How are doctors reimbursed?

Global Courant

Resource-Based Relative Value Scale (RBVS) is a method used to determine how much money medical providers should be paid by Medicare and health plans. Medicare, under the Reagan administration, began developing a new, fairer, and more transparent fee schedule in 1985. This led to a large study, conducted jointly by researchers at Harvard University and the American Medical Association, to estimate the relative amount of “work” doctors contribute to the services they provide. The definition of “physician work” took into account the physician’s time, mental effort, judgment, technical skill, physical effort, and psychological stress.

The results of the Harvard-AMA study, published in 1988, laid the foundation for what is now known as the resource-based relative value scale (RBVS).

Medicare implemented the RBRVS payment system on January 1, 1992.

How physician costs are determined
The RBRVS breaks down the total cost of providing a particular physician into 3 components expressed in units of relative value, commonly known as RVUs:

1. Work of the Physician RVU (wRVU) ~ (accounting for 52% of the cost) – The cost includes the relative time, effort, and skills for each shift.
2. The Physician Practice Cost RVU (peRVU) ~ (accounting for 44% of the cost) – Costs associated with maintaining a practice, such as rent, equipment, supplies, and non-physician labor.
3. Malpractice Cost RVU (mRVU) ~ (accounting for 4% of the cost) – Bills for the physician’s professional liability insurance.

Each of the three cost components is adjusted by geographic region accounting for variations between market areas in the cost of living. So a procedure performed in Los Angeles is worth more than a procedure performed in Dallas.

The sum of these geographically adjusted RVUs for a particular service then forms the total RVU of that service.

Finally, to convert this schedule to a dollar rate schedule, the total RVU of a given service is multiplied by a “conversion factor” – a dollar amount per RVU applied to all services in the relative value schedule.

The formula for calculating the payment amount of the doctor’s fee is as follows:

Non-facilitating price amount =

((Work RVU x Work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)) x Conversion Factor (CF)

The conversion factor for CY 2011 was $33.9764 (CF in 2012 though $34,0376).

For example, the 2011 approved amount for CPT 99213 for Los Angeles, CA is calculated as follows:

Non-facilitating price amount =

((0.97 x 1.039) + (0.99 x 1.220) + (0.07 x 0.722)) x 33.9764

1.00783 + 1.2078 + 0.05054 = 2.26617 x 33.9764 = $77.00

The pros and cons of RVUs
Advantages of using RVUs:

• Useful tool to compare the relative difficulty of the different procedures
• Ability to benchmark data
• Match the doctor’s work to his/her relative time, effort and skills required
• Takes into account variations in the cost of living – a higher standard of living equates to higher RVUs

Criticisms of RVUs:

• Payment is effort based and does not include adjustments for results, quality of service, severity or demand. This system leads to overuse.


• One effect attributed to the current RBRVS system is to encourage specialists at the expense of general practitioners (PCPs) – as specialist services require more effort and specialist training they are paid at a higher rate. This leads to fewer people choosing to remain in primary care.


• The Specialty Society Relative Value Scale Update Committee (RUC) is largely privately owned. RUC is secret, its meetings are closed to the public and uninvited observers.


• The data is actually copyrighted by the AMA, but its use is required by law.


• Although the RBRVS system is mandated by the Centers for Medicare and Medicaid Services (CMS) and its data is in the Federal Register, the American Medical Association (AMA) claims that their copyright of the CPT allows them to charge licensing fees to anyone who wants to associate RVU values ​​with CPT codes. The AMA receives about $70 million annually from these fees, making them reluctant to allow the free distribution of tools and data that can help doctors accurately and fairly calculate their fees.

Committees with influence
The following is a brief explanation of how physician service codes are developed and priced. Our current payment system is based on procedural codes developed by a 17 member committee known as the CPT editorial panel. The AMA nominates 11 of the 17-member group, with the remaining seats being nominated by the Blue Cross and Blue Shield Association, the Health Insurance Association of America, CMS and the American Hospital Association. The CPT committee issues new codes twice a year.

Another committee, the Specialty Society Relative Value Scale Update Committee (RUC), meets 3 times a year to set new values, determine the Relative Value Units (RVUs) for each new code and re-evaluate all existing codes at least once every 5 years. The RUC has 29 members, 23 of whom are appointed by major national medical associations. The six remaining seats are occupied by the chairperson (an AMA appointee) and a representative from the following areas:

• AMA;
• CPT editorial panel;
• American Osteopathic Association;
• Advisory Committee on Health Care Professions; And
• Practice Expenses Assessment Committee.

Anyone who attends its meetings must sign a confidentiality agreement.

The influence of this mysterious panel is enormous. The CMS, which oversees Medicare, typically follows at least 90% of its recommendations to find out how much doctors should pay for their work. Medicare spends more than $60 billion a year on doctors and other practitioners. In addition, many private insurers and Medicaid programs also use the federal system when creating their own reimbursement schedules.

How are doctors reimbursed?

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