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BACKGROUND OF RELATIVE VALUE UNITS AND THEIR CALCULATIONS
PART 1: FROM RVS TO RBRVS: AN HISTORICAL PERSPECTIVE Beginning in the 1950's, 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. They coined the term ³relative value² 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 another section. Consequently, each section has 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 fundamental purpose of 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 wanted to use one conversion factor for the entire U.S. HCFA allowed 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 UV X CF = Fee/Allowable Payment Advanced Features - As in any algebraic relationship, having any two of the components allows calculation of the third. That is, if you have the conversion-factor and the fee for a CPT code, you can derive the unit value. Similarly, if you have the unit value and the fee, you can derive the conversion-factor. How
Payers use RBVSs They will generally develop their fee schedule either by choosing a relative value scale and a conversion factor(s), or, will pay at some multiple of the Medicare Fee Schedule (e.g., 110% of Medicare, 90% of Medicare, etc.). An important distinction to remember is the difference between the Medicare Fee Schedule and RBRVS. We often hear ³that PPO is paying RBRVS plus 10%² (or ³110% of RBRVS²). That 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. They are: ³Medicare
Fee Schedule plus 10%² (or ³110% of the Medicare Fee Schedule²),
or Examples Example
1 No Fees Established Choose a Conversion Factor (CF)
and calculate a fee (UV x CF = Fee) Fee @ $50 per RBRVS Unit
* RBRVS units as of January 1, 1998 While the example above shows a practice using the relative value scale to determine its fees, 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)
The calculations would look like this:
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 was 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. So 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 a fee 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). 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 practice¹s 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 practice¹s community pay at $40 per unit, money will be ³left on the table² for each charge submitted for these codes. Relative Value Scales are critical tools in all of the measurements that will determine how your practice is doing as a business. By having the ability to measure the volume of clinical services you provide, and translate those services into dollars, you can apply business methods used in other industries to monitor your practice¹s performance. PART II: Applying The Calculations Involved In Using The Relative Value Scales To A Practice Example
1 Calculating the Weighted Average CF (CF = Mean of [calculated
CFs x Frequency])
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