much a physician will be paid for each CPT® code. And so here’s UCSF Medical Group’s second equation:

Payment = (Total RVU) x (CF for the year in question)

Many private insurers also use the CMS Physician Fee Schedule, or a schedule modeled on it (though sometimes with lower conversion factors for E/M services than for procedures, as Dr. Thomas Felger cautioned in FPM).

Even as American healthcare moves toward value-based reimbursement,  RVUs are likely to remain key indicators of physicians’ efficiency and quality, as Dr. Douglas Leahy, who serves on the advisory Relative Value Update Committee (RUC), told Medical Economics. Cost-efficient, high-quality care will earn providers incentive payments under MACRA MIPS and APMs.


How to Claim the Most RVUs and the Best Reimbursement Rate for CPT® Codes

RVUs measure physicians’ productivity imperfectly, the AAFP’s Kent Moore pointed out for FPM. But understanding their role in physician fee schedules should drive home how much your revenue depends on optimal coding.

When you don’t assign a patient visit its optimal CPT® code, you’re not getting accurate credit for all the work you’ve done, which means you’re passing up revenue you’ve legitimately earned.

And if you’re not documenting visits the right way, you won’t be able to support the optimal CPT® code in case of an audit, which also means you’ll be forfeiting reimbursement to which you’re entitled.

But when you use the MDCodePro app, you’re taking action against both these money-losing possibilities.

You’re getting a series of short video lectures in which you’ll discover a cut-to-the-chase method for making CMS’ E/M documentation guidelines an integral part of your daily routine, so you’ll never have to worry that your notes and chart are anything but complete, fully compliant, and capable of supporting any appropriately assigned code.

And you’re getting an intuitive, powerful code generator to guide you, step by step, in finding the optimal CPT® code for every visit, based on the documented data you provide. You can assign this code with confidence, knowing it accurately and thoroughly communicates the care you provided and lays claim to all the reimbursement you deserve.

Deciphering CMS RVU and payment equations may take a little time, but you can find out right now how MDCodePro can help you make more money for the work you do. Click here to request more information or request a live demonstration.

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