Physician Payment

From SmartMedicalConsumer Wiki

Medicare payment for physician services has been based on a fee schedule.

The fee that a physician is paid has three components:

• the relative value for the service (RVU)
• a GPCI, and
• a national dollar conversion factor.

The relative value (RVU) portion of this equation is composed of the following:

• a physician work component that measures the time, skill, and intensity associated with the service provided -- this component accounts for 54.5% of a service's relative value;
• a practice-related expense component that measures average practice expenses such as office rents and employee wages and that varies on a code-by-code basis depending on whether the service is performed in a facility or nonfacility setting -- this accounts for 42.3% of a service's relative value; and
• malpractice expense component that reflects average insurance cost -- this accounts for 3.2% of a service's relative value.

The GPCI is designed to account for variations in the costs of practicing medicine. A separate GPCI is determined for each of the three component of the RVU and takes into consideration median hourly earnings of workers in the area, office rents, medical equipment and supplies, and other miscellaneous expenses. There are 90 GPCI areas nationwide.

The conversion factor is a dollar figure that converts the geographically adjusted relative value for a service into a dollar payment amount. The conversion factor is updated yearly. The conversion factor for 2001 was $38.2581. The law specifies that physicians who provide covered services in any rural or urban Health Professional Shortage Area (there are 2,901 such areas in the United States) are entitled to an incentive payment of 10% more than what they would otherwise be paid under the fee schedule.

The general formula for determining total RVUs is: [work RVU x work GPCI] + [practice expense RVU x practice expense GPCI] + [malpractice RVU x malpractice GPCI] = total RVU;

payment = total RVU x conversion factor

Current Procedure Terminology coding and RVUs are important not only with regard to reimbursement from Medicare but also for private insurers. Although no data have been published, there is a general notion that CPT coding and RVUs are used by most private insurers as a basis for reimbursement of physician-related services.