Please note that this article contains information that is only relevant to American clinics.

 

In Part 1 and 2 of this series, we discussed how the Centres for Medicare and Medicaid have developed a system for assigning dollar values to specific treatments and services (i.e. CPT codes). Their formula, known as the Resource Based Relative Value Scale (RBRVS), factors in several things such as the geographic practice cost index (GCPI), and relative value units (RVUs) which are comprised of “physician work”, “practice expense”, and malpractice insurance. In this article, we’ll be looking at the specific formula the CMS uses to determine their rates.

 

A recent article from Gawenda Seminars and Consulting entitled “What are RVUs and How Do They Impact Payment” revealed the exact formula that the CMS uses to determine payout for specific CPT codes. Their article also contained several illustrative examples of how the formula works. But first, let’s look at the formula:

 

(Physician Work RVU x Work GCPI) + (Practice Expense RVU + Practice Expense GCPI) + (Malpractice RVU x Malpractice GPCI) = Total RVU

 

Now, let’s borrow a practical example from Gawenda Seminars and Consulting. They used a clinic from Michigan, and a clinic from Tennessee to demonstrate how the formula works. And as a reminder, the Medicare Physician Fee Schedule (MPFS) conversion rate for 2017 is 35.8887—we’ll need it in a minute.

 

We’ll also need a CPT code to base it on. In this example, we’ll be using CPT code 97162 (i.e. a moderately-complex PT evaluation). This CPT code has the following RVUs: Physician Work is 1.20, Practice Expense is 1.0, and Malpractice Expense is 0.1.

 

Then we’ll move on to the specific location. In Detroit, Michigan, their GCPI is as follows: Physician Work is 1.000, Practice Expense is 0.992, and Malpractice Expense is 1.510. And now for the fun part, where we combine the CPT code’s RVUs with the GCPI to determine the total RVU. See below:

 

(1.20 x 1.00) + (1.0 x 0.992) + (0.1 x 1.510) = 1.2 + 0.992 + 0.151 = 2.343

 

Now we must take the total RVU and multiply it by the MPFS to see the total amount payable by Medicare. See below:

 

2.332 x 35.8887 = $84.09

 

Moving on, we’re going to look at Tennessee. Their GCPI is as follows: Physician Work is 1.000, Practice Expense is 0.900, and Malpractice Expense is 0.525. Let’s apply the same formula to the GCPI. See below:

 

(1.20 x 1.00) + (1.0 x 0.900) + (0.10 x 0.525) = 1.2 + 0.900 + 0.0525 = 2.1525

 

2.1525 x 35.8887 = $77.25

 

As you can see in the above examples, a clinic performing a moderate complexity PT evaluation in Michigan will earn $6.84 less for providing a service, despite the fact that they’re essentially performing the same task. And while this figure may seem unimportant at a glance, consider the fact that clinics can potentially be performing thousands of evaluations a year. But of course, there are certain external factors, as evidenced by the GCPI.

 

We hope you found this article helpful. For more great information about Medicare, head over to Gawenda Seminars and Consulting and learn more about the benefits of becoming a Gold Member!

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