March 13, 2006
Understanding the Revised 2006 Medicare Physician Fee Schedule
Although Change Request (CR) 4313 indicates that the Medicare Physician Fee Schedule (MPFS) has been revised from a –4.4 percent increase to a 0.0 percent increase for the conversion factor, other factors included in the calculation of the MPFS allowed amount may have increased or decreased. These factor changes will affect the final result of the calculation. Therefore, the MPFS allowed amounts for 2006 may have been increased or decreased as well.
To help our provider community better understand the total calculation involved, the following ifnormation is being provided.
MPFS Calculation Method
The information that follows is designed to assist you in understanding how the MPFS is calculated. For the majority of physician services, this calculation is performed by and provided to carriers by the Centers for Medicare & Medicaid Services (CMS). The elements used to calculate the fee schedule amounts are as follows:
• Resource Based Relative Value Units (RBRVU): This factor takes into consideration the physician work required for the service, practice expenses, and the malpractice insurance premium. RBRVUs are established at a national level and do not vary among Medicare carriers.
• Geographic Practice Cost Index (GPCI): This factor represents the variations in practice costs, which exist in different geographic areas. For MPFS purposes, Connecticut comprises a single geographical area (locality); Florida is comprised of three geographical areas. The GPCI is established for each RBRVU component (work, overhead, and malpractice) in each pricing locality for a given state.
• Conversion Factor (CF): This factor is a single number set at a national level and is used by all carriers in calculating the final fee schedule amounts. This is the factor that was originally –4.4 percent and was changed to 0.00 percent increase.
For each fee schedule service, there are three RBRVUs:
• A relative value for physician work (RVUw),
• A relative value for practice expense (RVUpe),
• A relative value for malpractice (RVUm).
Note: For certain services, there are different practice expense RVUs depending on the place of service– facility or non-facility.
For each payment locality, there are three GPCIs:
• A GPCI for physician work (GPCIw),
• A GPCI for practice expense (GPCIpe), and
• A GPCI for malpractice (GPCIm).
The formula for calculating the payment allowance for a given service under the fee schedule is:
Fee Schedule Amount = [(RVUw x GPCIw) + (RVUpe x GPCIpe) + (RVUm x GPCIm)] x CF
The RBRVUs, GPCIs, and the conversion factor are published in a Final Rule in the Federal Register, generally on or near November 1 of each year. These calculations do not take into account any reductions based on fee schedule payment policies (e.g., pre- post- and intraoperative percentages, professional and technical components, multiple surgery, bilateral surgery, assistant-at-surgery, co-surgery, team surgery, or facility pricing rules). Information regarding fee schedule payment policies may be found at http://www.cms.hhs.gov/PFSlookup/ 
Source: Publication 100-04, Chapter 23, Section 30
