The History of the Resource Based Relative Value Scale

Despite a growing need for general practitioners, the Medicare system is not helping with this shortage given the maldistribution of reimbursement between general medical providers and surgeons and other specialists.

To offer some context, let’s take a look at a brief history of Medicare’s physician payment system.

While this payment system has been in place for decades, little is currently being discussed about its derivation. There is now a struggle about the adequacy of the payments for general medical services (medicine). However, the cause of this issue was baked into the system decades ago.

Background: In 1992, Congress instructed the Medicare program to move to a new payment system for physicians; a rate with select adjustments was applied to the particular service provided. The payment for individualize services is based on a series of weights for each type of procedure or visit that differentiate these services. The system was called the Resource Based Relative Value Scale (RBRVS).

Basic Methodology Description:The rate is divided into three components – work (about 51% of the payment), practice cost (about 45 % of the payment) and liability (about 4% of the payment). The rate or conversion factor is standard but there are adjustments. The relative values are different based on the services, while the geographic practice cost feature was designed to adjust for geographic differences (New York City versus rural Alabama) and the liability portion was intended to accomplish the same.

Generally, the base rate is multiplied by a weight plus specific adjustments to yield the payment for the service. The weights for each service are the relative values in the Relative Value Scale (RVS). The scale is represented by a list of approximately 10,000 CPT (Common Procedural Terminology) codes that differentiate services or activities.

Aggregate Payments and Limitations: The sentiment in Congress is and has been to protect the beneficiary. Thus, any increase in aggregate payments that increase the Medicare Part B premiums of which the beneficiaries pay 25% of are an important concern.

Generally speaking, in rate systems there are two essential types of adjustments – pie “sizing” and pie “slicing.” The pie sizing adjustment is when Congress or Administration allows the system in the aggregate to grow by a specified percentage.

In 1997 Congress implemented a constraint in the rate of increase for aggregate payments. Called the Sustainable Growth Rate (SGR), this system limited the aggerate growth rate to a benchmark. The benchmark for such increase being the estimated growth in GDP (Gross Domestic Product) which is theoretically used to inflate the aggregate. Thus, the pie in aggregate grows but is limited.

The underlying system grows by what the formulas allow but not greater than what SGR provides. When such growth exceeds the SGR allowable growth, the system provides a kind of budget neutrality (BN) adjustment whereby the base rate used in the physician payment system is reduced to accommodate any anticipated excess growth.

  • Pie Sizing – Thus, the RBRVS system operates under the cloud of budget neutrality which means the system in aggregate won’t spend more than the SGR allows. This is an aggregate SGR umbrella.
  • Pie Slicing – Under this BN/SGR umbrella, there is the RBRVS (the RVS) serves as a pie slicing tool. The relative values or weights for services that apply to select procedures tend to fall in line with select specialties/ologists as well as medicine in general. These weights are modified/updated and are used by Medicare to theoretically slice (or distribute) the pie. The slicing function comes in because of the BN/SGR limitation on the pie’s size. As such, if one slice (or a collective of specialty codes or slices) grows, all the other slices decrease to accommodate that growth which is reflected in a lower rate.

Medicine v Surgery/Specialties: The American Medical Association (AMA) controls and administers the relative value scale; Medicare uses them to do the rate setting/payment calculations. The information to set the values comes from the physician practices via survey and then the AMA uses that to adjust the RVS and such process is overseen by a committee.

If select portions of the physician community (i.e. surgeons or specialists) values grow more or faster – as a group, that group would by operation of the SGR receive a disproportionate beneficial allocation (slice) of the aggregate. That is exactly what occurs in the system.

The surgeons and specialists do a better job at growing their values in the survey. Some believe this is intentional and/or coordinated. No matter, their weights increased. Then by the SGR/BN function when one portion of the pie grows and other shrinks (as reflected in a lower rate). In this case, the aggerate was sliced bigger for surgeons/specialists while the slice(s) for the medical practitioners got smaller. This manifests in a conversion (rate) factor decrease through the operation of the SGR.

Operationally, a lower rate times the same theoretical weights yields, a lower payment for medicine/medical services. Conversely, for surgeons, a lower rate/conversion factor (the same rate as for medicine) multiplied by higher weights yields a relatively higher payments. The pie shifted away from medicine. The die is cast. Congress has continued to be concerned with this suppression in the rate due to its effect on medical practitioner payment and the physician supply related effects.

This explains why medicine is so underpaid. Contributory factors here are: the construct of the AMA, the value of dues payments by specialty members, the AMA membership base, the process for valuing and updating the services used to calculate in the RVS, the AMA committee employed to oversee the RVS/codes, etc.

Whether this was a concerted strategy is irrelevant as the pie has shifted. To fix it will take a redistribution away from surgery/specialists back toward general medical practitioners or new money will need to be allocated. The likelihood of either is low.

Irony for Today: Ironically, we need to be encouraging new medical practitioners to join the workforce. We need to serve more people, but we have a payment system that discourages the growth of general medical professionals. It’s like driving a car with one foot on the gas and the other on the brake.

For more than a decade we have known about the actual and policy induced demand for medical practitioners; but we haven’t acted. A further irony is that many private insurers use what Medicare pays as a base for their own payments. Thus, limitations in Medicare can and do have a ripple effects.

Conclusion: Congress had a chance to address this issue more than a decade ago in 2010 in the Patient Protection and Affordable Care Act (ACA). While the ACA expanded coverage to millions more people, it failed to expand the physician pipeline targeted on treating that expansion.

Of note, in creating the ACA, Congress took significant dollars away from Medicare to in fact fund the new coverage when it should/could have redeployed some funding to fix the known and impending physician payment demand for medical practitioners problem.

As it is now, those newly covered are competing with the current covered lives for the physicians to serve/treat them on the medical side. In turn, the lower Medicare payments for general medicine have encouraged many physicians to retire earlier further impacting the pipeline. Thus, we have an increase in demand and a shrinking supply of medical practitioners.

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Jayne Koskinas Ted Giovanis
Foundation for Health and Policy

PO Box 130
Highland, Maryland 20777

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