Stephanie Maxwell, Ph.D.

Stephen Zuckerman, Ph.D.

Pablo Aliaga, M.S.

The Urban Institute

2100 M Street, NW

Washington, DC 20037

MedPAC

601 New Jersey Avenue, NW

Suite 9000

Washington, DC 20001

(202) 220-3700

Fax: (202) 220-3759

www.medpac.gov

•

•

The views expressed in this report

are those of the authors.

No endorsement by MedPAC

is intended or should be inferred.

Effects of the

Implementation of

Resource-Based 

Practice Expense

Relative Value Units

A study conducted by

The Urban Institute for the

Medicare Payment Advisory Commission

March 2005 • No. 05-1

Under the Medicare

Physician Fee

Schedule, 1998-2002
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 1 -

Effects of the Implementation of Resource-Based Practice Expense 

Relative Value Units under the Medicare Physician Fee Schedule, 1998-2002 

Introduction and Background

In 1992, a resource-based, relative value scale fee schedule replaced the reasonable 

charge system of payment for physician services furnished to Medicare beneficiaries. The main 

element of the fee schedule is a relative value scale, which is comprised of three components: 

physician work or time (which accounts for about 55 percent, on average, of payments made 

under the fee schedule); physician practice expenses or PE (accounting for 42 percent of 

payments on average), and professional liability insurance or PLI expenses (accounting for 3 

percent of payments on average).1 

In the original fee schedule, the relative value units (RVUs) for physician work were 

developed using surveys of time and effort, while the PE and PLI relative value units were 

developed using physicians’ historical charges. Under the historical charge-based PE RVUs, 

procedures received, on average, substantially higher PE payments than evaluative services. 

Congress required some refinements to the charge-based PE RVUs to help address this. In 

particular, the Omnibus Budget Reconciliation Act of 1993 required reductions to PE RVUs in 

1994 through 1996 for services in which the PE RVU exceeded 128 percent of the work RVU 

(US House of Representatives 1994), and later the Balanced Budget Act of 1997 required 

reductions to PE RVUs for services to 110 percent of their work RVU (HCFA 1997a).2 The 

Social Security Act Amendments of 1994 required that the charge-based system be replaced with 

a resource-based system by 1998. A resource-based system— reflecting the staff, equipment, 

and supplies necessary to furnish physician services in various settings— was intended to better 

relate payments to physicians’ actual expenses. Given the historical charge patterns a shift in PE 

payments toward evaluative services and away from procedural services was expected under 

such a system. 

In 1995, efforts by the Centers for Medicare and Medicaid Services or CMS (then the 

Health Care Financing Administration or HCFA) to develop a resource-based system included 

 

1

 In addition to the relative value scale, the Medicare physician fee schedule is comprised of two other 

elements: a set of geographic practice cost indices or GPCIs and a conversion factor. Payments are adjusted by 

GPCIs so that payments reflect differences in local costs. Each component of the relative value scale (work, 

practice expense, PLI) is adjusted by a separate GPCI. By law, the work GPCI reflects only 25 percent of actual 

variation in area costs. There are 89 physician payment localities, 35 of which are statewide. A conversion factor is 

used to translate the adjusted relative values into dollar amounts. 

2

 Under OBRA 93, 1994 PE RVUs were reduced by 25 percent of the amount by which the PE RVUs 

exceeded the 1994 work RVUs. In 1995 and 1996, the excess, as determined for 1994, was reduced an additional 25 

percent each year. PE RVUs were not reduced to an amount less than 128 percent of the 1994 work RVU for a 

service. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 2 -

contracting with Abt Associates to conduct a survey on indirect practice expenses (e.g., office 

staff, office supplies) (Abt 1995; Physician Payment Review Commission (PPRC) 1996). The 

survey process was halted, in large part due to a poor response rate (27 percent) on the first phase 

of the survey (PPRC 1997). CMS and Abt also established Clinical Practice Expert Panels or 

