RBRVS: how new physician fee schedule will work - resource-based relative value scale payment system

Healthcare Financial Management, Sept, 1991 by Paul L. Grimaldi

The Norman Rockwell image of a physician--one who spends time listening to and consulting with patients--may be what the Health Care Financing Administration (HCFA) had in mind in creating its new Medicare physician fee schedule. The schedule includes higher average fees for evaluation and management services and lower average fees for surgery and specialists' services.

But a look at the new schedule's relative value units, geographic practice cost indexes, and five-year blended fee calculations shows the plan to be much more complex than such an image would suggest.

Beginning Jan. 1, 1992, HCFA intends to phase out Medicare's reasonable charge method of paying for physician services and phase in its revised schedule, as directed by the Omnibus Budget Reconciliation Act of 1989 (OBRA '89).

The new schedule's linchpin is a resource-based relative value scale (RBRVS) being developed by researchers at Harvard University, HCFA, and the Physician Payment Review Commission (PPRC). The fee schedule's two major goals are to slice Medicare spending and distribute Medicare payments more equitably among physicians. Volume performance standards, practice parameters, and utilization profiles will accompany the new schedule.

On June 5, HCFA proposed a 200-page rule that would govern the new fee schedule. The rule includes preliminary relative values for about 4,000 of 7,000 Current Procedural Terminology, Fourth Edition (CPT-4) codes and geographic practice cost indexes for the 240 Medicare carrier localities. The final rule is slated for publication during the latter half of October.

The new fee schedule's plan to reduce overall Medicare physician payments by $3 billion has drawn fire from physicians' groups, such as the American Medical Association and the American Society of Internal Medicine. Both groups criticize the plan for excessive cutbacks. Another threat to the scheduled Jan. 1, 1992, phase-in is the fact that hospitals, private physician practices, and health insurers may be unable to change their billing and coding systems in time.

Relative value scale

The relative value scale will be resource-based. The new payment scheme sorts resources needed to produce physician services into three components: physician work, practice expenses, and malpractive insurance. A distinct relative value will be estimated for each component, and the combined relative value will be used to calculate the fee schedule amount. Medicare will pay the lesser of the actual billed charge or the fee schedule amount.

PHYSICIAN WORK. the physician work component of the resource calculation is intended to measure preservice, intraservice, and postservice physician time, skill, effort, and stress involved in rendering a service.

Preservice tasks may involve record reviews, communicating with other professionals, scheduling appointments, checking and preparing equipment, and pre-procedure workup and scrubbing before surgery.

Intraservice work is the kernel of a service or procedure, consisting of a physician's hands-on encounter with a patient. For surgery, intraservice work encompasses performing the procedure and related events in the operating room.

Postservice work typically involves documenting care, dictating notes, writing orders and care plans, reviewing laborary results, communicating with other professionals, and referring patients to other settings.

PRACTICE EXPENSES. Expenses other than malpractice insurance (such as salaries and rents) that physicians incur in providing care are included in the practice expenses component of the resource calculation. Practice expenses vary as a portion of a physician's gross revenue because of varying wage rates and other prices among geographic locations and because of differences in the mix of visits, consultations,and procedures among specialties. Different mixes can result in notably different costs.

OBRA '89 specified that relative value units for practice expenses attributed to physician services would be derived from the 1991 national average of prevailing charges and the weighted percentage of physicians' gross revenue used to pay for practice expenses. The PPRC, however, has recommended that practice expense payments be resource-based. Under the PPRC approach, payments would be calculated by using basic accounting techniques to allocate direct and indirect costs among physician services.

MALPRACTICE. Malpractice expenses will be handled separately from other practice expenses. Annual malpractice expense varies considerably among specialties, with surgeons paying more than physicians whose practice consists primarily of visits and consultations. Malpractice insurance also can increase significantly in a short time period, depending on the dollar value of settled claims.

OBRA '89 specifies that the relative value unit for malpractice insurance attributed to a physician service will be based on the 1991 national average prevailing charge and the weighted percentage of physicians' gross revenue used to pay malpractice premiums.