Government News
You'll Be Sorry You Asked!
Psychiatric News
Volume 42 Number 20 page 24-24

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 Medicare program?

Well, it's like this: Payment = [(RVU work × budget neutrality adjuster × work GPCI) + (RVU PE × PE GPCI) + (MP RVU × MP GPCI)] × CF

Got it?

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" resource based."

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)]× CF

Yes, there'll be a test. And if you have questions, contact your Medicare carrier.

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