CPEPs to collect data and determine service-specific estimates of direct expenses (e.g., nonphysician clinical time, medical supplies). In June 1997, CMS proposed a “bottom-up” method 

of resource-based PE RVUs, meaning that the methodology began with determining servicespecific practice expenses, and then used these estimates to create PE RVUs. CMS used the 

CPEP data for direct expenses, and used Medicare and American Medical Association (AMA) 

data to estimate indirect expenses (HCFA 1997b). The proposed rule’s impact analyses 

estimated that this bottom-up method of developing PE RVUs would significantly reallocate 

practice expense payments. Physician specialty societies voiced several methodological 

concerns about the proposed rule, and Congress delayed implementation of a resource-based 

system from 1998 to 1999. A final rule based on this method was not issued.3 

In 1998, CMS issued new proposed and final rules that described a “top-down” approach 

for determining resource-based PE RVUs, in that total current practice expenses were used as the 

starting point and expenses were allocated to determine each service’s PE RVU (HCFA 1998a; 

HCFA 1998b). The new RVUs were implemented in a budget neutral manner, and were phased 

in with a four-year transition schedule established by the BBA. In January 1, 1999, PE RVUs 

were a product of 75 percent of the 1998 charge-based PE RVUs and 25 percent of the resourcebased RVUs. In each subsequent year, an additional 25 percent of the total PE RVU was 

resource-based until January 1, 2002, when 100 percent of the RVU became resource-based. 

CMS has continued to refine the resource-based PE RVUs with input from physician groups. 

Although PE payments were redistributed across specialties and services types, overall spending 

on Medicare physician services continued to grow. Aggregate Medicare physician fee schedule 

spending rose 8.5 percent annually, from roughly $32.4 billion in 1998 to roughly $45.0 billion 

in 2002 (CMS 2004; authors’ analyses).4

After the resource-based PE RVUs were fully implemented, the Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 (MMA) required that the Medicare 

Payment Advisory Commission (MedPAC) assess the effects of the implementation of the new 

PE RVUs. In response, MedPAC contracted with the Urban Institute to examine the effects of 

the resource-based PE RVUs on physician payment and to examine changes in service volume 

and physician assignment rates that occurred during the transition period. Below, we summarize 

the methodology CMS used in developing the resource-based PE RVUs; describe the data and 

methods we developed to examine the impact of resource-based PE RVUs; and present our 

findings. 

 

3

 Completing the shift toward a full resource-based fee schedule, the BBA also required that resourcebased PLI RVUs be developed and implemented.

4

 Through increases to the fee schedule’s conversion factor, Medicare increased physician payment rates 

per service by 2.3 percent in 1999, 5.5 percent in 2000, 4.8 percent in 2001, and –4.9 percent in 2002 (Board of 

Trustees 2004).
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 3 -

Resource-Based Practice Expense Relative Value Units: Summary

The process used in developing resource-based PE RVUs under the top-down approach 

relied first on collecting total practice expense data for each physician specialty. These expense 

data then were allocated to six pools, or categories, of practice expenses by specialty. The 

expense pools then were allocated to individual procedure codes, to ultimately derive PE RVUs 

for each individual service.5 

Deriving the Six Practice Expense Pools

To establish the six practice expense pools CMS used AMA Socioeconomic Monitoring 

Survey (SMS) data to identify practice expenses, by specialty and by expense category, in 1995 

through 1997. The six expense categories or pools include three types of direct expenses: nonphysician clinical labor; medical supplies; and medical equipment; and three types of indirect 

expenses: administrative labor; office supplies; and all other expenses. 

Three main steps were involved in creating the specialty-specific expense pools. First, 

the SMS data were used to estimate practice expenses per hour, by expense category and by 

specialty. Second, for each specialty utilization data and physician time data for each service 

code were multiplied to estimate the total number of physician hours spent treating Medicare 

beneficiaries. Medicare claims were the source of the utilization data; time data were available 

from the AMA Specialty Society Relative Value Update Committee (RUC) and from surveys 

conducted by Becker, Dunn and Hsaio (1988) during the development of the original fee 

schedule. Third, for each specialty practice expenses per hour for each category were multiplied 

by the total physician hours, to obtain aggregate practice expense pools by specialty and by 

expense category.

