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Published 4/1/2008
Mary LeGrand, RN, MA, CCS-P, CPC

Place of service affects your reimbursement

Facility, nonfacility designations make a difference

In 2008, the Office of Inspector General (OIG) for the department of Health and Human Services intends to focus on Place of Service errors for services submitted by physicians. According to the OIG work plan, “We will review physician coding of place of service on claims for services performed in ambulatory surgical centers (ASC) and hospital outpatient departments. Federal regulations… provide for different levels of payments to physicians depending on where the services are performed. Medicare pays a physician a higher amount when a service is performed in a non-facility setting, such as a physician’s office, than it does when the service is performed in a hospital outpatient department or, with certain exceptions, in an ASC. We will determine whether physicians properly coded the places of service on claims for services provided in ASCs and hospital outpatient departments.”

The practice expense RVU
The place of service can greatly affect your reimbursement, depending on the type of service provided and the location, because Medicare reimburses physicians based on Relative Value Units (RVUs). An RVU has three components: work, practice expense, and malpractice. The place of service is part of the practice expense component, and procedures that can be performed in either a facility or nonfacility setting have different practice expense RVUs, depending on the place of service.

When you provide a service in a facility such as a hospital, the total RVU is lower because you do not incur the full practice expense associated with providing that service. The most common facility locations in orthopaedics are the emergency department, an inpatient setting, an operating room, or an ASC.

When you provide services in a facility setting, you submit a CMS 1500 claim form for those services, and the hospital or ASC submits a UB-92 or CMS 1500 claim form for the “facility fee.” Medicare reimburses you at the lower facility RVU rate and reimburses the facility (the hospital or ASC) for the space, staffing, and technical services it provided.

The most common nonfacility location is the physician’s office when the practice is not organization-based. In the nonfacility setting, the physician practice incurs the full expense of providing the service and is therefore reimbursed at a higher total RVU. When you perform a service in a nonfacility setting (such as your office) and submit the same CMS 1500 claim form for the services provided, Medicare reimburses you based on the nonfacility RVU.

What difference does it make?
The difference in RVUs can be significant. For example, a level 3 outpatient consultation (Common Procedure Terminology [CPT] code 99243) has two different RVU values based on whether the service is performed in a facility or nonfacility location (
Table 1).

Note the differences in the practice expense component for the facility and nonfacility settings and the impact on the total RVU. The practice expense component includes rent/lease of space, supplies, equipment, and clinical and administrative staff expenses. If you provide a service in a facility setting, you do not incur the full staff, equipment, space, or supply costs of providing that service; as a consequence, Medicare reduces your payment based on the location of service.

Medicare assigns the RVUs based on input from the AAOS and socioeconomic surveys on where the service is or should be performed. In some instances, both a facility and nonfacility practice expense RVU factor may be assigned, but in other cases, such as a total knee replacement (CPT code 27447), only one practice expense RVU is applicable (Table 2). With a total knee replacement, the facility and nonfacility practice expense RVUs are exactly the same (13.59), meaning that Medicare will only reimburse this procedure in a facility setting.

Does this apply to all codes?
To find out whether a code has different facility and nonfacility practice expense RVUs, check the Medicare Fee Schedule on each carrier’s Web site or Code X (
Fig.1). Although the differences between the facility and nonfacility RVUs for some procedures appear minor, when they are multiplied by the conversion factor and annualized across all orthopaedic practices, the financial risk to Medicare is large if the place of service is not reported accurately.

Does it apply to all payors?
When contracting with a private payor, you should be sure to ask whether the payor reimburses differently based on place of service (facility or nonfacility). If the payor reimburses a procedure based on a percent of Medicare, the payor probably would include a differential based on place of service. Carving this out in your contract as part of your negotiation strategy is advisable.

What is the BN adjustor?
The BN (Budget Neutrality) adjustor is part of the Tax Relief and Health Care Act of 2006 and Deficit Reduction Act. To maintain budget neutrality, Medicare implemented the BN adjustor as part of the overall Medicare payment formula. The BN adjustor reduces Medicare reimbursement for the work component of your total Medicare payment.

The BN adjustor was introduced to the Medicare fee schedule in 2007 at -0.101 and was increased to -0.119 for 2008. This represents an approximate 2 percent reduction in reimbursement for a procedure separate from any Conversion Factor reductions.

Remember, the 10.1 percent conversion factor reduction originally scheduled for 2008 was delayed by Congressional action for 6 months (until June 30), and a 0.5 percent increase was applied instead. Although this meant a temporary increase in the conversion factor, the BN adjustor was implemented as budgeted. In the example of the total knee replacement (CPT code 27747), the BN adjustor reduces the total Medicare payment by approximately $105 from the amount payable if the BN adjustor were not in effect.

Commercial carriers do not necessarily apply a work RVU BN adjustor. Carefully review your contracts with various carriers to determine whether they are applying a work RUV BN adjustor.

The BN adjustor is specific only to Medicare and does not alter the RVUs for any procedures. It affects the payment formula only; the work, practice expense, and malpractice RVUs are all set by Medicare separately from the BN adjustor. It is inappropriate for commercial carriers to reduce RVUs, versus payment, based on the BN adjustor.

Mary LeGrand, RN, MA, CCS-P, CPC, is a consultant with KarenZupko & Associates. If you have coding questions or would like to see a coding column on a specific topic, e-mail aaoscomm@aaos.org