Revenue: reimbursement, RBRVS, RVUs, and alphabet soup
Episode 5: Revenue – Reimbursement, RBRVS, RVU’s and Alphabet Soup
How do you get paid for what you do, and why is it so complicated? Healthcare more than any other industry has a huge amount of complexity in how its professionals get paid for services they have rendered.
The basis for your payments begins with the system of Current Procedural Terminology or CPT codes which were created by the Center for Medicare and Medicaid Services to denote all of the services that can be provided for a patient. These are the five-digit codes that describe everything from brain surgery (61250) to removal of ear wax (69209) to a moderately complex office visit (99214).
The other set of codes used for billing and documentation are the diagnosis codes, more formally known as ICD-10 codes. This stands for International Codification of Diseases Version 10. It is the current worldwide standard list for diagnosis codes and is used to describe why you did what you did for your patients.
The combination of what you did (your CPT code) and why you did it (your ICD-10 code) is what gets used on a claim form so that you get reimbursed from the insurance company. It is critical to get these two codes paired correctly in order to get reimbursed. Most insurance companies have thousands of claim edits or rules which your insurance claim must pass through prior to getting paid. Imagine you’re walking into a large building that is a complete maze. Your insurance claim has to navigate that entire maze in order to get through to the other side and be paid! When the pairing is not correct, or if there is a demographic error in the patient’s registration, or if the patient is ineligible for coverage, this will result in a denied claim.
As we heard in the interview with Kem and Taya in our previous episode, denied claims are not a good thing! This means that you have already done the work for the patient, but your payment is being held up. You will frequently hear your revenue cycle folks talk about “working denials.” This is a very important activity, to assure that you are collecting on the majority of your outstanding money.
As the days and weeks go by, you continue seeing patients, and sending claims to the insurance companies. It is important to track how much money is owed to you from both insurance companies and patients. In accounting and business speak, we call all of this outstanding money “Accounts Receivable,” or “A/R” for short. We’ll come back to that.
Because there are so many different services that physicians can provide to their patients, in 1992 Medicare created the resource-based relative value system, frequently abbreviated as RBRVS. This system assigned a relative value to each service that was listed as a CPT code. This allowed physicians and medical groups to price their services in relation to one another, and based upon complexity and time requirements.
As much as we love to hate the relative value unit system, pricing medical services prior to that was a bit like the Wild West! Prices were arbitrary and set differently I each group with little rhyme or reason. Today, utilizing the relative value units for each CPT code, it is easy to create a fee schedule for services that are rendered to patients. In order to do so, a group can take the relative value unit ascribed to the CPT code and multiply by a retail price per unit to get the gross charge for that particular service.
Each relative value unit is made up of three components: the first is the work RVU, and this is reflective of the relative amount of work required by the clinician in order to render that service to the patient. The second component is the practice overhead or practice expense component, which adjusts for procedures and other services that utilize a greater amount of practice resources like procedure room space or expensive pieces of diagnostic equipment. The third piece is the malpractice component, which reflects risk involved in any given service, and adjusts for those that are much higher risk, like OB/GYN or neurosurgery services.
The entire system is really quite logical, and each year in November or December, CMS publishes an update to the RBRVS for the upcoming year which can be found on their website at cms.gov. We have put that specific link in the show notes for you. If you’d like a copy of the current year’s fee schedule to create one on your own, you can download the raw data file from the CMS site, or you can find our customized one at the Medical Money Matters Toolkit here. We have simplified the large data set from CMS and posted it there so you can utilize it to easily create your own fee schedule, which will be updated for the current year.
One part of the system that is frequently confusing is that each clinic will generate insurance claims based on the gross charge amount, while they also have insurance contracts, indicating they have agreed to accept as full payment for services some portion of their gross charges. Most insurance contracts are negotiated based on either a discounted price per unit (which is also called your conversion factor), or a percent of what Medicare will pay, which is the amount that is published in the annual RBRVS update. We will have much more detail on contracts, and how to negotiate them in an upcoming podcast. Suffice to say, the gross charge amount that is listed in your billing system and on your accounts receivable report is not the amount you can expect to collect. For most groups, the amount they can expect to collect is somewhere between 30 and 65% of their gross charges, depending upon where their fee schedule is set, and how recently their insurance contracts have been renegotiated.
Reimbursement rates vary based on whether a patient is covered by Medicare, Medicaid or a commercial insurer. For each relative value unit, Medicare pays in the mid-$30 range, and Medicaid pays in the high $20’s – low $30’s per unit. Most commercial rates are between the mid $40’s to the mid $70’s, depending on your geographic area and the size and negotiating power and sophistication of your group.
When you think about payment for a unit of service, it’s also important to understand your cost per unit to deliver that service. Most groups calculate this cost per RVU in the mid $40 range. So, if that’s where your cost structure is, you operate at a loss for every Medicare and Medicaid patient you see if you do not have an advantage plan of some kind. You will hear businesspeople talking about your payer mix, and it is all about this math. If you have some patients who are a loss, you have to have enough who are commercially insured to make up for the rest. If your practice is too heavily weighted towards Medicare and Medicaid without any quality or other reimbursement, your revenue will be greatly reduced. Highly performing practices make certain that their payer mix includes enough of each type of payer to make their finances work. Most physicians feel a commitment to serve our elders and our marginalized patients, but too many of those can leave you operating at a loss, unable to pay yourself and your staff.
Another consideration for your revenue cycle is to understand what percentage of the total charge will be paid by your patient, and what part will be paid by their insurer. The percentage of the money coming directly from patients in the form of copayments, deductibles or coinsurance has traditionally been around 20%, although with the rise of high deductible plans and Health Savings Accounts or HSA’s, this total is now approaching 25% nationwide.
More on estimates, The No Surprises Act, and strategies for collecting money from patients up front in a future episode.
We’ll close out today’s podcast by returning to this notion of your insurance claims. When billed correctly with the proper pairing of CPT and ICD-10 codes, and if all of the registration has been entered correctly, this results in billing nirvana – the clean claim. This is a claim that goes through quickly and gets paid the first time with no need for correction or rework. Yay! Cause for celebration. Those claims should be paid within a few weeks, which is what we like to see. Meanwhile, as we mentioned earlier, the outstanding money that is owed to you is an asset we like to call Accounts Receivable. Join me for the next episode where we break this down and talk about how to analyze and manage it for optimal financial health.
