Health Care: Impact of New Medicare Reimbursement Regs on Physicians and Lenders

Article excerpt

Effective March 1, 1992, new regulations radically affected the way physicians are reimbursed under Medicare Part B. Known as the RBRVS, the Resource-Based Relative Value Scale represents the greatest change to the Medicare system since it was established 26 years ago. No longer will services provided to Medicare beneficiaries be based on customary and reasonable rates but on a fee schedule in which relative values are assigned to more than 7,000 medical procedures.

Nearly every doctor in the U.S. will be affected by the new payment rules and coding system. According to the Health Care Financing Administration, the main thrust of the new physician payment reform was to rein in soaring physician costs and to make the payment system fairer for those physicians engaged in evaluation and management specialties.

Fee Schedule Background

Under development since 1985, the RBRVS was intended to change the anomalies that compensated surgical procedures at a much higher rate than primary care procedures. The new fee schedule, using the RBRVS, redirects governmental, and eventually third-party payers, away from invasive, procedure-oriented care, traditionally the most expensive to provide, toward primary care procedures.

The new schedule accounts for the time, training, skill, and risk (that is, "work") required to perform a service. As a result of the reform, payments to surgeons and high-tech specialists are expected to be reduced.

The rules should also help close the gap between payments to rural and urban physicians. Furthermore, third-party payers are expected to use the new fee schedule as a guide in the adoption of their own values scales. As a result, the RBRVS has become the most significant health care reform issue in decades.

Extensive analysis by experts suggests that the new value scale will have a revolutionary impact on the health service industry as a whole in the 1990s. The RBRVS will be phased in between 1992 and 1996, with payments before 1996 a blend of the RBRVS and historical payments.

Determination of New Value Scale

Until the enactment of the new payment schedule, fee reimbursement for the approximately 31 million Medicare beneficiaries was based on customary, prevailing, and reasonable (CPR) charges. Those physicians who "participated" accepted the CPR charges as payment in full, while "nonparticipating" physicians could "balance-bill" patients for a remaining portion of the fee up to the maximum allowable actual charges limit.

New Fee Schedule

The CPR charges have been replaced with a new Medicare Fee Schedule (MFS) in which fees were set according to a specific formula, developed and refined by a research team at the Harvard School of Public Health. The final RBRVS formula was the composite of three factors:

1. Relative value scale for services.

2. Geographic adjustment factor for a fee schedule area.

3. National conversion factor.

The development of the Harvard RBRVS model to determine relative values is beyond the scope of this article. However, the findings of the study showed that the new payment system would dramatically affect the Medicare income and practice of most physicians.

The Harvard study was designed to compensate physicians based on the resource-input costs to deliver medical and surgical services. These costs were measured by a model that defined resource input as:

* Work expended by a physician on a particular procedure or service (in terms of time and intensity).

* Practice costs to supply the service.

* Opportunity cost of training.

In the final model, opportunity costs were deleted and practice costs were subdivided into overhead costs and malpractice costs. As a result of the study, resource value units were defined for more than 7,000 coded services in Medicare's payment system.

Uneven Fee Income

The empirical results of the study revealed that evaluation and management services (primarily visits and consultations), those provided by primary care physicians, were compensated at a much lower rate than invasive procedures, imaging, and laboratory testing. …