Medicare fees for physician services are resource-based.

Beginning January 1, 1992, Medicare has relied on a resource-based relative value scale (RBVS) to establish physician fees. Medicare pays 80 percent of the lower of the amount a physician bills for the service or the fee schedule amount. The patient is responsible for the remaining 20 percent, as well as the annual Part B deductible of $100, plus any additional amount the physician may be allowed to bill. Rarely is the billed amount below Medicare's fee schedule amount.

Adoption of the RBRVS fee schedule severed the link between the amount a physician charged for a Service and the amount Medicare paid for it. RBRVS implementation required significant changes in the Coding system used to document and bill physician services, particularly medical visits and consultations. Key words: Physician Fee Schedule, Resource-Based Relative Value Scale, RBRVS, Relative Value Units, RVUs, Medicare Economic Index, Sustainable Growth Rate.

Introduction

Prior to January 1, 1992, physicians were compensated on a reasonable charge basis for covered services furnished to Medicare beneficiaries. The fee generally equaled the lower of the actual, customary, or prevailing charge for service. Since then, Medicare has relied on a resource-based relative value scale (RBRVS) to establish physician fees. Medicare pays 80 percent of the lower of the amount a physician bills for the service or the fee schedule amount. (1) The patient is responsible for the remaining 20 percent, as well as the annual Pan B deductible of $100, plus any additional allowed amount the physician may bill. Rarely is the billed amount below Medicare's fee schedule amount.

Adoption of the RBRVS fee schedule severed the link between the amount a physician charged for a service and the amount Medicare paid for it. The separation altered fee levels, resulting in noticeable changes in the division of Medicare payments among physician specialties. In general, family/ general practitioners, internists and other primary care physicians gained at the expense of cardiologists, radiologists, and other specialties. RBRVS implementation also required significant changes in the coding system used to document and bill physician services, particularly medical visits and consultations.

Covered Practitioners and Services

For payment purposes, Medicare defines a physician as a doctor of medicine, osteopathy (including an osteopathic practitioner), dental surgery or dental practice, podiatric medicine, chiropractic services, and optometry. The RBRVS fee schedule is used to determine payment amounts for most of the physician services that Part B of the Medicare program covers and reimburses, such as the following:

 
   * Professional services provided by doctors 
   of medicine, doctors of osteopathy, 
   or limited license practitioners (e.g., 
   dentists, podiatrists, and optometrists); 
 
   * Services and supplies that are incidental 
   to a physician's professional services, 
   except for drugs; 
 
   * Outpatient physical therapy services 
   and outpatient occupational therapy services 
   when certain conditions are met; 
 
   * Diagnostic radiology tests and other diagnostic 
   tests other than clinical diagnostic 
   laboratory tests; 
 
   * Radiology, radium, and radioactive isotope 
   therapy, including materials and 
   services of technicians; and 
 
   * Certain services provided by nurse 
   practitioners, clinical nurse specialists, 
   certified registered nurse anesthetists, 
   nurse midwives, physician assistants, 
   clinical psychologists, physical therapists, 
   occupational therapists, and other 
   non-physician practitioners who are licensed 
   or certified to furnish such services 
   in their state and meet other requirements. 

Clinical nurse specialists, nurse practitioners, and other non-physician practitioners, may furnish certain physician services under a physician's direction or in their own right. These services may complement, substitute for, or be incidental to the physician service that is furnished under a physician's supervision as an integral, but incidental, part of the professional services the physician renders during the course of treating or diagnosing a patient. Medicare pays separately lot covered non-physician practitioner services unless payment is bundled into the amount Medicare pays to hospitals, nursing facilities, or other providers.

Medicare generally reimburses covered services provided by non-physician practitioners at less than the fee schedule amount (or billed charges) that would be paid if a physician furnished the service. Examples include 85 percent of the fee schedule amount for physician assistants and 65 percent for certified nurse midwife services. In addition, depending on the circumstances, Medicare payments may be made directly to the non-physician practitioner or to the practitioner's employer who, in turn, pays the practitioner a salary.

During the 1990s, federal law expanded the number of physician services that Medicare compensates when furnished by non-physician practitioners, in tandem with research showing that properly trained non-physician practitioners can render various services as accurately and safely as physicians. For example, as of January 1, 2002, nurse practitioners, physician assistants, and clinical nurse specialists are--for Medicare coverage and payment purposes--allowed to perform screening flexible sigmoidoscopies, so long as they meet Medicare's qualifications and slate law permits them 10 perform them. The fee schedule amount is based on the lower of the billed amount or 85 percent of the fee schedule amount that applies to physicians.

Professional and Provider Services. Part B of Medicare pays fees for the professional (i.e., medical and surgical) services a physician renders while caring directly for individual Medicare patients. Part A, however, covers and reimburses the "provider services" that a physician furnishes. Physician provider services do not benefit individual patients directly but instead benefit a provider's (e.g., a hospital or nursing facility) indirectly or collectively. Examples include medical administration, utilization management, and quality improvement activities. Payment for physician provider services is included in the amount that Medicare pays for inpatient care or other covered services that the facility's Medicare patients receive. The facility, in turn, may pay the physician a salary for provider services.

Clinical Codes

The Health Care Financing Administration's (HCFA's) Common Procedure Coding System (HCPCS, pronounced "hick picks") is used to document and report the services, procedures, and items that Medicare reimburses under the RBRVS fee schedule. HCPCS codes are assigned to the services a patient receives and are reported in designated fields of the claim form that physicians submit for Medicare payment. Accurate and complete coding is essential for proper payment and timely cash flow.

HCPCS is a three-level coding system. Level 1--by far the largest portion--consists of the Current Procedural Terminology. fourth edition (CPT-4), which was developed by and is maintained by the American Medical Association (AMA). CPT-4 is the most widely used coding system for physician services, consisting of thousands of five-digit numerical codes tot physician visits and consultations (frequently referred to as evaluation and management services), and procedures, such as surgery, imaging, clinical laboratory tests, and diagnostic tests requiring specialized equipment. At times, two-digit modifiers provide additional information about a service or procedure (e.g., modifier code 62 to report the work of co-surgeons). Services are grouped into several major sections, such as evaluation and management services, anesthesiology, surgery, radiology, pathology and laboratory, and medicine. These sections, in turn, are subdivided by body system, anatomic site, patient descriptors, and type of service.

Recently, the AMA developed two new categories--Category II and Category III CPT codes. (Category I is for the traditional codes.) Category II CPT codes are intended to decrease the need to review medical records to determine whether certain services were performed by enabling practitioners to note in their billing records that a given visit addressed issues that should be monitored for quality and outcome measurement. Category II--Performance Measure--CPT codes allow physicians to note in their billing records that a service was furnished, thus facilitating efforts to track and demonstrate that the services were furnished. Category III--Emerging …