Medicare payment calculation formula

The formula for calculating the payment schedule

The Omnibus Budget Reconciliation Act of 1989 (OBRA 89) geographic adjustment provision requires all three components of the relative value for a service—physician work relative value units (RVUs), practice expense RVUs, and professional liability insurance (PLI) RVUs—to be adjusted by the corresponding GPCI for the locality. In effect, this provision increases the number of components in the payment schedule from three to the following six:

Physician work RVUs
Physician work GPCI
Practice expense RVUs
Practice expense GPCI

The formula for calculating payment schedule amounts entails adjusting RVUs, which correspond to services, by the GPCIs, which correspond to payment localities.

The general formula for calculating Medicare payment amounts for 2010 is expressed as:
     Work RVU1 x Work (GPCI)2   
+    Practice Expense (PE) RVU x PE GPCI   
+    Malpractice (PLI) RVU x PLI GPCI   
     = Total RVU   
x    CY 2010 Conversion Factor of $36.0791   
     = Medicare Payment   

1 The 2010 physician work, practice expenses, and malpractice RVUs may be found in Medicare RBRVS: The Physicians’ Guide.

2 The Geographic Practice Cost Index (GPCIs) for calendar year (CY) 2010 may also be found in Medicare RBRVS: The Physicians’ Guide.

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