You can use RVUs to set and revise practice fees
Here are the steps involved
The resource-based relative value scale (RBRVS) introduced by Medicare in the early 1990s represents an attempt to reduce health care costs by assigning a resource unit of measure to medical procedures, based in part, on expected — rather than actual — resource consumption, notes K. Christopher Kaiser. Kaiser is a CPA in Columbus, OH, who is active in the Healthcare Financing Management Association.
The scale’s relative value units (RVU) for physician services are made up of three components: work, malpractice expense, and practice expense. Medicare payments are based on the total RVU assigned to each procedure.
"While many specialty associations disagree with the RVU calculations and try to increase the total units for their specialties, the inescapable fact is that Medicare payments are still based on these units," stresses Kaiser.
Many commercial managed care plans have reacted by adopting their own RVU fee schedule tied to Medicare — either as a payment related to a percentage of the Medicare allowable fee schedule or a dollar amount per RVU. That means to avoid being mislead by an inappropriate analysis when negotiating managed care contracts, practices must remember to correlate their fees with the RVU payment method used by specific payers, Kaiser says.
In turn, smart practitioners will review their practice patterns to see what effect the new Medicare-assigned RVUs will have on their projected cash flow.
Analyzing your current fee schedule
According to Kaiser, step one in resetting fees is to analyze the current fee schedule by calculating the current fee per RVU. To simplify that exercise, eliminate low-volume, low-fee CPT codes from the analysis and concentrate on those codes that have the greatest impact on the practice.
Here are the steps:
1. Prepare a spreadsheet to calculate the fee per RVU by dividing the total fee by the total RVU for each selected CPT code.
Check to see if your current billing system has updated the RVU information loaded in its fee schedule. If not, you can do so manually by obtaining the 2000 Medicare RVU values from the Nov. 2, 1999, Federal Register.
2. After the dollar fee per RVU schedule is completed, sort the schedule in descending order of fee per RVU. "Most procedures should fall within a fairly tight range of approximately $80 to $130 per RVU for a surgery practice and $50 to $80 per RVU for a family practice," notes Kaiser. Procedures with a low fee per RVU relative to this range are potentially underpriced, and procedures with a high fee per RVU are potentially overpriced, he advises.
3. Perform a more detailed payment analysis of a select group of 10 to 20 potentially underpriced and overpriced procedures "If the billing system allows payment analysis by CPT code, run reports for these codes based on a six- to 12-month payment history," he says. "From this detailed payment analysis, it is possible to determine whether payers are currently paying the total fee for these procedures."
Look for data in contracts
In markets with high managed care penetration, payers frequently do not pay the full "list price" fee for many services and procedures. Lowering fees for those procedures, therefore, will not result in any reduced-cash income. However, if a payer is currently reimbursing the full practice fee for an otherwise underpriced procedure, raising its price will increase income.
If your information system cannot provide detailed payments analysis by CPT, look for that information in your current managed care contracts. Compare the fee schedule to current managed care contracts for those overpriced or underpriced procedures.
If the contracts do not supply this information, ask your managed care company to provide a copy of their latest fee schedule.
"Many payers are reluctant to provide this information for large numbers of CPT codes. However, by requesting this information for a representative sample of CPT codes, it is possible to develop a payment fee schedule per RVU for the practice," says Kaiser.
4. Adjust fees based on the average fee per RVU. To calculate the practice’s average fee per RVU, determine the total RVUs produced using the most current annual production reports, then divide the total dollar volume by total RVUs produced.
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