1. Physician Payment Resource Based Relative Value Scale (RBRVS)

2. Prior to 1992, physician services were generally reimbursed by third party payers according to a charge-based Fee Schedule A Charged-Based Fee-For-Service Charge-Based FFS

3. Prior to 1992, Medicare reimbursed for physician services according to a system of: Customary, Prevailing and Reasonable charges as follows:

4. Customary: For each physician, for a given service, this was the Median of the distribution (profile) of their charges for the specific service.

5. Prevailing: This was the 75 th Percentile of charges made by all physicians in the community for the specific service

6. Reasonable: This was the lower of the two Note: Customary Prevailing Reasonable

7. With this method of payment, it behooved physicians to continually increase their charges so that their own, and the community’s, charge profile continually increased This, of course, led to increased reimbursement for each physician

8. It also led to rapidly increasing payments for Part B of Medicare. The Health Care Financing Administration (HCFA) sponsored the development of a fee scale that would be based on the cost of producing the service.

9. In other words, the Resource Intensity of each service. Note: HCFA is now the Center for Medicare and Medicaid Services, or CMS

10. The Fee was to be determined by first establishing the Relative Resource Intensity of all relevant physician services Relative Value Weight (RVU) and multiplying this weight by a Conversion Factor (CF) (a standard $ amount)

11. The major task was to establish the Relative Weights These weights would be the foundation of the: Resource Based Relative Value Scale (RBRVS)

12. Hsiao and his colleagues at Harvard completed the initial work on the development of this system (Hsiao, Braun, Yntema and Becker, 1988) They found that physicians were able to give reliable and valid ratings of the work entailed in performing services within their specialties

13. RBRVS was conceptually based on Relative Input Cost RBRVS = (TW) (1+RPC) (1+AST) where: TW = Total Work Input by Physicians PRC = Relative Practice Costs including malpractice premiums AST = Amortized Value of Specialty Training (Opportunity Cost of becoming a specialist)

14. Total Work (TW) is further Sub-Divided into: Pre-Service Time (time spent on case prior to seeing patient) Intra-Service Time (time physician spends with patient) Post-Service Time (time spent on case subsequent to seeing patient)

15. RBRVS now becomes: RBRVS = (PreService Time + IntraService Time+ PostService Time) (1+RPC) = (1+AST) Very difficult to measure relative physician work input

16. It was generally accepted that there were four dimensions to work 1. Time 2. Mental Effort and Judgment* 3. Technical Skill* and Physical Effort 4. Psychological Stress* * Almost impossible to measure

17. The method used by Hsiao in a pilot study circumvented these problems as follows:

18. They asked (90) specialists from four specialties to choose a baseline service within their specialty that would receive a baseline weight of (1) or (100). For example, in General Surgery the agreed-upon baseline service was Uncomplicated Inguinal Hernia Repair

19. They were then asked to rate all other services within their specialty, relative to that baseline service If there was agreement that the work involved in a Lower Anterior Resection For rectal Carcinoma to be four and one-half times as resource intensive it received a weight of 4.5 or 450

20. More generally, if they agreed that service xyz was twice as resource intensive as the baseline service, it received a weight of (2) or (200). It is important to note that baseline service is not necessarily the service with the lowest weight. It was chosen as a typical service within the specialty

21. Other services within the specialty could, therefore, receive a weight of less than (1) or (100). When each specialty had ranked all of the services in their specialty, it was then necessary to link these rankings across specialty.

22. This was necessary so that all services in all specialties could function in the same reimbursement system. It would not be practical to have a different rating system for each specialty

23. The specialists from the all four specialties were then asked to come to an agreement as to which service within each of the four specialties could be considered to have the equivalent work content. Note: it was not necessarily the baseline service previously chosen by each specialty

24. If the service chosen as “equivalent work” service in specialty A had a relative weight of within its specialty of (5) and the service chosen by specialty B had a relative weight within the specialty of (10)

25. In order to have both specialty A and specialty B services incorporated into a single system of relative weights All of specialty B’s service weights should be multiplied by the ratio of the two services 5/10 =.5

26. We could, of course, multiply specialty A’s weight by the ratio 10/5 = 2 The result would be the same

29. Relative Practice Costs Hsiao then addressed relative practice costs by way of an: Index of Relative Practice Costs General Surgery Practice Costs served as a base Other specialties were assessed relative to that base

30. AST – Amortized Value of Specialty Training (Opportunity Cost) was established as follows: * Length of Time Spent in Specialty residency

31. Forgone Net Income (during the period of residency) Minus Realized Income (during the period of residency) = Specialty Specific Opportunity Cost of all years in residency

32. AMORTIZED (over the Average Working Lifetime of Physicians) see next slide for Hsaio’s Table of Index of Relative Practice Costs and Opportunity Costs

34. Hsaio conducted simulation with the RBRVS system to evaluate the impact of using such a system Table 2: RBRVS Compared With Mean Medicare Charges for 1988 Table 3: Comparison of Ratio of Charges to RBRVS For Evaluation and Management, Invasive, Pathology, and Radiologic Services

37. Hsaio then demonstrated the income redistribution effect if the RBRVS system was implemented see next slide

39. Medicare implemented this method of Physician Payment method in 1992 with some modification. It included a combination of RVU(CF) + Cost-Based Practice Costs + Cost- Based Malpractice costs.

40. The CF was determine by the fact that it was to be budget neutral. CR = Total Budget ÷ ∑RVU It was to be phased-in so that physician income would not be dramatically affected (positively or negatively)

41. With this method of payment, the federal government is able to control physician payment. A not so “Invisible Hand”. Currently, physician fees are calculated using RVU; CF; Practice Costs;Geographic Practice Cost Index (GPCI); Malpractice Costs as follows:

42. RVU were calculated in a manner similar to that used for the physician work component for Practice Costs (RVU Practice costs) and for Malpractice Costs (RVU Malpractice Costs). The Geographic Practice costs Index is based on the Wage Index The fee is then determine as follows:

43. For each service code the Fee = CF [(RVU work x GPCI work ) + (RVU practice costs x GPCI practice costs ) + (RVU malpract costs x GPCI malpract costs )]

45. In 1999, the CF was reduced fro $36.6873 to $34.7315 The Federal Register published the impact on fees for the specialties as follows: