Any discussion of physician compensation tosses around RBRVS – Resource-based relative value scale – as if it is understood as readily as the time of day. Yet few understand where and how this payment device originated.
RBRVS and their parent RVUs – relative value units – became the standard tool for Medicare reimbursement fee schedules in 1992 and have subsequently been adopted by the vast majority of insurance payers as their model, in one form or another.
Before 1992, physician compensation was based on historical charges physicians billed for their services, under a concept known as UCR – usual, customary, and reasonable. Payers applied various statistical measures, such as the median charge; to set a single payment level for each service rendered. In the current discussion of RBRVS reimbursement, it is often forgotten that UCR was far from a satisfactory means of fixing payment rates. Each payer interpreted UCR differently, so payments for the same service differed greatly, with no apparent rationale. Besides being a source of complaint about physicians, and for patients who were often reimbursed far less than physician charges, UCR was equally problematic for the business community. With health costs rising, UCR was viewed as inflationary as it relied on physician’s self-reported fees. Medicare reported the real dollars spent on physician services per enrollee increased by 62.3% from 1980-86, while the number of enrollees increased only 12%. The increase was half attributed to increasing physician fees and a half to the volume of services provided. This pattern of increasing costs of Medicare has continued unabated over the years.
Politically this was an unsustainable situation when coupled with growing problems of access as the gap in primary care access and specialist reimbursement widened.
Responding as Washington usually does, a commission was appointed, and the Physician Payment Review Commission was established in 1986 at the Harvard School of Public Health in cooperation with the AMA. Their purpose was to develop a compensation system that was based on what inputs were required for each service, to build rationality into a non-system of physician compensation.
Initially, the study evaluated 12 major specialties, expanding use, and the CPT manual to assign relative values to each service, some 7,000 codes.
The three components of physician cost were considered the input into the development of a numerical value, an RVU for each CPT.
- Work expended by physicians by CPT code, including time spent before and after patient visits and procedures;
- Practice costs incurred in rendering services; and
- Opportunity costs of training or income foregone by physicians to obtain additional training
The Harvard/AMA researchers of the Commission surveyed 3,200 physicians, focusing on the work expended component of input. Experts selected by each specialty society then scrutinized the survey results. Finally, the investigators went to 120 individuals representing interested constituents – consumers, physicians, payers, and researchers – to critique both the findings and the methods.
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Reviewers found a high degree of reliability and validity in the survey. A considerable amount of time was spent evaluating the work component of cognitive services, such as office visits because physicians in disparate specialties use the common codes in reporting these services. The results independently obtained from thousands of physicians in multiple specialties differed less than 10 percent. The RVUs were then extrapolated by the researchers to the related CPT codes.
The work component alone does not determine the RUVs. That component is then modified for geographic variations based on the practice location and the malpractice costs, which also tend to follow a geographic spread.
The RVU is modified with a geographic practice cost index (GPCI). This GPCI then is used to adjust the RVU for the location of the practice. This to accommodate the urban/rural differences in the cost of practice operation. A factor in this index is the geographic implications related to malpractice costs. The GPCI can significantly modify the total RVU.
None of these numbers is cast in concrete. Annually the RVUs are adjusted based upon studies that seek to measure the changes in the work input of physicians for specific CPT codes. The new technology that speeds up a procedure or reduces the technical skill necessary can be factored into the CPT code through changes to the RVU.
Similarly, the GPCI is also adjusted annually based on the indexes of the Urban Institute and Center for Health Economics Research
The three components RVUs – work, practice expense, and malpractice- combine to form the total RVU.
RVUs are non-monetary numerical values. They represent the relative amount of physician work, resources, and expertise needed to provide services to patients. The definitive payment for physician services results only when conversion factors (CFs) represented by specific dollar amounts are multiplied by specific RVU. The formula is ($ fee) = CF ($) x RVU.
Understand that the RVUs by themselves do not determine the amount of payment. For example, an office visit may have an RVU of 1.5. Payer A applies a CF of $30 and pays $45. Payer B applies a CF of $40 and pays $60 for the service.
Payers including Medicare choose a CF that they will apply to the RBRVS based on strategic and financial considerations. This means that each payer is not valuing the services differently, but that they are determining to value all services differently. To complicate matters further, payers are now choosing to assign differing CFs to specific ranges of CPT codes. For example, the CF for radiology may be $20, while that of E&M codes is $40. Currently, there is a movement to curtail radiology, laboratory/pathology, restraint procedures, and increase the CFs for office visits.
The Medicare fee schedule comprised of RVU is called an RBRVS – resource-based relative value scale.
Since implementation in 1992, the RBRVS is updated annually, adjusting units for existing CPT codes and setting units for new ones. While specialty society input is sought in the process, the ultimate decision is made by Medicare.
A reality of this annual review has continued a progression that devaluates procedural services and increases recognition of cognitive services.
The researchers, even in their initial findings and in the production of the RBRVS, recognized the criticism of their recommendations. However, as there was a recognition that a perfect system was impossible, and the political winds precluded going backward.
Private insurance organizations, indemnity insurers, and HMOs moved rapidly to adopt if not the exact schedule, then a modified version of it. The Medicare RBRVS schedule or an RBRVS schedule is believed to rationalize the fees that were allowed. Too often the insurance organizations relied on historical trends, which resulted in high procedural fees at the expense of primary care, preventive and routine services. Managed care re-introduced these services and repeated documentation supported the managed care notion that primary, preventive, and routine care would result in lower medical costs by early intervention and avoidance of greater severity of illness. The question was how to properly pay for those services. The long-term deterioration of primary care access was also believed to be the result of a financial payment model that devalued primary care.
Reliance of an RBRVS based on Medicare is consistently problematic for those CPT codes that are not generally reflected among the services that Medicare beneficiaries experience, such as obstetrical, preventive, and pediatric codes. Similarly, any new service or one that Medicare does not reimburse is also generally problematic. While there are codes for some of these services; their basis in Medicare data is generally very limited or based on the small sample by eligible beneficiaries, such as Medicare disability or ESRD. Private carriers will either use the Medicare RBRVS fee, even if not reflective of the service, or will assign a fee to these codes. Assignment of codes of new services can often lag significantly behind the usage within the industry.
The argument continues to this day, what is the proper balance between cognitive skills and procedural skills.
The RVU Formula
Total RVU = (RVU work x GPCI work) + (RVU practice expense x GPCI practice expense) +(RVU malpractice x GPCI malpractice)
RBRVS – resource-based relative value scale
A system of valuing physician services developed by researchers at Harvard School of Public Health and implement from Medicare in 1992.
RVU – relative value unit
A numerical value that depicts the amount of physician effort, risk, and resources for one service relative to all others.
CPT – current procedural terminology
A series of more than 7000 numerical codes each representing a unique physician service; most have established RVUs.
GPCI – geographic practice cost index
Numerical values that adjust each RVU component to account for geographic differences, primarily in practice cost and malpractice risk.
CF – conversion factor
A dollar amount multiplied by an RVU to calculate the total payment for a unique CPT code: Total payment = CF ($) x RVU.