What is the purpose of the Resource Based Relative Value Scale RBRVS )?

A RAND study used 2011 medical data to examine the impact of implementing a resource-based relative value scale to pay for physician services under the California workers’ compensation system. Current allowances under the Official Medical Fee Schedule are approximately 116 percent of Medicare-allowed amounts and, by law, will transition to 120 percent of Medicare over four years. Using Medicare policies to establish the fee-schedule amounts, aggregate allowances are estimated to decrease for four types of service by the end of the transition in 2017: anesthesia (–16.5 percent), surgery (–19.9 percent), radiology (–16.5 percent), and pathology (–29.0 percent). Aggregate allowances for evaluation and management visits are estimated to increase by 39.5 percent. Allowances for services classified as “medicine” in the Current Procedural Terminology codebook will increase by 17.3 percent. In the aggregate, across all services, allowances are projected to increase 11.9 percent. Because most specialties furnish different types of services, the impacts by specialty are generally less than the impacts by type of service.

The California Division of Workers' Compensation (DWC) maintains an Official Medical Fee Schedule (OMFS) for medical services provided under California's workers' compensation (WC) program. The OMFS establishes the maximum allowable amount (MAA) for services unless the payer and provider contract for a different payment amount. The OMFS for physician services applies to all services performed by physicians and other practitioners. Because the last major revision occurred in 1999, the procedure codes are outdated. Further, the MAAs are based on historical charges, which tend to undervalue evaluation and management (E&M) services relative to procedures and do not reflect changes in practice patterns and new medical technology.

Senate Bill (SB) 863 requires that the administrative director (AD) of DWC implement a resource-based relative value scale (RBRVS) fee schedule to establish MAAs for physician and other practitioner services. As amended by SB 863, Labor Code §5307.1(a)(2) requires a four-year transition from the estimated aggregate MAAs under the OMFS for physician services prior to January 1, 2014, to the MAAs based on the RBRVS. The MAAs are not to exceed 120 percent of estimated annualized aggregate fees prescribed in the Medicare payment system for physician services. The fee schedule is to be updated annually to reflect changes in procedure codes, relative values, and inflation and is to include, as appropriate, payment ground rules that differ from Medicare payment ground rules.

The RBRVS fee schedule, which is maintained by the Centers for Medicare & Medicaid Services (CMS), has three basic elements:

• relative value units (RVUs) for each medical service based on the resources associated with the physician's work (the time and skill required for the procedure), practice expenses (PEs) (the staff time and costs of maintaining an office), and malpractice expenses. For some services, the RVUs for PEs vary based on whether the service is performed in the physician's office or at a facility. The RVUs compare the resources required for one service with those required for other services. Relative to the current OMFS, the RBRVS tends to provide lower relative values for procedures and higher relative values for E&M services. The RBRVS bundles values for reports and most supplies into the RVUs for the primary procedure.
• a conversion factor (CF) that converts the RVUs into a payment amount for the service. The CF determines overall fee-schedule payment levels. The Medicare program uses a single CF for all services except anesthesia. Anesthesia is priced under a different scale (using base units and time units) and has a separate CF.
• a geographic adjustment factor (GAF) that adjusts for geographic differences in the costs of maintaining a physician practice. There are adjustment factors for nine geographic areas or payment localities in California.

Until the AD adopts an RBRVS fee schedule, §5307.1(a)(2) provides as a default that an RBRVS fee schedule for physician and nonphysician practitioner services will be effective January 1, 2014, in accordance with the fee-related structure and rules of the Medicare payment system. Under the default provision, initial CFs for anesthesia, surgery, radiology, and all other services transition to a single CF effective January 1, 2017, for all services other than anesthesia. A statewide GAF is applied to the CF in lieu of Medicare locality-specific factors.

Impact Analysis

Data and Methods

We used 2011 WC information system (WCIS) medical data to model how implementing the RBRVS over a four-year transition period could affect MAAs for services furnished by physicians and nonphysician practitioners. Consistently with the policies that DWC proposes to implement, our impact analysis assumes that the fee schedule would follow Medicare ground rules with two important exceptions: (1) a single statewide locality will be used in lieu of Medicare's nine payment localities to determine MAAs and (2) a few WC-required services and reports will continue to be paid separately under the RBRVS. For certain issues, we separately analyzed the impact of alternative policies.

