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| UNDERSTANDING
YOUR REIMBURSEMENT AND FEE SCHEDULE
How did we get to RBRVS and the maze of mathematical formulas we now include in the practice’s everyday business? Understanding the background of this 40-year-old system helps put today’s fee schedule rationales in perspective. Beginning in the 1950s, systems were developed to establish relative values of medical services. The first edition of this tool used a 3-digit coding system to describe services and assigned a unit value (UV) to each service. The term “relative value” was coined because each service unit value could be measured in relationship to the values of other services. Practices derived their fees by multiplying the unit values times a dollar conversion factor (CF) to arrive at a fee/allowable payment. These values functioned as a guide for both the medical practice and the third party payor to help quantify medical and surgical services, including:
RVSs were divided into five sections: Medicine, Surgery, Anesthesia, Radiology, and Pathology. Each section had its own set of unit values that did not relate to the values in the other sections; consequently, each section had its own conversion factor. When HCFA developed the RBRVS, they wanted a system of unit values that allowed relationship between sections and the ability to use one conversion factor for the entire scale. The rationale for establishing these RBRVS scales remains the most valid, despite ongoing debates over appropriate distribution of its three-parts: overhead, physician work, and malpractice. An important distinction about the way HCFA uses RBRVS to develop the Medicare Fee Schedule is that they employ one conversion factor for the entire U.S. HCFA allows for local variability of the fee schedule by using a set of geographic adjustment factors to adjust each unit value by locality, based on factors such as rent costs, staff salaries, etc. When Medicare publishes the national conversion factor each year, it is applied to locally adjusted units. The
Calculations Advanced
Features How
Payers Use RBRVSs It is important to remember the difference between the Medicare Fee Schedule and RBRVS. We often hear that “a PPO is paying RBRVS plus 10%” (or “110% of RBRVS”); however, this is a meaningless statement. There are two ways to state a payment level when RBRVS or the Medicare Fee Schedule is used as the basis:
Examples Example 1. No fees established Choose a Conversion Factor (CF) and calculate a fee (UV x CF = Fee). A range of services (for example, the 5 levels of new patient office visits) have a unit value (measured in relative value units or RVUs) assigned to each CPT code. We’ve used $50.00 to demonstrate how to arrive at a set of fees. Fee @ $50 per RBRVS Unit
* RBRVS units as of January 1, 1998 The example above shows a practice using the relative value scale to determine its fees; however, a managed care payor can use the same methodology to establish its allowable payment schedule. In example 1, you start with the unit values for the range of services to be provided. Those unit values are multiplied times a conversion factor (in this example, $50 per unit under RBRVS) to derive the fee. Fees will generally be rounded to the nearest dollar. Example 2. Fees established Calculate CF (Fee ÷ UV = CF). There are many circumstances where a fee (or reimbursement amount) is known, and there is a need to determine the conversion factor that the fee or allowable payment represents. (Said another way, this calculation gives you the CF that would have been used to derive the fee or allowable payment.) These circumstances include:
The calculations would look like this:
CPT Code Description Fee RBRVS Unit Value Fee Based CF 99201 Office
Visit, New Patient, Level 1 $25 ÷ 0.91 27.47 99202 Office
Visit, New Patient, Level 2 $45 ÷ 1.44 31.25 99203 Office
Visit, New Patient, Level 3 $65 ÷ 1.99 32.66 99204 Office
Visit, New Patient, Level 4 $75 ÷ 2.96 25.33 99205 Office
Visit, New Patient, Level 5 $90 ÷ 3.72 24.19 It can be seen that in the set of fees analyzed here, the calculated conversion factors range from a low of $24.19 (CPT 99205) to a high of $32.66 (CPT 99203). These are the conversion factors that would have been used to derive each of those fees if each one were calculated from a relative value scale. Another way of describing the range of conversion factors is to say that when measured from a reference point (for example, a fee schedule based on $35 per unit), the calculated conversion factor for each CPT code shows how the fee for that code varies from the reference fee schedule at $35/unit. Thus, in the example above, the fee for 99201 is $25. The calculated conversion factor is $27.47 (fee of $25 ½ the unit value of 0.91 = 27.47). This compares to an allowable payment derived from a conversion factor of $35 per unit at $31.85 (unit value of 0.91 times a conversion factor of $35 = $31.85). Comparing the two conversion factors (the $35/unit of the reference fee schedule vs. the calculated $27.47), you can see that the fee is 78.48% of the allowable payment ($27.47 ½ $35). By going down the list of the five codes above, you can see how each calculated conversion factor compares to the $35 reference. This calculation can be done for a variety of reference fee schedules much more quickly than comparing each fee to the reference fee. Another value of this calculation is in comparing those conversion factors to the conversion factors of the larger insurance plans of the practice’s patients. For instance, Medicare pays at about $34 per unit. If the practice charges Medicare a fee that is at $27.47 per unit (CPT 99201), that would probably be below the Medicare Allowable Payment, and the payment would be reduced (Medicare pays the LOWER of their allowable payment or the submitted charge). Similarly, if the fee-for-service managed care plans in the practice’s community pay at $40 per unit, money will be left on the table for each charge submitted for these codes. Example 1. Calculating the Weighted Average CF (CF = Mean of [calculated CFs x Frequency]). This calculation is done when a practice has not developed its fee schedule from a relative value scale and wants to evaluate its charges and collections. The calculation is an extension of example 2, where the fee is known and the conversion factor is calculated. This extension of that example is a method for calculating the overall weighted conversion factor for the entire fee schedule. The average weighted conversion factor is the figure that represents the value of the practice's services in the marketplace and is the place from which all opportunities are evaluated and performance is measured.
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