Medicare physician fees overhauled. The RBRVS fee system and its implications for hospitals

Medicare has begun to implement a new payment system for physician services; the system's cornerstone is a resource-based relative value scale (RBRVS) that divides physician services into three components--physician work, practice expense, and malpractice insurance--and calculates a relative value for each component. The relative values for the components are adjusted for geographic differences between regional and national resource costs. Then a conversion factor transforms a relative value into a payment amount. The full RBRVS fee will be paid beginning January 1, 1992, if the fee does not differ by more than 15 percent from the service's adjusted historical payment basis. If the difference generally exceeds 15 percent, the RBRVS fee will be phased in over four years. The Medicare RBRVS fee schedule applies to both office- and hospital-based physicians. Several special provisions apply to physicians ordinarily defined as hospital based--radiologists, anesthesiologists, and pathologists. Other provisions of the fee schedule address site-of-service differentials, electrocardiograms, nonphysician practitioners, new physicians or practitioners, and Health Professional Shortage Areas. Administrators need timely strategies to manage successfully in the new environment and to sidestep lost or delayed reimbursement. RBRVS has financial and operational implications in terms of physician compensation, outpatient hospital reimbursement, new CPT codes, and new outpatient billing procedures.