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HCET Home > On-line Training > Money Matters > 3. Steps 5-8 to Developing Cost Based Fees

The 8 steps in the development of cost based fees:
5-8 are covered, 1-4 are covered in module I

1. Identify the functional cost center areas
2. Identify services provided in each cost center
3. Collect cost data and allocate costs to each functional cost center
4. Allocation of overhead costs to functional cost centers
5. Determine the relative values of services/procedures
6. Collect utilization data on services provided
7. Determine total units of service provided
8. Determine cost of each service

Step 5

5. Determine the relative values of services/procedures

Examples Procedure A’s relative value = 10.0 Procedure B’s relative value = 5.0 Procedure A is worth twice as much as B If another relative value scale indicates; Procedure A’s relative value = 30.0 Procedure B’s relative value = 15.0 The two scales are in agreement

A relative value is a number that relates one service to all other services based on the amount of time, materials, and level of skill of the personnel who are involved in a particular service. Relative values indicate the “value” of one procedure in relation to another procedure. This is NOT monetary value – each relative value is important only in how it compares to other relative values.
There are several sources of relative values. The one that we use in this methodology is: Resource Based Relative Value System (RBRVS) developed by The Department of Health and Human Services (DHHS).
Relative values have been assigned to more than 7,000 services, representing virtually all Medicare-covered services, for both CPT and the HCPCS Level II codes. For each service, a nationally uniform relative value is based on a combination of relative value units (RVUs) assigned to;
• physician work
• practice expense (net of malpractice expenses)
• the cost of malpractice insurance

For the cost analysis methodology, the file has been truncated to provide the established relative values for the items (Work, Practice Expense, and Malpractice). These relative values are based on the fully transitioned, non-facility rates.

Download or view the table

• 2003 National Physician Fee Schedule Relative Value File
• 2003 National Physician Fee Schedule Relative Value File in PDF format

Geographic Practice Cost Indices (GPCI) are used to adjust the relative values for the specific locale. These are based on an analysis of fees in various areas and government studies of variations in economic factors among localities. The GPCI are applied to the standard relative values for each activity (work, practice, and malpractice) found in the schedule, to determine variations for the location of concern. These are applied on a base of 1.000 as the national standard. Here are the 2003 GPCIs.

Download or view the table

• 2003 Geographic Practice Cost Indices in PDF format

When you take the relative values from the national physician schedule and adjust it for Wisconsin based on the geographic cost indices, you get the final Wisconsin relative values for services as defined by CPT codes. These calculations are already performed for you, and appear in the Procedures tab of the Excel workbook (see below). The relative values are then carried forward to the various forms for the medical, counseling, laboratory, and pharmacy cost centers.

Download or view the worksheet

• Worksheet to determine RVU's For Family Planning Procedures
• Worksheet to determine RVU's For Family Planning Procedures in PDF format
• Wisconsin Cost Center Report - entire file in Excel

Steps 6-8

6. Collect utilization data on services provided
7. Determine total units of service provided
8. Determine cost of each service

Each of these steps in illustrated in the completion of various tabs of this Excel spreadsheet.

• Wisconsin Cost Center Report - entire file in Excel

As you work through the forms (Medical Cost Center, Counseling Cost Center, Laboratory Cost Center, and Pharmacy Cost Center), you will be collecting and recording relevant data for each unit, and ultimately determine the cost of each service.
 

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URL: http://www.hcet.org/training/Mmatters/ModII/5_8DevC.htm
 Last update: 04/22/08