Medicare Compliance & Reimbursement

Question: What is the “conversion factor,” and how does it affect Medicare payment?

Alabama Subscriber

Answer: The conversion factor (CF) is a numerical multiplier used to calculate payment rates for the Medicare Physician Fee Schedule (MPFS). CMS adjusts the CF each year using a formula that considers factors such as a medical economic index, budget neutrality, and legislative changes to healthcare coverage.

The primary factor used to determine the payment rate for any medical procedure is the Relative Value Units (RVUs) assigned to that procedure. RVUs are based on a resource-based relative value scale (RBRVS) that compares the “inputs” required for a procedure relative to other procedures. Each medical procedure actually has three, weighted RVUs: one for physician work (wRVU), one for practice expense (peRVU), and one for malpractice expense (mpRVU).

Another factor used in the payment formula is the Geographic Practice Cost Index (GPCI) that accounts for differences in value based on location (things cost more in New York than in Montgomery, Alabama). Like the RVUs, there is a separate GPCI for physician work (wGPCI), practice expense (peGPCI), and malpractice expense (mpGPCI).

If you take all these factors together, you have the formula that determines payment for a specific procedure in a specific geographical region: [(wRVU x wGPCI) + (peRVU x peGPCI) + (mpRVU x mpGPCI)] x CF.

Resource: CMS provides a look-up tool that does this calculation for you at www.cms.gov/apps/physician-fee-schedule/overview.aspx. Or, you can use a comprehensive tool that provides pricing and coding advice, such as https://www.aapc.com/codes/.