Allocating Aggregate Costs to Specific Services

CMS used the service-specific CPEP data to allocate the three direct expense pools (nonphysician clinical labor, medical supplies, medical equipment expenses) to individual services. 

Regarding the indirect expense pools (administrative labor, office expenses, and other expenses), 

CMS used the CPEP direct expense data as well as the physician work RVUs associated with a 

service to allocate these expenses to individual services. For services performed by multiple 

physician specialties, CMS computed a weighted average of the specialties’ expenses. 

 

5

 The “bottom-up” approach is detailed in a June 18, 1997 proposed rule (HCFA 1997b). The “top-down” 

approach that was implemented is detailed in a June 5, 1998 proposed rule (HCFA 1998a) and November 2, 1998 

final rule (HCFA 1998b). Additional refinements to the resource-based PE RVUs are described in subsequent 

years’ proposed and final rules. 

 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 4 -

Data and Methods

Data Files

We used physician/supplier procedure summary (PSPS) files and relative value unit files 

in this study. The PSPS file is an annual summary of physician/supplier claims, created by CMS 

and its carriers.6 We obtained annual files of Medicare physician fee schedule RVUs from the 

AMA, and merged RVUs to the PSPS files by each combination of procedure code, first 

modifier, and place of service.7 We merged the 2002 Berenson-Eggers type of service (BETOS) 

grouping algorithm to the data files.8 We grouped specialties using an algorithm that MedPAC 

and the former Physician Payment Review Commission used in other physician specialty 

analyses. We excluded services reimbursed under other fee schedules (e.g, anesthesia services). 

Analysis Period 

To assess the impact of the new PE RVUs we analyze data from 1998 (the year before 

the transition began) and 2002 (the first year with 100 percent resource-based RVUs), and 

describe the results in terms of average annual percent change (in PE RVUs, total RVUs, etc.). 

The intervening years also were available, although as explained in the following section our 

analyses suggested that the marginal value of the intervening years was limited and thus we did 

not pursue analysis of them. 

 

6

 The PSPS file is an aggregation of services at the payment locality level. Each record is a unique 

combination of 8 items: procedure code, first and second modifier, type of service, place of service, physician 

specialty, carrier, and payment locality. The file includes 12 additional fields regarding charges (submitted, 

allowed, denied); total payments; service counts (denied, assigned, total); MITUS (miles, time, units, services) count 

and indicator code; CMS region code; ambulatory surgical center payment group code; and a claims error indicator 

code.

7

 Place of service is required for merging the appropriate PE RVU (facility or non-facility) to a record. 

The first modifier is required for merging the appropriate RVUs for technical and professional components of 

services furnished, and for calculating appropriate RVU adjustments for assistant surgeon services.

8

 The BETOS service classification system groups physician/supplier services into several main categories 

and additional subcategories. We examined the study results by these categories and subcategories and then 

collapsed the data into five overall BETOS groups for the tables in this report: 1) evaluation and management 

(E&M); 2) imaging; 3) major procedures; 4) other procedures; and 5) tests. Evaluation and management (E&M) 

includes office visits, hospital visits, emergency room services, home and nursing home visits, consultations, and 

specialist visits. (Specialist visits include E&M provided by ophthalmologists, psychiatrists, pathologists, allergists, 

and other subspecialties.) Imaging includes standard imaging (routine x-rays and nuclear medicine); advanced 

imaging (CT scans and magnetic resonance imaging); sonographic imaging; and imaging/procedures (largely 

cardiac catheterization). Major procedures include breast procedures, colectomy, cholecystectomy, TURP, 

hysterectomy, cardiovascular procedures, orthopedic procedures, exploratory procedures, and other. Other 

procedures include eye procedures; ambulatory and minor groupings of skin procedures, musculoskeletal 

procedures, hernia repair, lithotripsy and other procedures; oncology; endoscopy; and dialysis. Tests include 

laboratory tests and other tests (largely cardiovascular). We delete detailed BETOS groups that are not paid on the 

Medicare physician fee schedule or are very low prevalence services (e.g., durable medical equipment; ambulance, 

chiropractic, and vision/hearing/speech services; enteral/parenteral drugs or nutrition; chemotherapy and other 

drugs; and not-classified services. 

