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How Physician Payments Are Determined

Aug 1, 2019

Jay S. Grider, DO, PhD, MBA

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Jay S. Grider, DO, PhD, MBA
Member, ASRA Practice Management Committee
Pain Medicine Specialist and Professor
University of Kentucky College of Medicine
Lexington, KY

Introduction

When Medicare was originally enacted in the United States, payments to providers were determined by the lower of the customary charge in the geographic region or the provider’s actual charge. The original intent was to ensure equal access to care for Medicare beneficiaries compared with privately insured patients by providing competitive, but not superior, reimbursement to providers accepting Medicare. Since the “usual and customary charge” system resulted in significant variability in charges to Centers for Medicare Services (CMS), efforts to create standardization were initiated. Between 1989 and 1991, implementation of the resource-based relative value scale (RBRVS) began the process of coupling physician work to the common procedural terminology (CPT) coding system, and the relative value unit (RVU) was created. The RVU became the common method for CMS to determine, compare, and compensate provider work. All payers, with slight variation, provide reimbursement based on the CMS model.

Determination of Physician/Provider Payments

CPT Code

Each work-related activity performed by a provider is billed according to the CPT code. For example, CPT code 64493 (lumbar/sacral paravertebral facet joint/nerve injection[s] 1st level) is billed for the first joint injection(s) regardless of site of service.

Site of Service

CMS designates three distinct sites of service: office-based, ambulatory surgery center (ASC), and hospital outpatient department (HOPD). Reimbursement for a single CPT code differs according to the site of service. Office-based providers receive a single payment that includes all reimbursement for the encounter. Reimbursement to an ASC or HODP includes one payment to the facility for the procedure and one payment to the provider (the professional fee).

In general, reimbursement for the same CPT code will be lowest in the office-based setting and highest in the HOPD setting, with reimbursement for the ASC usually falling in the middle. For CMS fee schedules, the HOPD and ASC facility payment will be 2-6 times the professional fee. The facility payment is calculated through a different mechanism, but the physician payment is processed through RVU modeling. An office-based provider receives the entire RVU. Work per-formed in an ASC or HOPD is broken into two payments: the facility fee, which goes to the owner of the ASC or HOPD, and the professional fee billed by the provider. The professional fee is the work RVU (wRVU) (see discussion below).

Relative Value Unit

The RVU system was implemented to quantify physician work. For example, a 15-minute visit with an established patient for basic blood pressure monitoring was deemed to be approximately 1 RVU of work. A major neurologic surgery lasting 12 hours was thought to be sixty times more complex and received an RVU value of 60. This established a benchmark for intensity and complexity of work. The physician component of the RVU is called the physician work or work RVU (wRVU). This is the amount attributed directly to the physician/provider for seeing the patient or performing the procedure. In addition to the work component, there is practice expense component, a malpractice component, and a geographical conversion factor.

For example, CPT code 62323 (lumbar epidural with fluoroscopic guidance) has a total RVU payment of 2.89, of which physician work accounts for 1.80. The remainder includes reimbursement to cover practice expenses, malpractice, and the geographic conversion factor (it is more expensive to practice in the northeast than the southeast). The RVU amount is then multiplied by a conversion factor dollar amount (cf).

The final formula is as follows: RVU = (provider work + practice expense allowance [set by CMS] + malpractice cost allowance [set by CMS] + geographic location) x dollar conversion factor (changes yearly).

The physician office payment for 62323 for 2018 is $250.56, but the professional fee component for the same work performed in an ASC or HOPD is $102.60. There has been ongoing debate about site neutral payments. It has been argued that certain procedures, such as a lumbar epidural steroid injection, are strikingly similar when performed in an office, ASC, or HOPD, and the higher overhead of the ASC and hospital should not be factored in. It is likely that some form site neutral payment will implemented in the future.

Implications

Many physicians incorrectly assume that concerns about RVU payments are limited to hospital employees. This may be true to a certain extent, but it is often unappreciated that all physicians are, in fact, paid on an RVU basis because the CPT code is tied to the RVU amount and the RVU conversion factor. Subtle changes to RVU assignments can have significant implications for provider reimbursement as was seen in 2014 when CMS changed the wRVU assignment for CPT code 62310 (then cervical epidural steroid injection) from 1.93 to 1.19. This resulted in significant changes to physician reimbursement directly tied to the change in RVU.
Conclusions

  • It is imperative that physicians keep abreast of site of service payment changes.
  • Providers should be aware of the possibilities of site-neutral payments.
  • The wRVU component is key to reimbursement. It is the method by which CMS and, by extension, all payers determine the complexity of work.

Bibliography

CY 2018 Medicare Physician Fee Schedule Final Rule. Centers for Medicare and Medicaid Services. Available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regula-tion-Notices-Items/CMS-1676-F.html. Accessed April 19, 2018.

De Lew N. Medicare: 35 years of service. Health Care Financ Rev. 2000;22(1):75-103.

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