# Health Care Finance

Medicare, as the single largest payer in the United States, uses the resource-based relative value scale (RBRVS) to reimburse physician services. In this module, we will explore how to calculate physician reimbursements based on Medicare’s RBRVS model.

How are physician rates calculated?

There are Medicare payment rates for 7,000 current procedural terminology (CPT) codes. The specific values vary by region. The payment rates are the product of three relative values and geographic cost indexes and a conversion factor. For every procedure there are three relative value units (RVU). These RVUs reflect the cost of a particular procedure:

Work RVU – Represents physician time, skill level, stress, and other related factors.

Practice expense RVU – Represents non-physician costs, excluding malpractice costs.

Malpractice RVU – Represents the cost of malpractice insurance.

The following table should help you better understand how rates are calculated:

Categories RVU Geographic Cost Index Product Conversion Factor

Work 27.36 1.089 29.8 –

Practice Expense 33.59 1.473 49.48 –

Malpractice 6.82 0.646 4.41 –

Total – – 83.69 69.87

The product values are added up and multiplied by the conversion factor. Using the above figures, the payment rate would be \$5,847.42.

Now that we know the Medicare Approved Rate, we can move on to:

How are Physicians Reimbursed?

Participating Physicians:

Accept assignment on each and every case.

Bill Medicare and the patient 100% of the Medicare-approved fee for a procedure.

Receive payment from Medicare equal to 80% of the Medicare-approved fee, and patient pays 20% of the approved fee.

Non-participating Physicians who accept assignment on a case-by-case basis:

Bill Medicare and the patient 95% of the Medicare-approved fee for a procedure.

Receive payment from Medicare equal to 80% of the Medicare-approved fee for non-participating physicians (95%), and patient pays 20% of the approved fee.

Non-participating Physicians who do not accept assignment:

Bill the patient for 115% of the Medicare-approved fee for non-participating physicians (which is already at 95% of fee for participating physicians).

Receive entire payment from the patient. Then Medicare reimburses the patient for 80% of the approved fee for non-participating physicians.

The following examples should help you better understand billing by and payment to physicians:

Assume the Medicare-approved fee for a procedure is \$1,000. This means that the Medicare-approved fee for non-participating physicians is \$950.

The Participating physician will bill Medicare and the patient. Medicare will pay the doctor \$800 (80%), and the patient pays \$200 (20%).

The non-participating physician who accepts assignment bills Medicare and the patient. Medicare pays \$760 (80% of the \$950) and the patient pays \$190 (20% of the \$950).

The non-participating physician who does not accept assignment bills the patient a maximum of \$1,092.50 (115% of the \$950). This is called limiting charge. The patient pays the physician the entire amount. Then Medicare reimburses the patient \$760 (80% of the \$950 approved fee). In this scenario, the physician gets paid more than the participating physician but can only look to the patient. In this scenario, the patient is on the hook for \$332.50, because Medicare will not pay more than \$760.

Module 5 – Background

PAYING FOR PHYSICIAN SERVICES

Medicare Payment Advisory Commission. (2010). Medicare Payment Basics: Physician Services Payment System.

Centers for Medicare and Medicaid. (2010). Medicare Physician Fee Schedule. The Medicare Learning Network Payment Systems Fact Sheet Series.

Guterman, S., Davis, K., Stremikis, K., & Drake, H. (2010). Innovation in Medicare and Medicaid Will Be Central to Health Reform’s Success. Health Affairs, 29 (6), 1188-93. Retrieved from ProQuest on 11/21/2012.

Lesser, C., Fineberg, H., & Cassel, C. (2010). Physician Payment Reform: Principles That Should Shape It. Health Affairs, 29 (5), 948-952.

Wilensky, G. (2009). Reforming Medicare’s Physician Payment System. New England Journal of Medicine, 360 (7), 653-655.

Module 5 – Case

PAYING FOR PHYSICIAN SERVICES

Mr. Smith is a 68-year-old Medicare beneficiary. He sought treatments from Dr. Johnson. Assume the following values for the services provided by Dr. Johnson:

Categories RVU Geographic Cost Index Product

Work 27.45 1.092 29.98

Practice Expense 43.05 1.743 75.04

Malpractice 10.32 0.543 5.60

Conversion Factor: 64.43

Case Assignment

1. How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare participating physician? How much out-of-pocket payment will Mr. Smith be responsible for?

2. How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare non-participating physician who elects assignment? How much out-of-pocket payment will Mr. Smith be responsible for?

3. How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare non-participating physician who does not elect assignment? How much out-of-pocket payment will Mr. Smith be responsible for?

Health Care Finance

Introduction

The Acute inpatient services payments system, offers its beneficiaries several programs that are subsidized by the US government. The IPPS payment rates cover the costs that efficient and fair service providers would incur when providing treatment to all the beneficiaries. Medicare is an American national social insurance program that is administered and controlled by the federal government of the USA and it was founded in the year 1966. It’s among several other programs that are funded by the US government. (Feder, Clemans-Cope, Coughlin, Holahan & Waidmann, 2011)

The Health care financial calculations fall under the Acute Care Hospital Inpatient Prospective Payment System. It covers a maximum 90 days of an inpatient care hospital services with a life time addition of another 60 days. The medical claims include also the beneficiary’s outpatients diagnostic and other related services that were granted to the inpatient while still seeking medical treatment as an outpatient. (Lemieux, Chovan & Heath, 2008) Payment is sometimes reduced when the patient or the beneficiary has had a short period in hospital (LOS, Short Length of Stay) (Hogan, Lunney, Gabel & Lynn, 2001)

The following are the procedures for calculating the payments for the hospital services received by Mr. Smith. (Feder, Clemans-Cope, Coughlin, Holahan & Waidmann, 2011) and also the payments to Dr. Johnson. (Berenson and Holahan, 2011)

To conclude, the payments to Doctors and the amounts payable by patients all depend on Physicians and the nature of his practice that’s whether he is a participating physician or a non participating doctor and also whether he has elected his assignments or not. The major aim of the CMS (Center for Medicare and Medicaid Services) is to provide a sustainable growth in the provision of medical health services in the US. The HCPCS (the HealthCare Common Procedure Coding System) helps in coordinating and regulating the charges of the health care services in the US.

Reference

Berenson, R.A. and Holahan, J. (2011) Preserving Medicare: A Practical Approach to Controlling Spending (Washington, DC: Urban Institute, Sept. 2011) Feder, J., Clemans-Cope, L., Coughlin, J., Holahan, J. & Waidmann, T. (2011) “Refocusing Responsibility For Dual Eligibles: Why Medicare Should Take The Lead.” Robert Wood Johnson Foundation,