Medicare’s RBRVS moves with agility, pounds your pocketbook
System functions as payment springboard for multiple payers
Sweeping changes are expected to coalesce in the Resource-Based Relative Value Scale (RBRVS) within the next year that will affect not only your fee-for-service business, but every aspect of physician payment formulas even capitation.
You’re likely to find RBRVS not just in Medicare, but also in group practice compensation plans, and among many of your private payers if you’re accepting managed care arrangements.
"We’ve elected to distribute all our capitated dollars on the basis of relative value work units," says John Vukish, MD, chairman of the compensation committee for Dean Medical Center in Madison, WI.
At Dean, 300 physicians are experiencing the shift to RBRVS in their entire compensation package. The transition, which started in January, hasn’t been particularly smooth sailing, Vukish says.
He isn’t alone. "Most of the insurance business is PPOs [preferred provider organizations], and what they’ve found is that RBRVS is a mechanism to bring the payments down," says James McKeon, administrator at La Mesa (CA) Internal Medicine Group, a 12-physician multispecialty group. "Most of our business is modified RBRVS," he says.
That means many physicians are likely to see RBRVS hiding in private insurance clothing, he says. Add that to his practice’s 30% to 40% fee-for-service Medicare volume, and RBRVS has a strong presence, despite capitation’s high profile in his home state of California.
Measuring productivity, predicting revenues with RBRVS
"All future reimbursement in managed care is going to be related to RBRVS," says Jane Sarra, MHA, CRNA, national director of physician practice management services for Coopers & Lybrand in Pittsburgh. Dean Clinic is only one of many practices that will be measuring physician productivity through RBRVS, and also predicting their revenues through Medicare’s rapidly evolving RBRVS-based formulas, she says.
Already this year you’ve heard a lot about the proposed changes in the RBRVS practice expense component (see related story in Physician’s Payment Update, June 1996, pp. 81-83), but that’s only one of many revisions either in process or continuing on through 1998.
By the end of 1998, six major aspects of the RBRVS formula will have changed since 1996 (see chart at right). Taken collectively, these changes represent an RBRVS evolution that will have sweeping effects not only on fee-for-service medicine, but also indirect effects on capitation and other managed care formulas. In brief, these changes are:
• practice expense conversions with reductions for some, increases for a few;
• switch to volume targets based on gross domestic product, not past physician performance;
• conversion factor updates with increases for some, decreases for others (changed annually);
• relative value unit changes;
• geographic adjustment factor changes (a reduction in total Medicare designated payment localities from 210 in 1996 to 89);
• full transition to RBRVS (2.1% overall reduction, and major cuts for many surgical specialties).
The above building blocks of RBRVS work together to fashion odd results and unprecedented payment volatility. That’s why Medicare architects think tweaking its components could correct some of its disparities. Critics contend the government’s real agenda, however, is budget reduction.
Geographic factors hurt payments for some
Change has been the constant for RBRVS, points out the Washington, DC-based Physician Payment Review Commission (PPRC) in its recently released annual report. For example, physicians in some markets have seen their payments dented across the board due to switches in geographic adjustment factors. (See chart on p. 99.)
Three of these major RBRVS changes have already occurred, so you can see their impact. Here is how the PPRC summarizes the impact of these RBRVS changes on your Medicare reimbursements:
• Payments were reduced an average of 2.1% in 1995-96, the first full year RBRVS was the sole measure of physician reimbursement for Medicare fee-for-service patients. Reductions varied by specialty, with some groups sustaining much deeper cuts than others. For example, losers were ophthalmology, -9.6%; cardiology, -6.5%; and pathology, -6.2%, while family practice and primary care saw only slight increases at 0.6% and 0.2%.
• The relative value unit (RVU) weights in the CPT codes were reshuffled as a result of the CPT five-year code review, which went into effect in January. Of the 1,124 services, or CPT codes, that survived the review of some 7,000 CPT codes, work values of 314 RVUs were increased. (See related story in PPU, June 1996, pp. 93-94.) Some 250 anesthesia services were increased; payments for 135 other services were decreased; and 607 CPT codes were not changed. In addition, 68 services were referred to committees for further review. At the same time, Congress required an 8.3% across-the-board reduction in all work relative values to achieve budget neutrality.
• Geographic payment maps were redrawn. RBRVS payments are adjusted to account for local market conditions by means of a geographic adjustment factor (GAF). Medicare has divided the United States into numerous payment districts for the purposes of determining GAFs appropriate to local markets. That’s why physicians in Manhattan are paid 34% more for a level three established patient office visit than physicians in South Dakota. Medicare reduced the number of payment districts from 210 to 89 in January 1997. But their designations are still based on commonality of payment history, rather than a broader demographic categorization such as metropolitan statistical areas. These payment districts also affect Medicare’s capitation payment formula, the adjusted average per capita cost (AAPCC), which also is sparking complaints of payment disparities.
The PPRC’s annual report devotes a great deal of space to analyzing likely future changes. One key proposal is HCFA’s recommendation for changing how the practice expense component of RBRVS is calculated. The commission offers 14 pages of analysis and explanation of three basic approaches now under review, as well as detail on the nuances of each approach. Other points of their analysis are summarized below:
• How the practice expense conversion will affect physicians. Based on PPRC projections, the practice expense values for about 36% of services will increase more than 25%; about 39% will decrease more than 24% (see chart above). For a number of specialties, this may produce changes of more than 30% in aggregate practice expense relative value units. (See related chart in PPU’s May 1 fax bulletin, inserted in this issue.)
"Changes in total relative values will be somewhat more modest, because practice expense constitutes only 41% of an average service’s total relative value," the report states. Physician groups disagree strongly on this projection of impact. The big difference lies in how much a physician relies on hospital-based procedures. The more hospital-based work a physician does, the bigger the cut he or she can expect, experts say.
• How the criteria for determining direct costs vs. indirect costs will be arrived at. Four key issues are emerging in this domain: how to estimate direct costs; how to allocate indirect costs; how to combine direct and indirect costs; and how to implement new relative values for the practice expense component. PPRC analysts recommend designating the areas of clinical labor, medical equipment, and medical supplies as direct costs. They estimate that these costs constitute about one-third of total practice expenses. Harvard researchers are factoring in physician work and time; another group relies more on physician time as the key cost component.
While the experts are debating methods instead of putting forth hard numbers at this point, the PPRC recommends that the effect of the changes be buffered by a phase-in and by lowering the behavioral offset, which is a percentage cut applied in the conversion that assumes physicians will increase volume of services to make up for payment reductions.
[Editor’s note: To receive a copy of the PPRC annual report, contact the PPRC at (202) 653-7220.]
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