Pathology/Lab Coding Alert

If figuring out how and why the Centers for Medicare & Medicaid Services (CMS) adjusts the conversion factor (CF) every year is a mystery to you, we have the decoder ring.

Why: The law requires CMS to adjust the CF annually utilizing a formula that takes into account the Medicare Economic Index (MEI), budget neutrality requirements, and legislative updates to federal healthcare coverage.

If CMS projects that net changes in pricing and use of healthcare services will result in an increase of Medicare spending by more than $20 million the following year, the agency must plan to offset the increase by reducing spending. Because the CF is the multiplier used to calculate the final payment rate for any service, CMS typically reduces projected spending by reducing the CF.

Understand Formula Components

RVUs: 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).

Where: Geographic Practice Cost Index (GPCI) also factors into the equation, accounting for differences in value based on location. Like the RVUs, there is a separate GPCI for physician work (wGPCI), practice expense (peGPCI), and malpractice expense (mpGPCI).

The formula: 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.