Practice Management Alert

Don’t forget to reassess your fee schedule to make sure it reflects your practice.

With so many mechanisms for reimbursement based on commercial contracts — personal injury protection (PIP) insurance, self-pay, Medicare and Medicaid, and other payment schedules — it can be a daunting task to determine a methodology in establishing a practice’s fee schedule. One approach to determining a fee schedule can be based on the relative value units (RVUs) of services.

RVUs are a standardized measure used in the healthcare industry to assess the value of medical services and procedures. RVUs are routinely updated for every CPT^® code by the AMA Specialty Society Relative Value Scale Update Committee (RUC). This ensures accurate distribution based on the complexity and intensity of the work performed. By utilizing RVUs, healthcare providers can standardize the payment process, ensure fair compensation for providers, serve as a benchmark for productivity, and support the development and modernization of fee schedules or payment methodologies.

Know How to Navigate Pertinent Resources

The RVU includes components to capture the work and expenses involved in providing services represented by each CPT^® code, which can further support the basis for establishing a fee schedule.

An RVU consists of three core components:

• Physician work: Time, skill, effort, and clinical judgment to perform the service
• Practice expense: Overhead, staff, equipment, and supplies to provide the service
• Malpractice (professional) liability: When incorporated, represents cost of risk management

While the cost of providing services across regions of the country varies, the values are adjusted geographically or locally to capture those variations to allow for fair compensation across different regions. Additionally, regular updates are made to reflect clinical advancements and procedural changes by the RUC to ensure conversions in the RVUs advance along with changes to CPT^® codes.

Each RVU accounts for the time, skill and intensity involved in delivering care, and together they create a relative ranking system known as the Resource-Based Relative Value Scale (RBRVS). The RBRVS is structured to align payment for physician services with the resources required to provide them. Its goal is to help establish a consistent method of comparing procedures and to support the development and modernization of fee schedules or payment methodologies.

Medicare has established a physician payment schedule to reflect the variations in practice cost amounts across the country. The Geographic Practice Cost Index (GPCI) has been established for every Medicare payment locality for each of the three RVU components. The GPCIs are applied in the calculation of a Medicare payment schedule amount by multiplying the RVU for each component by the GPCI for that component.

The final piece to determine the reimbursement based on the RVU and GPCI (where applicable) is the conversion factor (CF), which is set annually by the Centers for Medicare & Medicaid Services (CMS). The conversion factor for 2026 is $33.40. This is the dollar amount multiplied by each RVU and GPCI to obtain the total payment for the CPT^® code.

To calculate reimbursement, use the following formula:

[(Work RVU × Work GPCI) + (PE RVU × PE GPCI) + (MP RVU × MP GPCI)] × CF = Payment

For example: A primary care office in rural Iowa, CPT^® 99213 (Office or other outpatient visit for the evaluation and management of an established patient, which requires a medically appropriate history and/or examination and low level of medical decision making. When using total time on the date of the encounter for code selection, 20 minutes must be met or exceeded.)

Note: GCPI is lower in rural Iowa than in some other parts of the country.

Location matters; in fact, the same CPT^® code can have significantly different reimbursement rates based on location.

Below are some GPCI comparisons from different regions:

Consider These Analyses

There are several steps to set up a practice fee schedule to optimize your reimbursement potential. Completing a thorough analysis combined with annual reviews and updates may ensure a sustainable and competitive fee schedule.

Local market: Consider conducting market research to compare what other providers are charging for similar services to your practice. With trends in healthcare fees and charge transparency, a market analysis can identify comparable charges to establish target ranges for services.

Create base rates: Utilizing Medicare reimbursement fee schedules is a great starting point. Check your local payer reimbursement rates to ensure you capture an accurate comparison to maintain a competitive yet profitable fee schedule.

Establish multiple schedules: Depending on the services offered by your practice, it may be beneficial to have multiple fee schedules. Based on those services you may want a different rate for office services, and higher rates for surgical or diagnostic services to capture the increased expense and proficiency required to perform those services. For example, based on Medicare reimbursement you may establish a 200 percent of your Medicare rate for office services, and a 250-300 percent rate for surgical and diagnostic services.

Monitor and adjust: You should regularly evaluate your fee schedule to a competitive position and capture changes in practice costs or reimbursement rates from payers. Monitor your payer policies and market conditions and make regular adjustments to ensure your fee schedule supports current market values.

Keep records: Maintain documentation of the methodology of how fees are determined, any updates, and when they occur. This is a vital step to support your fee structure for any financial audit or payer inquiries. Documenting fee schedule changes will also help establish a framework for timely assessments to ensure fees are consistent with payer reimbursement and market trends.

Set Up and Follow a Process for Setting Fee Schedule

Establishing and maintaining a fee schedule is integral to the success of a medical practice. Regular review of contractual updates, new services, and practice costs can help maintain a competitive fee structure. It may be beneficial to determine the various medical services your practice provides and align fee structures to support each line of service to optimize and capture reimbursement.

By following these steps and utilizing the information from relevant sources, you can effectively set up a fee schedule that meets the needs of your practice while ensuring fair reimbursement for services rendered.

David Shaw, BS, CPC, Senior Consultant, Pinnacle Enterprise Risk Consulting Services