HI215 Unit 10 Payment Methodology Report Example

Why This Visit Pays About Ninety-Two Dollars: A Unit 10 Payment Methodology Report Walking a Composite Physician Partner From the Code on the Claim to the Dollars on the Remittance Under Medicare's Fee Schedule

[Student Name]

Purdue University Global

HI215: Reimbursement Methodologies

Unit 10 Payment Methodology Report

[Instructor Name]

[Date]

The practice, the visit's relative values and the geographic factors are composite; the 2025 conversion factor, the payment formula and the sources cited are real.

Summary

An established patient office visit at the level our physicians bill most often pays about $92 under Medicare in 2025 at our office. Medicare pays about $73 of that and the patient owes about $18 after the annual deductible is met. The amount comes from three relative values for the service, adjusted for our area's costs and multiplied by a national dollar figure set each year.

Step 1: The Code

Every visit is reported with a procedure code that identifies its level. The level rests either on how complex the physician's decisions were or on the total time the physician spends on the day of the visit. The code decides which relative values apply, which is why documentation that supports the level matters more than any other step in this report.

Step 2: Three Relative Values

Each code carries three relative value units: one for the physician's work, one for practice expense and one for malpractice cost. For the visit in this report, the composite values are 1.60 for work, 1.10 for practice expense in an office setting and 0.10 for malpractice, 2.80 in total. These values come from a national system built on studies of the time, skill and effort each service requires, introduced into Medicare payment in 1992 after research that measured physician work across specialties (Hsiao et al., 1988). Work values are updated with advice from a physician committee, and Medicare accepts that advice in most cases (Laugesen et al., 2012).

Step 3: Geographic Adjustment

Next, each of the three values is scaled by our locality's own cost index for that component. In this composite example, the indexes are 1.000 for work, 1.040 for practice expense and 0.950 for malpractice. The adjusted values are 1.600, 1.144 and 0.095, totaling 2.839 (42 C.F.R. § 414.22, 2024).

Step 4: The Conversion Factor

The adjusted total is multiplied by the national conversion factor, a dollar amount set in the annual payment rule. For 2025 it is $32.3465. The payment is 2.839 times $32.3465, or $91.83. The visit's price is three small numbers, adjusted for where we practice, times one national dollar figure that Congress and Medicare reset every year.

Step 5: Who Pays What

Once the patient has met the annual Part B deductible, Medicare covers four-fifths of the allowed figure, $73.46, and the patient or a supplemental plan owes 20 percent, $18.37. If the deductible has not been met, the patient owes the full amount up to the remaining deductible.

What Changes the Amount

Setting: the same visit in a hospital outpatient clinic is paid at a lower practice expense value to the physician, because the hospital bills separately for the space and staff. Level: a lower or higher visit level changes all three relative values. Annual rule: the conversion factor and relative values change each year. Participation: physicians who do not accept assignment are paid at a reduced fee schedule amount.

The Same Visit in the Hospital Clinic

Several of our partners also see patients in the hospital's outpatient clinic, and they often ask why the same visit pays them less there. The answer sits in the practice expense value. In our office, we pay for the room, the nurse and the supplies, and the practice expense value of 1.10 reflects those costs. In the hospital clinic, the hospital pays for them and bills Medicare separately under its own outpatient system, so the physician's practice expense value drops to a facility amount, in this composite example 0.55. Adjusted for our locality, the physician's payment falls to about $73. The hospital then receives its own facility payment for the same visit. Medicare's total spending on the visit is higher in the hospital setting, even though the physician's share is lower, which is why the setting of care has become a policy question as well as a billing one.

Questions the Partner Might Ask

Does seeing a patient longer always pay more? Only if total time meets the threshold for a higher level, and the time must be documented. Do supplemental plans change the amount? No; they change who pays the patient's twenty percent. Will next year's payment be the same? Rarely, because the conversion factor and relative values are reset in each annual rule, and partners should expect small changes in either direction every January.

What This Means for the Practice

Only two of the inputs are in the practice's hands: the choice of visit level, which must be supported by documentation, and the setting in which care is delivered. Everything else is set nationally or by locality. A partner who wants higher payment for the same visit has one legitimate route: making sure the documentation supports the level of care actually provided, no more and no less.

References

42 C.F.R. § 414.22 (2024). https://www.ecfr.gov/current/title-42/section-414.22

Hsiao, W. C., Braun, P., Dunn, D., Becker, E. R., DeNicola, M., & Ketcham, T. R. (1988). Results and policy implications of the resource-based relative-value study. The New England Journal of Medicine, 319(13), 881-888. https://doi.org/10.1056/NEJM198809293191331

Laugesen, M. J., Wada, R., & Chen, E. M. (2012). In setting doctors' Medicare fees, CMS almost always accepts the relative value update panel's advice on work values. Health Affairs, 31(5), 965-972. https://doi.org/10.1377/hlthaff.2011.0557