 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 5 -

Analytic Approach

To assess the impact of the new PE RVUs we used a price index approach in which the 

mix of physician services used by Medicare beneficiaries is held constant using the later of the 

two analysis years. Using payments as an example, this is represented algebraically as: 

 Index = ∑ (Pc 

i

 Qc 

i

) 

 

i

_________

 ∑ (Pb 

i

 Qc 

i

) 

 

i

where P denotes payments; Q denotes quantity or service mix; superscript i identifies individual 

services; and subscripts c and b denote current (2002) and base year (1998) periods, respectively. 

We express the resulting index value in terms of average annual percent change, represented 

simply as:

Percent change = [Index ^ (1 / (c-b))] –1 

where c minus b equals the number of years over which the change occurred. 

 This price index is a Paasche index, meaning the cost of purchasing a current mix of 

services is compared with the cost of purchasing the same mix in an earlier period. Fixed–basket 

indices such as the Paasche may not be appropriate if the analysis period encompasses a 

substantial change in the mix of services used, for example due to changing Medicare payment 

policies, new medical technologies, or the introduction of new Medicare-covered benefits 

(Zuckerman et al. 1993). Fisher’s Ideal index (1922) accommodates this change by taking the 

geometric mean of the Paasche index and the Laspreyes index. The Laspreyes index holds 

service mix constant using the base period’s mix rather than the current period’s mix. A more 

complex approach involves the use of each intervening analysis year and chaining a series of 

annual indices together, such as a chained Laspeyres index or a chained Fisher’s Ideal index 

(Gordon 1998). 

To test the need for a Fisher’s index or for a chained approach, we computed both 

Paasche and Laspreyes indices of PE RVU change and compared the results by BETOS, by 

specialty, and by BETOS within specialty. The two index approaches yielded similar findings, 

suggesting that at the national level the mix of Medicare physician services furnished by 

specialty and by BETOS did not change substantially between 1998 and 2002 (Appendix A). 

Consequently, we report findings that use the current (2002) mix of Medicare physician services 

as the weights. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 6 -

In summary, we derived and evaluated average annual change in five outcome variables: 

1) PE RVUs per service; 2) work and PLI RVUs per service combined; 3) total RVUs per 

service; 4) total Medicare payments per service;9 and 5) the impact of the resource-based PE 

RVUs on payments per service. The “impact” index is calculated as:

Impact index = ∑ (Work RVUb

i

 + PE RVUc

i + PLI RVUbi ) Qci

 

i

______________________________________

∑ (Total RVUb

i

 ) Qc 

i

 

i

where Q denotes quantity or service mix; superscript i identifies individual services; and 

subscripts c and b denote current (2002) and base year (1998) periods, respectively. 10 The 

outcome measures were analyzed nationally by BETOS, by specialty, and by specialty/BETOS 

combination.

Given the study questions specified in the MMA, we also analyzed average annual 

changes in: 1) utilization, measured as service volume and total RVU volume per beneficiary; 

and 2) physician participation, measured as rates of assigned services, assigned RVUs, and 

assigned charges. To hold prices, or RVU values, constant in the utilization and assignment rate 

analyses, we used the 2002 RVU values. 

