ACR Bulletin

Covering topics relevant to the practice of radiology

Know the Basics of Physician Payment Policy

A two-part series introduces the concepts behind physician reimbursement — and the slew of acronyms that go with it. This first installment addresses how reimbursement works in private settings, and the second part will discuss hospital-based payment policy.

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Developing a working knowledge in health policy first requires a basic understanding of how radiologists and imaging services are paid — and the acronyms associated with these payment systems.

—Gregory N. Nicola, MD, FACR
August 01, 2023

Developing a working knowledge in health policy first requires a basic understanding of how radiologists and imaging services are paid — and the acronyms associated with these payment systems. Our economics team is aware many readers do not speak the language of our payers and policymakers, and we often try to either avoid acronyms or simplify health policy language whenever possible. However, every new law or regulation seems to introduce additional programs or policies with a new alphabet soup often built on old policy and programs labeled with old acronyms. 

In this two-part column, readers will be introduced to payment policy basics as well as the associated core acronyms. 

The largest single source of healthcare payments originates from the U.S. Department of Health and Human Services (HHS). The department’s self-described purpose is to protect the health of all Americans and provide essential human services. The Centers for Medicare & Medicaid Services (CMS) is inside of HHS and is the main vehicle for providing insurance coverage to U.S. seniors and those at risk or in need. 

CMS pays clinicians and hospitals using three main payment schedules: the Medicare Physician Fee Schedule (MPFS), the Hospital Outpatient Prospective Payment System (HOPPS) and the Inpatient Prospective Payment System (IPPS). 

Medicare Physician Fee Schedule (MPFS)

In the MPFS, clinicians are paid for their time dedicated to direct patient care and equipment needed to provide that care. The clinician submits a claim documenting patient care as codified by Current Procedural Terminology (CPT).

The specific CPT code allows Medicare to translate a rendered service into a payment using a formula that assigns a relative weight to each CPT code. That relative weight is called a Relative Value Unit (RVU). 

Both CPT and RVUs are created and maintained by committees inside the American Medical Association (AMA). CPT codes are created and maintained by the CPT Editorial Panel, while RVUs are created and maintained by the Resource Based Relative Value Scale Update Committee, known more commonly by its acronym the RUC. 

The RVUs assigned to each CPT code are multiplied by a conversion factor (CF) as well as a Geographic Practice Cost Index (GPCI), a variable used to control cost-of-living differentials between region of the U.S., to determine ultimate payment to a clinician for a service. The CF is set annually by CMS and is adjusted to maintain budget neutrality, which means that year after year the agency needs to spend similar amounts on healthcare for its beneficiaries regardless of growth in use and/or innovation. 

Relative Value Units (RVUs)

Three types of RVUs are used to generate payment. The first type is called work RVUs. These capture the relative value of work provided by a clinician, and when multiplied by the CF and GPCI result in a professional component (PC) payment. For example, a radiologist’s interpretation of an MRI, a primary care doctor’s face-to-face office visit or an interventional radiologist’s performance of a lower-extremity revascularization are all codified by different CPT codes, each having assigned work RVUs allowing for calculation of the final PC payment. 

The second type of RVUs are technical component RVUs (TCs). These have assigned RVUs calculated using time-dependent activity-based assessment of direct costs such as supplies, equipment and clinical labor (nursing and technical staff) allocated per CPT code as well as more indirect costs, which pay for rent, office staff, nonclinical staff and nonclinical equipment. These RVUs are used to reimburse clinicians’ costs for owning their equipment and employing their own staff. The TC RVU is also then multiplied by the CF and GPCI to determine the TC payment. 

The final RVU type is the Malpractice (MP) RVU. This is set by CMS based upon a clinician specialty Professional Liability Insurance (PLI) rate. The agency will adjust these RVUs every four years or so. These are also multiplied by CF and GPCI to determine compensation granted to offset malpractice risk for a clinician specialty. 

MPFS Reimbursement

Most clinician services are reimbursed directly by the MPFS regardless of whether the work is performed in a private setting or employed setting. The costs of supplies, equipment and clinical labor are reimbursed by the MPFS only if they are owned by clinicians or nonhospital entities (such as independent diagnostic testing facilities). 

In the next column, we will explore how the federal government pays hospitals for supplies, equipment and clinical labor used in the hospital outpatient or inpatient setting under the HOPPS and IPPS, respectively. The payment methodology used in these fee schedules is foundationally different than the MPFS, leading to a number of laws and regulations attempting to balance these differences as well as potential future laws and regulations to further abate unintended consequences of these differing methodologies.

For more news, see a full list of the latest ACR Bulletin articles.

Author Gregory N. Nicola, MD, FACR,  chair of the ACR Commission on Economics