Following the framework for the transition specified in §5307.1(a)(2), we computed separate CFs for anesthesia, surgery, radiology, and all other services based on current OMFS allowances and assessed the impact by comparing estimated total aggregate allowances under the OMFS with estimated allowances under the RBRVS during 2014–2017.

Transition Conversion Factors

We computed “budget-neutral” conversion factors for anesthesia, surgery, radiology, and all other services combined that would result in estimated aggregate allowances under the RBRVS that equal estimated aggregate allowances under the OMFS. Under the transition framework established in §5307.1(a)(2), the RBRVS is to be phased in over a four-year period by transitioning from multiple CFs in 2014 to a single CF for all services other than anesthesia (which continues to have its own CF) in 2017. The 2014 CFs are based on 75 percent of the budget-neutral CFs and 25 percent of 1.2 times the Medicare 2012 CF. The 2017 single CF for all services other than anesthesia is based on 1.2 times the Medicare 2012 CF. The CFs will be further adjusted for inflation and geographic location. The inflation adjustment is based on the cumulative increase in the Medicare Economic Index (MEI) between 2012 and the payment year. The geographic adjustment is based on separate statewide geographic adjustments for work, PE, and malpractice RVUs.

Table 1 provides the CF that we used for each year of the transition to model the impact of the RBRVS. The amounts shown are appropriate blend of the revised budget-neutral CFs and 1.2 times the Medicare CF before the inflation and GAFs are applied.

Type of Service RAND Budget-Neutral CF 120% 2012 Medicare* 2014 75/25 Blend 2015 50/50 Blend 2016 25/75 Blend 2017 120% Medicare

Anesthesia	34.5903	25.6896	32.3651	30.1400	27.9148	25.6896
Surgery	55.6849	40.8451	51.9750	48.2650	44.5551	40.8451
Radiology	52.9434	40.8451	49.9188	46.8943	43.8697	40.8451
All other services	34.4566	40.8451	36.0537	37.6509	39.2480	40.8451
* The Medicare 2012 CFs for anesthesia and all other services are $21.408 and $34.042, respectively.

Impact, by Type of Service

Table 2 summarizes the impact on California WC MAAs during the transition (2014–2017) by type of service. Over the four-year period, total allowable fees are estimated to increase 11.9 percent. The increase represents the combined effect of estimated inflation (which increases the rates 8 percent over the period) and the transition from current OMFS payment levels at 116 percent of Medicare to 120 percent of Medicare in 2017. For anesthesia, allowable fees decline 19.6 percent over the transition. There are also declines in surgery (–20.1 percent) and radiology (–15.9 percent). Within the “all other services” category, there are significant increases for medicine (17.3 percent)* and E&M (39.5 percent). In contrast, there are significant reductions in pathology (–29.0 percent). Because pathology is grouped with other services that have low OMFS payments relative to Medicare payments, the transition policy does not work as intended for pathology services. The reduction is greatest in the first year (–41.1 percent) and lessens over the transition as the CF increases.

Services are assigned in Table 2 consistently with how they are classified in the 2013 CPT codebook. For example, reports and supplies are classified as “medicine” so that the changes in ground rules for bundling these services under the RBRVS are included in the medicine rather than E&M service category. As a result, the percentage change in allowances for specialties that predominantly furnish E&M services (see Table 3) is lower than the increase for E&M services, and the percentage change for physical medicine specialties is higher than the increase for the medicine category. Because surgeons furnish a substantial amount of E&M services in addition to surgical services, the percentage change in allowances for the surgical specialties in 2017 is –8.7 percent, compared with the –20.1-percent change for surgery.

Type of Service OMFS RBRVS 2014 RBRVS 2015 RBRVS 2016 RBRVS 2017 Total MAAs ($ millions) Percentage of Total Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%)

Anesthesia	24.81	2.8	23.64	–4.7	22.36	–9.8	21.19	–14.6	19.95	–19.6
Surgery	164.89	18.8	156.98	–4.8	148.31	–10.1	140.27	–14.9	131.78	–20.1
Radiology	104.35	11.9	100.76	–3.4	96.22	–7.8	92.13	–11.7	87.80	–15.9
Pathology	1.80	0.2	1.06	–41.0	1.13	–37.5	1.20	–33.3	1.28	–29.0
Medicine	315.01	35.9	310.95	–1.3	328.31	4.2	348.52	10.6	369.48	17.3
E&M	266.01	30.3	308.10	15.8	326.85	22.9	348.50	31.0	370.96	39.5
Total	876.88	100	901.50	2.8	923.18	5.3	951.82	8.5	981.25	11.9
NOTE: Because of rounding, totals might not sum precisely. Change percentages are dollar-weighted averages.

