© 2006, UHC and AAMCPage 1 Jeff L. Good, MBA Program Director, FPSC Analytics and Quality Assurance Phone: The RBRVS System: How it can be used to manage the physician practice

© 2006, UHC and AAMCPage 2 Session Outline Quick Overview of the UHC-AAMC Faculty Practice Solutions Center (FPSC) History and workings of the Resource-Based Relative Value Scale (RBRVS) Using Relative Value Units (RVUs) for: Calculating Medicare payments Budgeting Measuring Productivity Questions & Answers

© 2006, UHC and AAMCPage 3 The FPSC in Brief Participating Institutions Began as UHC CPT Database in 1995 FPSC Advisory Group created in 2000 FPSC created in participating institutions nationwide 50,000+ participating physicians 108 unique subspecialties Line-item data collection from billing system Hundreds of performance measures

© 2006, UHC and AAMCPage 4 RBRVS Developed to Better Align Physician Payments with Costs Prior to RBRVS, physician payments based on fee-for-service methodology, in which physician reimbursement was based on CPR (customary, prevailing, and reasonable) charges Alarming growth rate of health care expenditures Medicare reimbursement for physician services grew at 15% compound rate between 1975 and 1987 Increased call for an alternate payment methodology was called for as: Dissatisfaction with original payment scheme grew Expenditures for Medicare Part B continued to grow Price freezes were put into effect on physician services – National RBRVS developed at Harvard University (William Hsiao, Ph.D. and Peter Braun, M.D.) 1989 – President George H. W. Bush signed into law the Omnibus Budget Reconciliation Act, switching Medicare to RBRVS payment schedule effective Jan. 1, 1992

© 2006, UHC and AAMCPage 5 RBRVS System Mechanics Payments for services are determined by the resource costs to provide them Relative Value Units (RVUs) are used to rank the costs Work RVUs updated annually Entire system reviewed every 5 years by law Relative Value Update Committee’s (RUC) role Represents specialty societies Makes recommendations for RVU changes Conversion factor (CF) is used to determine payment when multiplied by total RVU; CF updated annually Adjustments to the fee schedule: Geographic adjustment Budget neutrality adjustment (BNF), if changes in schedule change outlays in excess of $20 million

© 2006, UHC and AAMCPage 6 The Components of the Total RVU Total RVU (tRVU) Practice Expense RVU (peRVU) Malpractice RVU (mpRVU) The work RVU consists of the physician’s (provider’s) time, mental effort, technical skill, judgment, stress, and amortization of the physician’s education. The malpractice RVU represents the cost of malpractice risk for the procedure. The practice expense RVU consists of the direct expenses related to supplies, non-MD labor, the pro-rata cost of equipment used, and an amount for indirect expenses. There are 2 types of peRVU: Work RVU (wRVU) = + + Facility PE – Use facility value for services provided in a hospital-based setting. Nonfacility PE – Use nonfacility values for non hospital-based settings (i.e., physician office).

© 2006, UHC and AAMCPage 7 Accounting for Geographic Differences in Costs Geographic Practice Cost Indices (GPCI) Practice Expense GPCI (peGPCI) Malpractice GPCI (mpGPCI) Work GPCI (wGPCI) Payments need to be adjusted to account for cost differences from region to region Regional cost estimates are developed and used to develop GPCI values Separate values are applied to each RVU component:

© 2006, UHC and AAMCPage 8 The Payment Formula GPCI-adj tRVU wRVUwGPCI peRVUpeGPCI mpRVUmpGPCI GPCI-adj wRVU GPCI-adj peRVU GPCI-adj mpRVU ( ( ( ) ) ) * * * + = = GPCI-adj tRVU CF * = GPCI-adj tRVU = Payment ($)

