Fees for physicians in the Medicare program will be cut again again next
year (see Medicare Fees Headed for Huge Cuts).
Want to know how the government arrives at a fee for physicians under the
Well, it's like this: Payment = [(RVU work × budget neutrality
adjuster × work GPCI) + (RVU PE × PE GPCI) + (MP RVU × MP
GPCI)] × CF
The Medicare fee schedule is based on the resource-based relative value
scale (RBRVS), a payment formula designed by Harvard economist William Hsiao,
Ph.D., in the late 1980s as a rational method for determining the value of
physician services. It was implemented in 1992; prior to that, physicians were
paid according to their "usual and customary" charges.
In the RBRVS system, the cost of providing each service (designated by a
CPT code) is divided into three components: physician work, practice
expense, and professional liability insurance, each of which is"
These factors are translated into relative value units (RVU), and payments
are calculated by multiplying the combined RVUs of a service by a conversion
factor (a monetary amount determined by the Centers for Medicare and Medicaid
Services). Each RVU is also adjusted for geographical differences in resource
costs by using a geographical practice cost index (GPCI).
(GPCIs are constructed so that they have national averages of 1.0.
Geographic areas that have costs above the national average have index values
above 1.0; areas with below-average costs have index values under 1.0.).
These three factors are added together and then multiplied by a"
conversion factor" (CF). The conversion factor is determined each
year by the government and is adjusted up or down to maintain "budget
neutrality"; if spending is projected to increase, the conversion factor
will be adjusted downward to compensate.
And last year CMS added a new wrinkle to the formula when it inserted a"
work adjuster," or budget neutrality adjuster—separate from
the conversion factor—to be applied to the work RVUs.
So remember: Payment = [(RVU work × budget neutrality adjuster×
work GPCI) + (RVU PE × PE GPCI) + (MP RVU × MP GPCI)]×
Yes, there'll be a test. And if you have questions, contact your Medicare