Practice expense rule may require staff education

Historical background of practice expense rule

Translating the effects of HCFA’s reimbursement changes to the day-to-day jobs of coders and billers reporting to you is no easy task. Here are some talking points for your use in explaining these reimbursement changes to staff members or physicians:

• Practice expenses are composed of direct and indirect expenses. Direct expenses include non-physician labor, medical equipment, and medical supplies needed for each procedure. Because indirect expenses such as the cost of general office supplies and utilities cannot be tied to individual procedures, HCFA will use accepted accounting techniques to allocate expenses to each medical procedure.

• Before implementation of the fee schedule in 1992, Medicare based payments on each physician’s charges. The fee schedule system was created to relate future payments to the resources physicians use to provide a service rather than what physicians charge for a service.

• The three resources making up the new RVU-based fee schedule are practice expenses (41%), physician work (54%), and malpractice costs (5%). For the physician work and practice expense categories of resources each medical procedure will now be measured relative to all other procedures according to the amount of resources used. The third element, malpractice expenses, will be entirely resource-based starting in 2000.

The fee schedule for a specific procedure is determined by adding up the relative value units (RVUs), which are then adjusted for local cost differences and multiplied by a conversion factor that translates RVUs into dollars.