Cost and Medicare reimbursement: An arcane formula

Summary: We’re hard at work over here at ClearHealthCosts, providing you with tools to make your health-care costs transparent. This is a bit arcane, but here goes:  what I’m about to tell you reflects the way our health-care marketplace works. Keep reading, or …

Let’s say you want to find what Medicare pays for a given procedure in a given place. That’s the closest thing that there is to a regulated price in this marketplace, though it’s not completely perfect. That’s one of the things we’re working on right now, a way to tell you what Medicare pays.

We asked a helpful person in the government to give us some tips on establishing the price. Here’s what we were told, with an example.

Begin explanation:

Existing Website where you can look this info up

https://www.cms.gov/apps/physician-fee-schedule/overview.aspx

Technical Steps to Get Data and Calculate local prices if you want to build your own tool

Payment for physician services under Medicare is based on a fee-schedule that accounts for the time and effort of the specific service being provided, as well as geographic variation in the cost of providing care.    Each Medicare physician payment depends on three factors:

1.       The relative value of the specific service being provided (based on the HCPCs/CPT code for the service)

2.       The geographic location of the provider (based on the state and county of the provider)

3.       A national conversion factor that converts the relative value of the service into a dollar payment amount (constant for a given year across all HCPCs/CPT codes and all geographic areas)

Both the relative value and geographic portions of the payment are divided into the same 3 components: 1) a physician work component that measures the time, intensity, and skill of providing a particular service; 2) a practice expense component that measures average practice expenses such as rent and wages; and 3) a malpractice expense component that accounts for average insurance costs.

In order to calculate the exact payment for a given service in a given geographic areas (see formulas below), one must multiple the relative value unit (RVU) and geographic practice cost index (GPCI) for each of the three components – work, practice expense (facility/non-facility), and malpractice.  The three combined components are then added together and multiplied by the conversion factor to get a final dollar amount.

Formulas

Non-Facility Pricing Amount =

[Work RVU * Work GPCI) +

(Non-Facility practice expense(PE) RVU * PE GPCI) +

(Malpractice (MP) RVU * MP GPCI)] * Conversion Factor

Facility Pricing Amount =

[(Work RVU * Work GPCI) +

(Facility PE RVU * PE GPCI) +

(MP RVU * MP GPCI)] * Conversion Factor

Medicare payments to physicians are also impacted by the Medicare sustainable growth rate (SGR).  The SGR was enacted by the Balanced Budget Act of 1997 to control spending by Medicare on physicians.   However, in response to the ever increasing cuts to physician payments required by the SGR, Congress has continually overridden the scheduled cuts (currently at 27% in 2012).  This has led to last minute updates to the physician fee schedule to prevent the large cuts from taking effect.  Current payment rates for 2012 (that only apply for January 1, 2012 through February 29, 2012) are available here: https://www.cms.gov/PhysicianFeeSched/PFSRVF/itemdetail.asp?filterType=none&filterByDID=-99&sortByDID=1&sortOrder=descending&itemID=CMS1255291&intNumPerPage=10

Files needed:

• ·         GPCI2012 (geographic price indices)
• ·         12LOCCO (counties included in 2012 localities for GPCI)
• ·         PPRVU12 (relative value units and the conversion factor)

Example

HCPCS code: 99211 (established patient office visit)

Locality: Alabama

2012 Conversion Factor: 34.0376

(1.000*0.18) + (0.878*0.39) + (0.474+0.01) * 34.0376 = $17.94

So Medicare payment for HCPCS code 99211 in Alabama is $17.94

*  *  *  *  *  *

You might think we’re done, but we’re not. What is this 99211, you ask?  It’s one of the standard HCPCS codes, the five-digit numbers used for standardized billing across the medical system. And what does it represent? Here’s an answer, from Coding News.  Here’s another answer, from the American Academy of Family Physicians: It turns out that we’re discussing an “office or other outpatient visit for the evaluation and management of an established patient that may not require the presence of a physician.” To qualify, the visit requires a face-to-face encounter for both evaluation and management–so the nurse could check someone’s blood pressure and not qualify, but to add an evaluation and management component would qualify.

The AAFP adds: “Reporting 99211 can bring additional revenue into your practice. Specific payment amounts will vary by payer, but the average unadjusted 2004 payment from Medicare for a 99211 service is $21. This means that only five 99211 encounters with Medicare patients in a week will result in over $5,000 per year for a practice. Although this may not sound like a lot of money, it is easy revenue. Most practices already provide a number of 99211 services but fail to capture those charges. Remember, all services have a cost associated with them, and practices need to recoup as much of these costs as is legitimately possible.”