Provider Specialty OMFS RBRVS 2014 RBRVS 2015 RBRVS 2016 RBRVS 2017 Total MAAs ($ millions) Percentage of Total Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%) Total MAAs ($ millions) Change (%) Practice groups Individual providers

Multispecialty	44.99	5.1	49.61	10.3	51.20	13.8	53.20	18.2	55.27	22.8
Single specialty	2.52	0.3	2.48	–1.8	2.51	–0.4	2.57	1.7	2.62	3.8
Family medicine or general practice	190.82	21.8	195.56	2.5	200.56	5.1	207.09	8.5	213.80	12.0
Surgery	133.51	15.2	121.76	–8.8	121.29	–9.2	121.61	–8.9	121.87	–8.7
PT	62.76	7.2	86.82	38.3	91.74	46.2	97.46	55.3	103.38	64.7
Radiology	56.62	6.5	48.95	–13.5	46.98	–17.0	45.24	–20.1	43.40	–23.3
Physical medicine and rehabilitation	45.33	5.2	57.75	27.4	61.03	34.6	64.84	43.0	68.79	51.7
Occupational medicine	35.89	4.1	41.11	14.5	42.62	18.8	44.48	23.9	46.39	29.2
Chiropractic	34.38	3.9	35.28	2.6	37.29	8.5	39.63	15.3	42.05	22.3
Anesthesiology	26.63	3.0	24.62	–7.5	23.86	–10.4	23.23	–12.8	22.55	–15.3
Internal medicine	19.77	2.3	18.94	–4.2	19.39	–2.0	19.99	1.1	20.60	4.2
Acupuncture	11.82	1.3	10.84	–8.3	11.46	–3.1	12.17	3.0	12.91	9.2
Neurology	11.15	1.3	7.53	–32.5	7.88	–29.4	8.29	–25.6	8.73	–21.8
Occupational therapy[a]	7.96	0.9	11.24	41.2	11.90	49.5	12.67	59.2	13.46	69.1
Emergency medicine	7.44	0.8	8.14	9.3	8.43	13.3	8.79	18.1	9.16	23.1
Psychiatry	6.43	0.7	5.54	–13.9	5.85	–9.0	6.22	–3.3	6.60	2.6
Podiatry	4.55	0.5	5.36	17.7	5.40	18.7	5.49	20.5	5.57	22.3
Pathology	1.25	0.1	1.00	–20.5	1.05	–16.5	1.10	–11.8	1.16	–6.9
Other	173.03	19.7	168.98	–2.3	172.72	–0.2	177.76	2.7	182.93	5.7
Total	876.88	100.0	901.50	2.8	923.18	5.3	951.82	5.6	981.25	11.9
[a] Includes speech-language therapy and hearing providers.
NOTE: Because of rounding, totals might not sum precisely. PT = physical therapy. Change percentages are dollar-weighted averages.

Alternative Policies

In addition to modeling the impact of implementing the RBRVS based on Medicare ground rules, we examined alternative policies that might be considered for managing WC medical-provider fees. In this section is a summary of key findings from this analysis. To the extent that an alternative policy would increase aggregate allowances, an offsetting adjustment would be required so that estimated aggregate allowances do not exceed 120 percent of Medicare allowances.

Geographic Adjustment Factors

The OMFS uses a single statewide fee schedule with no adjustment for geographic differences in the costs of maintaining an office. Medicare has different GAFs for eight urban areas (e.g., Los Angeles, San Francisco, Oakland/Berkeley) and a “rest-of-state” locality made up of 14 urban counties (including San Diego, Monterey, and Sacramento) and all rural counties. In states that have adopted a single payment locality, Medicare establishes separate statewide geographic practice cost index (GPCI) values for each component of the RVUs. The separate values adjust for price differences in the RVU components across services while providing the same payment across the state for a given service. Our baseline impact analysis used a single payment locality with separate statewide GPCIs for work (1.0370), PE (1.1585), and malpractice (0.5877) for all services other than anesthesia and a statewide GAF for anesthesia. We used the statewide GAF for anesthesia because the RVU components do not differ across procedures. We also examined the impact of using either Medicare's nine payment localities or a single statewide GAF for all services other than anesthesia. Using the 2011 WCIS data, the statewide GAF was 1.0799 for all other services. The effect of using the statewide GPCI values is to redistribute allowances to the urban and rural counties that are classified in a rest-of-state locality (Table 4). A single statewide GAF has a similar locality effect, but it would also redistribute allowances from services with relatively high PEs, such as radiology services and services provided in office settings, to services that are performed in facility settings. For example, the average geographic adjustment for radiology services is 1.1274 using the statewide GPCI values and 1.1265 using the nine-locality structure, compared with 1.0799 using a single statewide GAF. Differences in the mix of services across localities account for the locality differences in total RBRVS allowances between the statewide GPCI values and statewide GAF seen in Table 4.

Medicare Locality Total OMFS Allowances RBRVS Total Allowances (including BR) Statewide GAF 9 Payment Localities and HPSA Bonus Payments Statewide GPCI and HPSA Bonus Payments[a] Single Statewide GAF[b] Total Allowances ($ millions) Percentage of Total Allowances Percentage Change from OMFS Total Allowances

Marin/Napa/Solano	12.55	1.4	6.7	3.0	3.1
San Francisco	20.16	2.3	10.8	1.7	2.7
San Mateo	11.18	1.3	12.6	3.5	3.7
Oakland/Berkeley	56.68	6.5	6.0	1.5	1.7
Santa Clara	29.43	3.4	13.2	4.5	4.6
Ventura	16.25	1.9	2.2	0.8	0.7
Los Angeles	301.16	34.3	0.3	0.4	0.2
Anaheim/Santa Ana	90.31	10.3	–1.2	–4.1	–4.2
Rest of California	278.03	31.7	3.2	7.4	7.3
Unknown	61.14	7.0	4.9	5.0	3.9
Total	876.88	100	2.8	2.8	2.8
[a] The statewide GPCI values are as follows: work = 1.0370, PE = 1.1585, and malpractice expense = 0.5877. The statewide GAF was used for anesthesia.
[b] The statewide GAFs used in the modeling are as follows: anesthesia = 1.0212, and all other services = 1.0799.
NOTE: Change percentages are weighted averages.

Nonphysician Practitioners

The OMFS does not differentiate between physicians and nonphysician practitioners acting within their scope of practice and sets the MAAs for similar services at the same amount. Unless their services are billed “incident to” a physician's service, Medicare pays services furnished by nurse practitioners (NPs) and physician assistants (PAs) at 85 percent of the allowed amount for physician services. Medicare pays clinical social workers at 75 percent of the allowed amount. Our baseline impact follows the Medicare policies, but we also modeled the impact of setting the allowances at 100 percent of the amounts paid to physicians. Paying nonphysician practitioners based on 100 percent of the amounts payable to physicians would increase total RBRVS aggregate allowances 0.4 percent.

Alternative Conversion Factors

We calculated two alternative CFs that grouped pathology with other services that are projected to have reductions in allowances under the RBRVS. One combined pathology with radiology, and the second combined surgery, radiology, and pathology into a single grouping. Because physician pathology services represent only 0.2 percent of OMFS allowances, a change in the transition CF for these services has little impact on the CFs for other services but increases the first-year payments for pathology 41–44 percent relative to combining pathology with E&M and medicine.

Bundling Payment for Supplies and Reports

The OMFS establishes separate allowances for certain reports and supplies. Medicare bundles payment for reports and supplies into the payment for E&M and other services. Our impact analysis generally follows Medicare's rules and bundles supplies and most reports, including consultation reports. We assumed that certain WC-required reports that are separately reimbursable would continue to be paid separately. Because these reports are not Medicare-covered reports, separate payment for these reports does not require an adjustment to remain within 120 percent of Medicare allowances.

Consultations

The OMFS has separate, higher allowances for consultations, while Medicare does not. In 2010, Medicare stopped recognizing CPT codes for consultation services and instead pays for consultations using the E&M visit codes. To make the change budget neutral, CMS increased the compensation for E&M visits (CMS, 2009a). Following the Medicare ground rules (using the E&M visit codes and bundling consultation reports), estimated RBRVS allowances are 57 percent of current OMFS allowances for consultations and reports. Allowances for consultations are 27 percent higher using RVUs for the consultation codes instead of the RVUs for the E&M visit codes. Using the consultation RVUs would increase E&M allowances 1.98 percent and total aggregate allowances by 0.78 percent beginning in 2017, when the RBRVS is fully implemented.

Global Periods

Under both the OMFS and the Medicare fee schedule, a single global surgical fee covers a package of services that includes the surgical procedure itself, immediate pre- and postsurgical services, and E&M services routinely delivered after the surgery in a fixed period of time. Surgical procedures are assigned a global period length of zero, ten, or 90 days. The global period definitions used by the OMFS and the RBRVS are nearly identical. Postsurgical E&M visits account for a considerable proportion of the total time and work associated with surgical procedures in the RBRVS, but there is some concern regarding whether the global billing rules provide sufficient recognition of work-related components of follow-up care. Because both Medicare and WC use global periods, data are not available to determine whether WC patients require more follow-up visits and what the impact would be of eliminating the global periods. However, WC patients have a shorter length of stay than Medicare patients for surgical admissions and are younger and healthier than Medicare patients. As a result, they are likely to require fewer follow-up visits for medical reasons.

Physical Medicine

The OMFS has a complex set of rules concerning payment for physical medicine codes, including discounting of multiple procedures furnished during the same encounter and limits on the number of procedures or time billed during the encounter. When more than one unit of therapy services is furnished during the same encounter, Medicare pays 100 percent for the service with the highest allowance and discounts the PE component of the remaining units by 50 percent. The baseline impact analysis follows Medicare's rules for discounting the PE component and applies the discounting to chiropractic and acupuncture codes, as well as therapy services. By including only bills for which payment was made, the impact analysis implicitly assumes that current limits on the number of procedures and time billed during an encounter will continue.

Physician-Administered Vaccines and Drugs

The OMFS contains outdated allowances for physician-administered vaccines and drugs that are injected or infused during an E&M visit or other procedure. Our baseline impact analysis includes the physician-administration codes but does not include drug ingredient costs. Currently, the OMFS uses the Medi-Cal fee schedule for outpatient prescription drugs. Either the Medicare or Medi-Cal fee schedule would provide a vehicle to establish reasonable allowances for drug ingredient costs that would be updated on a regular basis. The Medi-Cal fee schedule for physician-administered drugs (PADs) would provide broader coverage for vaccines than the Medicare fee schedule.

Site-of-Service Differentials

The OMFS sets the same allowance for all sites of service. (Separate facility fees are allowed for hospital inpatient services, hospital emergency rooms, and operating rooms (ORs) for ambulatory surgery, but otherwise there are no differences in payment across different care settings.) The PE component of the Medicare fee schedule distinguishes between services that are furnished in nonfacility settings (i.e., physician offices) and facility settings (e.g., hospitals and ambulatory surgery centers [ASCs], for which Medicare makes a separate payment for the costs of the facility services). We do not include services furnished by ASCs or hospitals that are currently paid under the OMFS for physician services in our baseline impact analysis. Medicare ground rules would pay for any nonsurgical services provided to hospital outpatients under its prospective payment system for hospital outpatient services. Hospital outpatient services account for about 2.2 percent of OMFS payments. Paying for these services under the RBRVS would reduce allowances, while paying for these services based on the Medicare rate for hospital outpatient services would increase allowances. Only a small volume of nonsurgical services is furnished by ASCs. Under Medicare, these services would be paid under the RBRVS fee schedule.

Note

* Medicine (Current Procedural Terminology [CPT] 90281–99199, 99500–99607) includes noninvasive or minimally invasive services, such as drug infusions and injections, physical medicine, psychiatric and neurologic medicine, reports, supplies, and other special services, and excludes E&M services.

The research described in this article was supported by the California Department of Industrial Relations/Division of Workers' Compensation and was conducted in the RAND Center for Health and Safety in the Workplace.