Physician Payment

Physician Payment

Physicians providing medical care can be reimbursed (paid) by either Medicare, Medicaid, private insurance, or by the patient. The federal government, through the Centers for Medicare and Medicaid Services (CMS), is the most dominant player in how and how much physicians are paid for medical services rendered. Medicare pays physicians for services based on a resource based relative value scale (RBRVS) fee schedule. Three resource components are used to construct the fee for a particular service. The components are:

1. Physician work (PW) – the work component estimates the cost of providing a particular service, including the time, intensity, skill, and mental effort and stress )54.5% of the total RVUs).

2. Physician practice expense (PE) – estimates the cost of maintaining a practice including salaries, rent, equipment, and supplies (42.3% of the total RVUs).

3. Malpractice insurance (MI) – estimates the cost of insurance, which varies across specialties (3.2% of the total RVUs).

Each component is assigned a relative value that is summed to form the total relative value for the service. The greater the costs and the time required for a service, the higher the relative value unit (RVU). The actual fee is then calculated by multiplying these RVUs by a politically determined conversion factor (CF). This fee is then adjusted for geographical location. The geographical adjustment factor (GAF) is comprised of geographical practice cost indices (GPCI), which account for geographical differences in practice costs throughout the country. An illustration is given below.

Medicare Payment

[(PW RVU) x GPCI)] + [(PE RVU) x GPCI)] + [(MI RVU) x GPCI)] = Total RVUs

Or simply (RVU x CF) = Medicare Payment

The CF from 6/1/2010 to 11/31/2010 is $36.8729 and the GAF1 for Washington, DC is 1.112

CPT code 99214 (detailed office visit) payment = 1.42 (RVUs) x $36.8729 (CF) x 1.112 (GAF Wash. D.C.) = $58.64

1GAO-07-466 Medicare Payment for Physician Services

Physicians who want to participate in the Medicare reimbursement program have two options. One option is to accept assignment. Any participating physician that accepts assignment must accept the Medicare rate as the price for that service. Medicare will take that amount and pay 80 percent of it. The patient is responsible for the remaining amount. Once a physician becomes a participating Medicare physician, all fee schedules for the services offered must be accepted. However, physicians are not required to accept all Medicare patients. When a physician becomes a participating physician, their commitment lasts for one year.

The other option for physicians is to accept the Medicare fee schedule on a case-by-case basis. These physicians are deemed non-participating physicians. In addition, non-participating physicians still must send the claim to the Medicare carrier. The patient is liable for any additional charge above what Medicare allows. However, a physician cannot charge more than 15 percent above the Medicare fee schedule amount (allowable charge) and the allowable charge is 5 percent less than the fee schedule amount. A listing of Medicare fee schedules is available at

A copy of the Medicare Participating Physician and Supplier Agreement is available at

Federal Medicaid law does not set exact requirements for the reimbursement of medical services rendered to Medicaid recipients. As a result, states have flexibility in setting Medicaid physician payment rates. In most states, Medicaid reimbursement rates are lower than those for Medicare. Like Medicare, Medicaid services are also reimbursed on a fee schedule basis. However, the fee schedules vary from state to state. Physicians who agree to be Medicaid participating providers must accept Medicaid reimbursement as payment in full, except for any beneficiary cost-sharing amounts provided for by the state plan or any amount due from a medically needy beneficiary with a spend down liability. Physicians who provider service to Medicaid recipients on a case-by-case basis receive a percentage of the fee schedule. For instance, in Maryland physicians who are non-participating receive 94 percent of the fee schedule as payment.

Private insurers use the Medicare fee schedule system but the payment is based on a percentage of the Medicare rate. Some insurers will pay up to 1.5 times Medicare and others 0.8 times Medicare. Often times, these insurers will vary this percentage for individual CPT codes depending on their assessment of need among the patient population. Some physicians are able to negotiate a higher percentage rate for selected CPT codes based on market forces.

Compensation Benchmarking

It is important that physicians obtain information on how their compensation compares to others both locally and nationally. There are several metrics used to measure workload and compensation.

1. Total collections

2. Total compensation

3. Total RVUs

4. wRVUs- excludes all malpractice and overhead expense portion of the total RVU

5. Collections/RVU – either total or work

6. Compensation/RVU – either total or work

Collections or compensation per either total or work RVUs is becoming standard as a basis for comparison of physician compensation packages.

There are nationally recognized benchmarking surveys that are used for compensation evaluation. Each survey measures a different market segment so it is important to choose the appropriate benchmark that reflects the practice environment.

American Medical Group Association (AGMA)

• Large groups – multi-specialty

• Greater than 100 physicians

• Average size 260 physicians

Medical Group Management Association (MGMA)

• Small to mid- sized groups

• 4 to 30 physicians

• Single and multi-specialty groups

Sullivan and Cotter and Associates (SGA)

• Total cash compensation only

• 66% hospital employed

• 50 % academic institutions

• Remaining HMO or large groups

This entry was posted in Reimbursement. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *



You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>