How Medicare fee schedule determined – RBRVS

• Medicare uses RBRVS 

• A system that sets a fee for procedures performed by a physician or other healthcare professional
• Covers procedures with a CPT code
• Based on estimates of costs of delivering services
• Introduced in 1992
 

• The two key components of each fee are the Conversion
Factor (CF) and the Relative Value Unit (RVU)
 

 The Conversion Factor
• Is the same for all CPT codes
• Is updated annually
• Converts RVUs to dollar fees

Relative Value Units
• Are determined for each CPT code
• Reflect the relative cost of providing a service
• Are not sensitive to inflation
• Are updated annually
• Incorporate factors to adjust for geographical differences
• Included a “Budget Neutrality Factor” prior to 2008

Medicare and WC Resource Allocation 

* RBRVS shifted reimbursement from specialty to primary care:

• For office visits, private payers reimburse about 110% of Medicare, similar to when RBRVS was introduced 

• For diagnostic testing, private fees are now about 135% of
Medicare, down from 220% in 1993

• Many WC fee schedules maintain high conversion factors for specialty care. Median WC fee schedules relative to Medicare are:

• 125% for office visits
• 180% for radiology
• 205% for surgery