Are your payer contracts costing you money?
RVU data sheet helps practices evaluate rates
Knowing your practice’s costs by procedure is essential to determining whether a contract with a payer makes financial sense. But how do you do it without spending an arm and a leg, in time as well as money? Physician’s Payment Update spoke to a North Carolina practice administrator who has a solution.
Steve Dickson, administrator of Village Surgical Associates, a six-physician multispecialty group surgical practice in Fayetteville, NC, has developed a quick and easy system for creating an in-house relative value unit (RVU) database to use in developing fee schedules and evaluating contract proposals.
Dickson says the system is so easy to use that implementation only requires about 25 hours of a clerk’s time, a personal computer, and a standard spreadsheet program. "If I hired an outside consultant to produce a similar database, it would cost about $10,000," notes Dickson.
With Medicare’s resource-based relative value scale (RBRVS) fast becoming the standard for determining provider reimbursement for both government and commercial payers, "it’s imperative that physicians, practice administrators, and office managers develop a better understanding of relative value units and find ways to use them to better manage their operations, " insists Dickson.
Since going on-line with its RVU program in April 1996, Village Surgical has used the system to price individual procedures, establish fee schedules, evaluate and negotiate outside contracts, and help determine physician bonuses. Once the practice’s baseline CPT numbers have been entered, the database only has to be updated once a year when HCFA releases its revised RVU values.
After his first analysis of the group’s CPT codes, Dickson found fee schedules for about 10% of the practice’s most common procedures were priced too low. "In fact, some of these procedures were priced as much as 70% to 80% below their actual cost," he recalls. These underpriced fee schedules are now being slowly raised over a several-year period to avoid giving its regular fee-for-service patients a case of sudden sticker shock.
"I do not claim this system is perfect," admits Dickson, "but, for the money, I’ve found it gives you a realistic rough cut of what it costs a practice to perform various procedures. You also get a set of baseline RVUs which can be used for any number of purposes, ranging from pricing fee schedules to evaluating capitated contracts."
Follow these steps to create RVU database
Once you’ve decided to give the system a try, here are the steps to creating an RVU database:
1. Gather data.
Assemble a list of all the procedures by CPT code the practice performed over the past fiscal year, plus total practice expenses during the same period. When it comes to expenses, Dickson includes everything, but permits practices the option of excluding physician bonuses in the calculations because some practices do not consider this a direct expense.
2. Obtain and enter information on current RVU rates.
Each December, the Department of Health and Human Services (HHS) publishes an RBRVS update that is available on computer disk. This disk includes all CPT codes, their associated RVUs, any geographical adjustment factors, and the Federal Register’s discussion of the Medicare changes for that federal fiscal year. The CPTs and RVUs are in spreadsheet format on the disk, making it easy to download onto a personal computer. (See related story on p. 180 for information on how to order this RBRVS update.)
3. Load the data into a spreadsheet.
Once you have entered your CPT code history and the current geographically adjusted RVU data from HHS into a computer spreadsheet program, key in the number of times each procedure was performed over the one-year fiscal period in the cell next to the total RVU.
4. Obtain a total annual RVU for each procedure.
Multiply the RVU by the annual total for each individual procedure to obtain the total annual RVUs associated with each procedure. Do this for all procedures performed by your practice over the past year.
5. Determine a grand total RVU figure for all procedures performed.
Add the total RVUs for all procedures to arrive at this figure.
6. Determine cost per RVU.
Divide your practice’s annual expenses by the total RVUs to obtain a cost per RVU.
7. Determine cost per procedure. Multiply the cost per RVU by the RVU associated with each CPT code to obtain cost per procedure.
Once you complete these steps, you can evaluate your practice’s current fee schedule to see if its charges are in line with costs.
To compute a fee schedule, divide the cost of each procedure by the average reimbursement rate, says Dickson.
"This should result in a number that, when reimbursed at the average rate, will cover at least the practice’s costs," says Dickson. "At this point, practices must determine if they want or need to revise their fees, and if so, how fast."
Once you have an accurate fee schedule in place, your practice can now use your in-house RVU data to evaluate managed care contracts.
One method Dickson uses to analyze managed care organization contract offers is to identify top procedures. From the practice’s medical management system, identify the top 20 to 30 revenue-producing CPTs performed within your practice.
"I recommend loading the CPT code, description, volume of each procedure performed over the past year, and the fee for each procedure into your computer spreadsheet," notes Dickson.
• Now factor in allowables. Ask the managed care company for a copy of their allowables as they relate to your top 20 to 30 CPT codes. Allowables are payment ranges such as copays and deductibles for each of the procedures represented by these top codes. Enter this data into your spreadsheet program, multiplying the allowables by the volume of each CPT. Add up the total amounts for all these procedures. Divide the allowable totals by the sum of your top 20-30 codes.
"The resulting RVU figure is the percentage of charge as it relates to the practice charge, adjusted for volume, " notes Dickson.
• The magic number is 75%. If the practice’s average reimbursement is 75% of its regular fee schedule (less Medicare/Medicaid fees), and the MCO’s allowables based on this methodology result in a reimbursement rate equal to or greater than 75%, the contract is probably worth considering provided other factors in the proposal are acceptable, says Dickson. If this figure is less than 75%, odds are you will end up losing money on this specific set of terms.
[Editor’s note: To discuss any of these processes, contact Steve Dickson at (910) 323-2626.]
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