RVS Update Process

Introduction to the Medicare RBRVS

In 1992, Medicare significantly changed the way it pays for physicians' services. Instead of basing payments on charges, the federal government established a standardized physician payment schedule based on a resource-based relative value scale (RBRVS). In the RBRVS system, payments for services are determined by the resource costs needed to provide them. The cost of providing each service is divided into three components: physician work, practice expense and professional liability insurance. Payments are calculated by multiplying the combined costs of a service by a conversion factor (a monetary amount that is determined by the Centers for Medicare and Medicaid Services). Payments are also adjusted for geographical differences in resource costs.

RBRVS Component Breakdown

Physician Work	52%
Practice Expense	44%
Professional Liability Insurance (PLI)	4%

The physician work component accounts, on average, for 52% of the total relative value for each service. The initial physician work relative values were based on the results of a Harvard University study. The factors used to determine physician work include the time it takes to perform the service; the technical skill and physical effort; the required mental effort and judgment; and stress due to the potential risk to the patient. The physician work relative values are updated each year to account for changes in medical practice. Also, the legislation enacting the RBRVS requires the Centers for Medicare and Medicaid Services (CMS) to review the whole scale at least every five years.

The practice expense component of the RBRVS accounts for an average of 44% of the total relative value for each service. Practice expense relative values were initially based on a formula using average Medicare approved charges from 1991 (the year before the RBRVS was implemented) and the proportion of each specialty's revenues that is attributable to practice expenses. However, in January 1999, CMS began a transition to resource-based practice expense relative values for each CPT code that differs based on the site of service. In 2002, the resource-based practice expenses were fully transitioned.

On January 1, 2000, CMS implemented the resource-based professional liability insurance (PLI) relative value units. The PLI component of the RBRVS accounts for an average of 4% of the total relative value for each service. With this implementation and final transition of the resource-based practice expense relative units on January 1, 2002, all components of the RBRVS are resource-based.

The RVS Updating Process

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Annual updates to the physician work relative values are based on recommendations from a committee involving the American Medical Association (AMA) and national medical specialty societies. The AMA/Specialty Society RVS Update Committee (RUC) was formed in 1991 to make recommendations to CMS on the relative values to be assigned to new or revised codes in the Current Procedural Terminology (CPT) book. Over 8,600 procedure codes are defined in CPT, and the relative values in the RBRVS were originally developed to correspond to the procedure definitions in CPT.

CPT is maintained by the CPT Editorial Panel. This seventeen-member panel is authorized to revise, update, or modify CPT. Eleven of the seats on the Editorial Panel are nominated by the AMA and the remaining seats are nominated by the Blue Cross and Blue Shield Association, the Health Insurance Association of America, the Centers for Medicare and Medicaid Services and the American Hospital Association. A representative from managed care and two members of the CPT HCPAC (an advisory committee representing non-MD/DO health professionals) serve as part of the eleven AMA appointed seats. The coding system is updated annually (including addition of new codes, deletion of codes that are no longer used, and revisions in procedure descriptions) to ensure that it accurately reflects current medical practice. Changes in CPT necessitate annual updates to the RBRVS for the new and revised codes.

The RUC represents the entire medical profession, with 23 of its 29 members appointed by major national medical specialty societies including those recognized by the American Board of Medical Specialties, those with a large percentage of physicians in patient care, and those that account for high percentages of Medicare expenditures. Three of the specialty seats rotate on a 2-year basis, with two reserved for an internal medicine subspecialty, and one for any other specialty. The RUC Chair, the Co-Chair of the RUC HCPAC Review Board, and representatives of the American Medical Association, American Osteopathic Association, the Chair of the Practice Expense Subcommittee and CPT Editorial Panel hold the remaining six seats.

The RUC Health Care Professionals Advisory Committee (HCPAC)

The HCPAC was formed to allow for participation of limited license practitioners and allied health professionals in the RUC process. All of these professionals use CPT to report the services they provide independently to Medicare patients, and they are paid for these services based on the RBRVS physician payment schedule. The 11 organizations seated on the HCPAC represent

physician assistants
chiropractors
nurses
occupational therapists
optometrists
physical therapists
podiatrists
psychologists
audiologists
speech pathologists
social workers
registered dieticians

The HCPAC members together with three physician members of the RUC comprise the RUC HCPAC Review Board, which is responsible for developing relative value recommendations to CMS for new and revised codes that are reported principally by non-MD/DO professionals. The Co-Chair of the Review Board also serves as a member of the RUC.

CONVERSION FACTOR

The conversion factor can change every year. The current conversion factor, until June 30, 2008, is $38.0870. The Medicare conversion factor determines the overall level of Medicare payments. A formula spelled out in the Medicare statute determines the annual update to the conversion factor.