Practice Resources

2007 to 2008 Payment Changes

If the conversion factor went up by 0.5%, why are some of my payments going down?

The 2008 Medicare Physician Fee Schedule final rule announced a 10.1 percent reduction to the conversion factor for 2008. Subsequently, President Bush signed legislation reversing the pay cut and replacing it with a 0.5 percent increase but only from January 1 through June 30, 2008. Table I below shows the Medicare conversion factor for 2007 compared to the 2008 conversion factors with and without Congressional intervention. 

If the conversion factor actually increased for (the first six months of) 2008, you may be wondering why some of your fees have still decreased.  It is important to note that an increase in the conversion factor does not guarantee an overall increase in payment for a particular procedure, as there are components of a Medicare fee other than the conversion factor that contribute to the total payment for a procedure. Two of those components are work and practice expense relative value units (RVUs).

Table I.  Medicare Conversion Factor for 2007 and 2008

Work RVUs (relative value units) and Budget Neutrality Adjustor

Work RVUs are one component of Medicare’s resource-based relative value scale (RBRVS), the system used to determine physician payment.  Work RVUs are developed based on surveys of physicians who perform a procedure to take into account physician time, mental effort and judgment, technical skill, physical effort and psychological stress involved with performing the procedure.   Medicare law requires that changes in RVUs in one year may not exceed $20 million over what they would have been without such changes. If this threshold is exceeded, CMS must make adjustments to preserve budget neutrality. 

In 2007, CMS applied a budget neutrality adjustor of 10.1 percent to work RVUs to bring total expenditures down under the $20 million “excess” threshold. In 2007, CMS also deferred for one year the decisions on proposed changes to the work RVUs for a number of codes from the 5-Year Review of work RVUs. Due to the proposed work RVU changes for the codes that were deferred as well as concomitant proposed increases in the work of anesthesia services, CMS proposed in 2008 to revise the work adjustor to 11.8 percent to maintain budget neutrality.  In Then, CMS announced in the final rule that the separate work adjustor would be 11.9 percent.  Therefore, to calculate Medicare physician payments, the work RVU for every procedure is lowered by 11.9 percent. Obviously, this downward adjustment to work RVUs offsets the conversion factor increase for many urology procedures.

Practice Expense RVUs

Practice Expense RVUs are another component of the Medicare RBRVS, and they account for the direct and indirect costs associated with performing a procedure.  Direct costs include clinical labor, medical supplies and equipment; indirect costs include administrative labor, office expenses and other costs such as rent and legal fees.  A procedure that can be performed in a physician’s office as well as a facility setting (such as a hospital outpatient department or ambulatory surgical center), will have two different practice expense RVUs, one for the facility setting and one for the physician office setting.  Specialty societies are responsible for collecting direct cost input data for CPT codes and presenting the information to the AMA RUC  for review.  The RUC must then review and approve all cost input recommendations and submit them to CMS, where they are then plugged into a formula used to calculate practice expense RVUs.  Beginning in 2007, CMS is using a new methodology to calculate practice expense RVUs.  Under this new methodology, CMS uses the same data sources for calculating PE RVUs, but instead of using the previous “top-down” approach to calculate the direct PE RVUs, under which the aggregate direct and indirect costs for each specialty are allocated to each individual service, it uses a “bottom-up” approach to calculate the direct costs.  Under the bottom-up approach, CMS determines the direct PE by adding the costs of the resources (clinical labor, supplies and equipment) typically required to furnish each service. 

The costs of the resources are calculated using the PE inputs assigned to each CPT code in CMS’s PE database, which are based on CMS’s review of recommendations received from the AMA Relative Value Update Committee (RUC) based on input from specialty societies, as mentioned above.  2008 is the second year of a 4-year phase-in of the new PE methodology, where 50 percent of the practice expense RVU will be based on the new method and 50 percent on the 2006 PE RVUs for each existing code.  Therefore, part of the changes in your Medicare payments are attributable to these changes in PE RVUs for urology procedures.

The tables below break down Medicare payment changes for the most commonly billed urology procedures so that you can see how the various components of a fee, including work RVUs, practice expense RVUs and the conversion factor contribute to total payment changes for that procedure.  The conversion factor change for every procedure is the same—a 0.5 percent increase. However, changes to the work and practice expense RVUs vary for each procedure.  For example, for CPT code 50590, fragmenting of kidney stone, Table III shows that the work RVU changed from 8.67 in 2007 to 8.49 in 2008, a 2.08 percent decrease in work RVUs. 

And, according to Table IV, the practice expense RVU for CPT code 50590, when performed in a physician’s office (non-facility setting) changed from 13.6 in 2007 to 14.75 in 2008—an 8.46 percent increase.  And, in 2010, when the new practice expense RVUs are fully phased in, the PE RVU for CPT code 50590 performed in a physician’s office will be 17.10.  The practice expense RVUs for CPT code 50590, when performed in a facility, change from 4.65 in 2007 to 5.12 in 2008 and then to 6.13 in 2010.  When added together, all of these changes for lithotripsy result in a total 4.75 percent payment increase between 2007 and 2008 when performed in a physician’s office and a 2.59 percent payment decrease between 2007 and 2008 when performed in a facility. 

To understand why the physician payment for lithotripsy done in a facility decreases between 2007 and 2008 despite an increase in the practice expense RVUs for that setting, you must know how much of the total RVUs for the procedure are attributable to work versus practice expense.  In 2008, for lithotripsy performed in a physician’s office, the work RVU accounts for 36 percent of the total RVUs and the PE RVU for 62 percent.  For lithotripsy performed in a facility, the work RVU accounts for 60 percent of the total RVUs and the PE RVU for 36 percent. Tables II, III and IV show these changes for the top 20 procedures commonly-billed by urologists.

Table II. Payment Changes: 2007 to 2008 for Commonly Billed Urology Procedures

Non-Facility=office

Facility=Hospital/ASC

N/A=rarely or never performed in that setting

Table III. Changes in Medicare Work RVU s due to budget neutrality (BN) adjustment for commonly-billed urology procedures

Table IV. Changes to PE RVUs for Commonly-Billed Urology Procedures: 2007-2010