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RAND Modeling Offers Support for Transparent and Consistent CMS Physician Fee Schedules

Since 1992, the Centers for Medicare & Medicaid Services (CMS) has used the resource-based relative value scale (RBRVS) to pay physicians and other health care practitioners for their professional services. Under RBRVS, payment for a specific service is broken into three components— physician work, practice expense, and malpractice expense— with each component being assigned a value (in “relative value units” [RVUs]). To determine the fee schedule amount for a service, the RVUs assigned to a service are multiplied by a dollar conversion factor; under this approach, longer, higher-risk, more complicated procedures have a higher payment than shorter, low-risk, simpler procedures. In 2014, an estimated $87 billion in allowed charges is expected to be paid under the physician fee schedule for services provided to fee-for-service Medicare beneficiaries. The physician work component reflects the value given to the provider’s personal effort in furnishing a service. Concerns with the existing process for valuing work—currently based on physician responses to specialty society surveys— prompted a new requirement under the Affordable Care Act that CMS establish a process to validate the work values assigned to procedures and services.1 Among the concerns that drove this change was the possibility of both overvaluation of services, which can create incentives to provide unnecessary interventions, and undervaluation of services, which can diminish availability and access. CMS asked RAND to develop a validation model using easily available external data sources to increase the process’s accuracy and transparency and to mitigate any perceived vested interest that would affect physician survey responses. In this project, RAND researchers examined the feasibility of developing such a model, as well as the methodological issues and limitations involved in such an undertaking. An Overview of RAND’s Modeling Activities The value of physician work (in RVUs) for a procedure or service is made up of four components: (1) pre-service work (for example, positioning prior to surgery), (2) intra-service work (the performance of the service or procedure, also referred to as “skin-to-skin” time), (3) immediate post-service (for example, management of a patient in the post-operative period), and (4) post-operative evaluation and management (E&M) visits for a subset of procedures.2 Each of these four components can be further broken down into a function of time multiplied by an intensity factor, where the intensity factor values the physician’s cognitive effort and judgment, Key findings: