The payment for the services rendered by physicians is affected by three major factors. These are the conversion factor, the cost index based on the geographic practice, and the RBRVS (Resource-Based Relative Value Scale). Similarly, the same payment is governed by a schedule known as the Medicare payment schedule. This schedule widely differs from the fee schedule in that, physicians recognize a fee as the price offered to them by the Medicare and or the patient for the service they render while on the other hand, payment is a fair price that the Medicare will approve as the level of reimbursement for the service a given physician would offer. As per the payment schedule, Medicare usually pays 80% of the approved fee for a procedure while the remaining 20% is the coinsurance of the patient (Medicare Payment Advisory Commission, 2010).
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There is a specific formula that is used to calculate the payment rates for Medicare physicians. It entails modification of Relative Value Units corresponding to the offered services by the physicians, and by the Geographic Practice Cost Indexes corresponding to payment as per locality. This implies that physicians working in different regions or localities are paid differently (Wilensky, 2009). The rate of payment is hence a product of three earlier mentioned relative quantities, that is, the professional liability insurance, the physician’s work relative value and the practice expense relative value units (Centers for Medicare and Medicaid, 2010).
The reimbursement made by Medicare to physicians varies as per the distinctions made among physicians. They (physicians) are categorized as: the participating physicians (accept duties on all different kinds of cases, receive 80% of the payment from Medicare and 20% from the patient making it 100%, a fee which is approved for a participating physician’s procedure), those who are non-participating but accept duties on a basis of case by case (they receive 95% from both the patient and the Medicare) and lastly, the non-participating and do not accept any kind of duties (are paid 115% by the patient, a fee approved for non-participating physicians. This means that the patient makes the entire payment then the Medicare comes in to reimburse him/her 80 percent of the fee that is approved for any non-participating physician) (Lesser, Fineberg & Cassel, 2010).
With the above crucial briefing in mind, physicians in the listed three scenarios will bill the patient and Medicare as mathematically discussed below.
Patient- Mr. Smith (68 years old and a beneficiary of the Medicare)
Physician- Dr. Johnson
Values of the service offered by the physician (as in the table below)
Determination of the payment rate
|Categories||RVU||Geographic Cost Index||Product|
|Conversion Factor: 64.43|
Sum of the product values = 29.98 + 75.04 + 5.60 = 110.62
Hence the payment rate = sum of the product values × the conversion factor = 110.62 × 64.43 = $ 7,127.25
Cases and Discussion
CASE 1: How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare-participating physician? How much out-of-pocket payment will Mr. Smith be responsible for?
If Dr. Johnson is a participating Medicare physician and accepts all the duties that are allocated to him, then:
Amount paid by the Medicare= 80/100 × 7,127.25 = $ 5,701.80, which is exactly 80% of the payment rate calculated above.
Amount paid by the patient, Mr. Smith = 20/100 × 7,127.25 = $ 1,425.45, which is 20% of the calculated payment rate
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CASE 2: How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare non-participating physician who elects assignment? How much out-of-pocket payment will Mr. Smith be responsible for?
If Dr. Johnson is a non-participating Medicare physician but does not accept all the duties that are allocated, then:
The amount the Medicare and Mr. Smith, the patient, will cash out = 95/100 × 7,127.25 = $ 6,770.89, which is exactly 95% of the approved payment rate calculated above.
This implies that the amount the Medicare will pay = 80/100 × 6,770.89 = $ 5,416.71, which is 80% of the $ 6,770.89, as approved value for non-participating physicians
The amount the patient, Mr. Smith will pay = 20/100 × 6,770.89 = $ 1,354.18, being 20% of $ 6,770.89 approved for the non-participating physicians
CASE 3: How much will Medicare pay Dr. Johnson if Dr. Johnson is a Medicare non-participating physician who does not elect an assignment? How much out-of-pocket payment will Mr. Smith be responsible for?
If the physician, Dr. Johnson is a non-participating Medicare physician and seldom elects duties, then:
Mr. Smith will pay a limiting charge amounting to: = 115/100 × 6,770.89 = $ 7,786.52, being the approved 115% of the $ 6,770.89 determined above.
The amount the Medicare will reimburse Mr. Smith will then be = 80/100 × 6,770.89 = $ 5,416.71, being the approved 80% of the $ 6770.89 determined above.
All the analysis reveals that the amount the Medicare reimburses the patient in case 3 is equal to what it pays the physician directly in case 2.
Centers for Medicare and Medicaid. (2010). Medicare Physician Fee Schedule: The Medicare Learning Network Payment Systems Fact Sheet Series. Web.
Lesser, C.S., Fineberg, H.V., & Cassel, C.K. (2010). Physician Payment Reform: Principles That Should Shape It. Health Affairs, 29(5), 948-952.
Medicare Payment Advisory Commission. (2010). Medicare Payment Basics: Physicians Services Payment System. Web.
Wilensky, G.R. (2009). Reforming Medicare’s physician payment system. New England Journal of Medicine, 30(7), 653-655.