© 2006, UHC and AAMCPage 9 Example Calculations of Medicare Payments EXAMPLE 1: On Dec 1, 2006, Dr. Smith provides a level 3 established patient visit (99213) in the University Hospital’s outpatient clinic (facility setting) located in Manhattan. EXAMPLE 2: On Dec 1, 2006, Dr. Smith provides a level 3 established patient visit (99213) in the her physician office (nonfacility setting) located in Manhattan. (wRVU * wGPCI) + (peRVU * peGPCI) + (mpRVU * mpGPCI) = GPCI-adj tRVU * CF = Payment (0.67 * 1.065) + (0.24 * 1.298) + (0.03 * 1.504) = (1.07) * $ = $40.56 (wRVU * wGPCI) + (peRVU * peGPCI) + (mpRVU * mpGPCI) = GPCI-adj tRVU * CF = Payment (0.67 * 1.065) + (0.69 * 1.298) + (0.03 * 1.504) = (1.65) * $ = $62.53 The difference in this example is the facility versus nonfacility practice expense RVU, which is determined by the site of service.

© 2006, UHC and AAMCPage 10 Using RBRVS for Budgeting The RBRVS system can be used in budgeting to: Model subsequent year’s Medicare payments Estimate payments for commercial payers, as many follow RBRVS Model revenue impact that a change in mix of services would have on the practice

© 2006, UHC and AAMCPage 11 FPSC Medicare Impact Analyses FPSC team produces a Medicare Impact Analysis each year for participants when the subsequent year’s fee schedule is released Most recent 12 months data utilized Assume same volume of services are provided in subsequent year as current year All payment modifications are taken into account – modifiers, GPCI, budget neutrality adjustments Aggregate analysis models the impact across all 70+ participants by specialty Individual participant analyses distributed to show the impact based on that institution’s mix of services (also by specialty)

© 2006, UHC and AAMCPage 12 Significant Changes in 2007’s Fee Schedule The RUC proposed and CMS accepted many changes to wRVU values, especially for E&M services i.e., work RVU increasing by 37% The proposed increase in RVUs increased payments by more the $20 million – adjustments required to maintain budget neutrality BNF will be applied by reducing wRVUs by 10.1% The BNF reduction to wRVUs ONLY applies during the calculation of payments CF will decline by 5.0% as well NOT SO FAST!!!

© 2006, UHC and AAMCPage 13 Applying the BNF to Calculate Payments for 2007 EXAMPLE 1: On Dec 1, 2006, Dr. Smith provides a level 3 established patient visit (99213) in the University Hospital’s outpatient clinic (facility setting) located in Manhattan. EXAMPLE 2: On Jan 5, 2007, Dr. Smith provides a level 3 established patient visit (99213) in the University Hospital’s outpatient clinic (facility setting) located in Manhattan. (wRVU * wGPCI) + (peRVU * peGPCI) + (mpRVU * mpGPCI) = GPCI-adj tRVU * CF = Payment (0.67 * 1.065) + (0.24 * 1.298) + (0.03 * 1.504) = 1.07 * $ = $40.56 (wRVU * BNF * wGPCI) + (peRVU * peGPCI) + (mpRVU * mpGPCI) = GPCI-adj tRVU * CF = Payment (0.92 *.8994 * 1.065) + (0.25 * 1.3) + (0.03 * 1.48) = 1.25 * $ = $44.98 There are a number of changes between the 2 examples. Note the application of the BNF to wRVUs for 2007.

© 2006, UHC and AAMCPage Interim Fee Schedule Analysis Example

© 2006, UHC and AAMCPage 15 Use of RVUs for Measuring Productivity Prior to development of RBRVS, many measured productivity by: Counting the number of visits Counting the number of procedures performed This methodology did not take into account visit/procedure intensity RVUs, specifically wRVUs, give appropriate weighting based on the physician effort for a procedure Count of Visits Sum of wRVUs Physician A Physician B 500 units of units of wRVUs 368 wRVUs

© 2006, UHC and AAMCPage 16 Know Your Cost of Practice; Use RVUs in Budgeting MD-Related Expenses wRVUs Practice-Related Expenses peRVUs Malpractice Insurance Expense mpRVUs ++= Total Expenses tRVUs $ per tRVU $40.46 per tRVU Your Cost = Medicare Payment (non GPCI-adj) = In this example, your contracts need to average about 107% of Medicare to breakeven

© 2006, UHC and AAMCPage 17 Questions & Answers Contact Information: Jeff L. Good, MBA Program Director, FPSC Analytics and Quality Assurance University HealthSystem Consortium 630/