How does HCFA set physician payment?
The Medicare physician fee schedule consists of three parts: work relative values, practice expense relative values, and malpractice relative values. The physician work component accounts for roughly 54% of the total value of each Medicare service provided. Practice expenses account for 41%, while insurance adds about 3%.
The sum of these values is then multiplied by a conversion factor and a geographic adjustment factor. That amount is reimbursed to physicians. These factors vary according to the type of service provided.
Work relative values have been resource-based since 1992. Malpractice and practice expense relative values were based on historical charges until 1994, when Congress directed HCFA to change from charge-based relative values to practice expense relative values by 1998.
In 1997, HCFA published a rule blending resource-based practice expenses (RBPEs) into the Medicare fee schedule. The proposed rule was generally supported by primary care physicians and some specialties and opposed by surgeons and other medical specialists.
To strike a compromise, the Balanced Budget Act of 1997 delayed implementation of RBPEs for one year and implemented a gradual four-year transition, beginning Jan. 1, 1999. Under the transition timetable, practice expense relative values are:
• 1999: 75% charged-based, 25% resource-based;
• 2000: 50% charge-based, 50% resource-based;
• 2001: 25% charged-based, 75% resource-based;
• 2002 and beyond: practice expense relative values will be 100% resource-based.
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