Are your fees too low? Here’s a way to find out
Using RBRVS to audit your fee schedule
Despite all the talk about fraud and abuse, the fact is that many practices consistently undercharge for services, note reimbursement experts. To avoid payment hassles with insurers, some physicians knowingly charge less for a certain services than plans allow. More often than not, however, the practice simply has not audited its own fee schedules to ensure they accurately reflect the practice’s costs and going market rates.
The current standard is to base your fees on Medicare’s Resource-Based Relative Value Scale (RBRVS), which lists how many relative value units (RVUs) each procedure is worth. The advantage of using the RBRVS approach is that it gives you a consistent method for establishing fees that is in line with the approach used by most payers, while also creating a base for your internal management reports. Plus, this approach allows you to track payer compliance based on their permissible allowance.
Steve Dickson, administrator of Village Surgical Associates, a multispecialty group surgical practice in Fayetteville, NC, has developed a simple system to build an in-house RBRVS database to help develop fee schedules and evaluate outside contract proposals.
Spend 25 hours, not $10,000
Dickson says the system is so easy to use that implementation only requires about 25 hours of a clerk’s time, a personal office computer, and standard spreadsheet software. "If I hired an outside consultant to produce a similar database, it would cost about $10,000," he estimates.
With Medicare’s RBRVS fast becoming the standard for determining provider reimbursement by 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. The first time he costed out the common CPT codes performed by his group using RBRVS, Dickson found fee schedules for about 10% of his practice’s procedures where priced too low. "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 multiyear period to avoid giving 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." Other uses include pricing fee schedules to evaluate discounted fee for service, percentage of Medicare, or single conversion factor-based proposals, as well as capitated contracts.
How to do it
The basic steps in creating this RVU database are:
• Gather data. Gather a list of all the procedures the practice performed over the past fiscal year by CPT code, plus total practice expenses during the same period. When it comes to expenses, Dickson likes to include everything, but permits practices the option of excluding physician bonuses or other items.
• Update RVUs. Each December, the Department of Health and Human Services publishes an RBRVS update that is available on disk. This disk includes all CPTs, their associated RVUs, the geographical adjustment factors, and the federal register 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 them onto a personal computer.
• Load data. Once the practice CPT codes the practice performed and the current geographically adjusted RVUs have been entered into a computer spreadsheet program, key in the number of times each procedure was performed over the one-year period in the cell next to the total RVUs.
• Total the RVUs for each procedure. Multiply the RVUs by the annual number of times each individual procedure was performed to obtain the total RVUs associated with each procedure.
• Total all RVUs. Sum the total RVUs for all procedures.
• Determine cost per RBRVS. Divide the annual expenses by the total RVUs to obtain a cost per RVU.
• Determine cost per procedure. Multiply the cost per RVU by the RVUs associated with each CPT to obtain a cost per procedure.
The practice administrator can now use the cost per procedure to evaluate the practice’s current fee schedule and determine whether 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 cost," he notes. "At this point, practices must determine if they want or need to revise their fees, and how fast."
Evaluating managed care proposals
Once you have an accurate fee schedule in place, you can now use your RBRVS data to evaluate managed care contracts. Here’s one method Dickson uses to analyze managed care organization (MCO) contract offers:
• Identify top procedures. From the practice medical management system, identify the top 20 to 30 revenue-producing procedures performed within the practice. "I recommend loading the CPT code, description, volume of each procedure performed over a year, and the fee for each procedure into your computer spreadsheet," notes Dickson.
• Factor in allowables. Ask the managed care companies for a copy of their allowables as they relate to these top CPT codes. Enter this data into your spreadsheet program, multiplying the allowable by the volume of each CPT.
• Sum the totals. Divide the allowable totals by the sum of your practice fees. "The resulting RVU figure is the percentage of charge as it relates to the practice charge, adjusted for volume," notes Dickson.
If the practice’s average reimbursement is 75% of charges (less Medicare/Medicaid) and the MCO’s allowables result in a reimbursement rate equal to or greater than 75%, "then the contract is probably worth considering, provided other factors in the proposal are acceptable," says Dickson. However, if average reimbursement is less than 75% of charges, odds are you will end up losing money on this specific proposal.
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