June 27, 2018
Medicare payment to physicians under the Medicare Physician Fee Schedule (MPFS) is based on relative value units (RVUs) representing physician work, practice expense and malpractice insurance. These RVUs are multiplied by a conversion factor and geographic adjustment factors to determine the payment rate.
Practice expenses account for a substantial portion of the overall payments made under the MPFS. For example, payments for practice expenses constituted 45 percent of total MPFS payments in 2016.
Practice expense inputs for equipment, supplies and clinical labor (called “direct” practice expense inputs) are used as the first step in a multi-step calculation to generate practice expense RVUs (PERVUs). Direct practice expense inputs do not translate directly to practice expense reimbursement. Instead, the Centers for Medicare & Medicaid Services (CMS) employs a multi-step, complex calculation with numerous inputs to convert practice expense costs to reimbursements.
McDermottPlus has developed a tool that calculates PERVUs tracking the method described by CMS under the MPFS. This tool allows McDermottPlus to replicate and verify PERVUs published by CMS to assist with the development of comments in response to Proposed and Final MPFS Rulemaking, and to simulate the impact of alternate inputs on PERVUs. The tool can be customized to analyze PERVUs at a specific billing code level, and can incorporate changes to the following levers:
We have demonstrated the value of this tool in various projects, including the following:
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 CMS recently implemented a policy to use an average of the three most recent years of available Medicare claims data to determine the specialty mix assigned to each code. Prior to implementing this policy, CMS used the most recent year of available claims data to determine the specialty mix. This change in policy was intended to minimize the impact of year-to-year fluctuations in specialty mix.