The typical physician practice has 15 or more managed care contracts, and payments from those contracts drive most of the average practice’s net collections. Presenting contract management information in a simple, easy-to-understand format is critical to the success of a practice. Using the Resource Based Relative Value System (RBRVS) to provide a common reporting basis will improve strategic planning, contract negotiation and operational management.

Background of RBRVS

In 1992, Medicare adopted the Resource Based Relative Value System as the basis of payment for physician services. The roots of the RBRVS date back to the late 1970s. Harvard University began developing methods to define the resources utilized and costs incurred in providing physician services. The methods developed had to accomplish three goals:

• Obtain reliable and valid estimates of physician work
• Create an accurate method to align work estimates across different medical specialties
• Develop survey tools that would accurately collect work estimates from a national sample of physicians.

HCFA awarded Harvard the contract to develop the Medicare RBRVS payment system. Using the CPT-4 coding system, Relative Value Units (RVUs) were developed across all codes (except anesthesia). The RVUs were normalized to an established patient and intermediate office visit (CPT code 99213) which was given a value of 1.0. The system was further adjusted for budget neutrality.

The system consists of three components: physician work, practice expense and malpractice expense. RBRVS provides a nationally recognized standard to measure the effort and dollars to provide physician services. Manage care fee schedules are based on CPT-4 codes. Because of the CPT-4 code linkage, RBRVS provides a common basis to report payments and cost, including physician productivity measurement.

Benefits of using RBRVS

Because RBRVS is available on the Internet, it is inexpensive to use. Reporting contract management information on the basis of dollar-per-RBRVS unit benefits a practice in four ways.

Setting charges and managed care fees based on market – There is a significant correlation between the market price and the dollar amount per RBRVS unit for CPT-4 codes within each specialty within a given market. Therefore, a dollar value per unit can be developed and used as the basis for setting charges and managed care fees based on documented practice costs. Simplification of managed care fee analysis allows more contract negotiation time for critical contact terms, including prompt and accurate payment of claims.

Cost accounting and productivity analysis – RBRVS provides a basis to determine procedural cost for a practice with a cost accounting system. If the practice does not have a cost accounting system, accumulation of total RBRVS units from the billing system can be divided into total practice cost to develop a cost per RBRVS unit. The physician work component of the RBRVS units will provide consistent productivity information across all physician specialties.

Simplification of revenue and expense reporting – Development of dollar values per RBRVS provides a common basis to report financial information for practice management and managed care payment analysis. Exhibit 1 shows how presenting information graphically results in better understanding of different payment rates and the relation between payments and cost.

Benchmark comparisons – Industry data for charges, managed care payments and productivity based on dollars per RBRVS unit are emerging. This provides the additional information to benchmark the practice against peer and best practices in all these key management areas. The use of this approach for managed care contract payments will facilitate automating payment verification. The typical practice today experiences a significant lost in net collections due to the difficulty in verifying contract payment accuracy.

Implementation considerations

Contract management information provides an additional level of reporting to the normal financial report for a typical practice. Reporting frequency should be based on the needs of the individual practice (i.e. quarterly) to monitor performance. This information is key during strategic planning and negotiation of significant managed care contracts.

There are four key steps to implementation RBRVS based reporting:

Educate and get the buy-in for the process. The key stakeholders that are involved in planning and/or managed care contracting need to fully understand and accept the change. RBRVS is considered to be a Medicare payment system. Using it as a common basis to report payments, and cost, including physician productivity measurement, will involve additional education.

Gathering all of the contract fee schedule information. Many practices do not have complete information that is easily accessible. Some MCOs may be reluctant to provide fee information. The practice has a right to know their fee schedule rates. Start out with at least the fees for all high volume codes. All fee information needs to be shared with the collections department in order to verify payment accuracy. Going forward, the fee schedules should be a required contract attachment as part of the negotiation process. Some payers are starting to use RBRVS as the basis to develop their fee schedule. Physician practices should be requesting this payment basis in their managed care contracts. This change eliminates the RBRVS conversion of fee schedules.

Setup the internal reporting system. The legacy system for the practice should provide the following:

• Total RBRVS units by CPT-4 code for procedural costing.
• Work RBRVS units by physician for productivity measurement.
• Capability to enter the expected payment per CPT-4 code per payer.

Automating the payment verification process allows the system to check payment accuracy. The staff can then focus on payment exceptions and improving collections. Use of spread sheet or data base management software will be needed for data manipulation and graphing capabilities to bridge the gap between your reporting system and the capabilities of the practice legacy system.

Obtaining external benchmark information. Various professional trade associations or data services can provide industry information for pricing, managed care fees and productivity. After this information is obtained it can be entered in a spreadsheet or data base management program for benchmark reporting. The weights needed for RBRVS conversion are available on the Internet at www.gpo.gov/nara/index.html.

Conclusion

Reporting contract management information graphically on a common basis (RBRVS) will simplify confusing information. The addition of internal and external benchmark comparisons will further enhance the information used in the planning process. If all stakeholders can quickly and easily understand the information, planning time can be focused on contract strategy development and operational support improvement. This focus will result in improved financial performance of the practice.