Findings

Payment Rates per Service

Figure 1 shows how the move to resource-based practice expense RVUs affected PE 

RVUs per service and payments per service for each of five major BETOS categories. These 

estimates do not reflect changes in work or malpractice RVUs that took place between 1998 and 

2002— but these other changes had minimal effects relative to the introduction of resource-

 

9

 We calculated indices using Medicare payments per service and the Medicare fee schedule rates (ie, 

allowed charges) per service. The results of the two were extremely similar. The tables in this report present 

change in terms of Medicare payments per service. Allowed charges and payments are based on RVUs multiplied 

by the fee schedule conversion factor ($36.39 in 1998 and $36.20 in 2002). 

10 The impact variable can be interpreted as the impact on payments, allowed charges, or total RVUs. 

This is because the same conversion factor (the 1998 value of $36.39) would be applied to the numerator and 

denominator in the price index calculations, thus adding only a constant value that would be cancelled out in the 

equation. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 7 -

based PE RVUs. As the figure shows, implementation of the resource-based system lowered PE 

RVUs per service and total payments per service for Imaging Services, Major Procedures, and 

Tests and raised them for Evaluation and Management (E&M) Services and Other Procedures. 

The effect of the policy change is greater with respect to PE RVUs per service than total 

payments per service, because practice expenses account for about 42 percent of total payments 

on average.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 8 -

Figure 1. Average Annual Change in PE RVUs and in Impact of PE RVUs on Total Payments,

by Type of Service, 1998-2002

6.8

-2.1

-7.3

2.2

-1.8

2.4

-1.3

-3.1

1.0

-1.3

-8

-6

-4

-2

0

2

4

6

8

EVALUATION AND

MANAGEMENT

IMAGING MAJOR PROCEDURES OTHER PROCEDURES TESTS 

Type of Service

Percent

PE RVUs Impact of Resource-Based PE RVUs on Total Payments

Note: "Major Procedures" include Breast, Colectomy, Cholecystectomy, TURP, Hysterectomy, Cardiovascular, Orthopedic, Exploratory, and Other. "Other Procedures" include Eye Procedures; Ambulatory and 

Minor groupings of Skin, Musculoskeletal, Hernia Repair, Lithotripsy and Other Procedures; Oncology; Endoscopy; and Dialysis.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 9 -

Figure 2 shows that 10 of the 15 specialties examined gained from the move to resourcebased practice expenses. Dermatologists and urologists experienced the largest gains in PE 

RVUs and total payments per service, with their PE RVUs rising over 10 percent annually and 

total payments rising roughly 5 percent annually. Thoracic surgeons and gastroenterologists 

experienced the greatest declines, with their PE RVUs and total payments per service falling 

roughly 10 percent and 4 percent, respectively. Other specialties experienced more modest 

changes, with increases and decreases in total payments per service ranging from 1 percent to 3 

percent annually.

Our findings by specialty are generally consistent with two earlier studies of specialty 

impacts. HCFA (1998b) simulated the average annual impact over the transition period and the 

Government Accountability Office or GAO (2001) compared resource-based PE RVUs in 2001 

to estimates of PE RVUs had they been charge-based in that year. Twelve specialties shown in 

Figure 2 are common to the HCFA and GAO analyses. In 11 of the 12 specialties, the direction 

of impact is the same across the studies, and in about one-half the direction and magnitude of 

impact are similar. Only pathologists were estimated to experience reduced payments as a result 

of the new PE RVUs by the other studies, but saw an average increase in their payments per 

service by 2002. 

The specialty-specific findings in Figure 2 are related to several factors, including the 

relative importance of each BETOS group to a specialty, the relative importance of a service 

within a BETOS to a specialty, and the fact that PE RVUs for each service are based on 

specialty-specific data on expenses and hours. Table 1 shows the impact of resource-based PE 

RVUs across specialty/BETOS combinations. The BETOS impacts vary considerably across 

specialties, which interacts with differences in the relative importance of each BETOS by 

specialty to produce the patterns seen in Figure 2.11 For example, thoracic surgeons experienced 

the largest average annual reduction (4.3 percent) in total payments per service as a result of the 

transition to resource-based PE RVUs. This group’s payment decline is driven by the facts that 

total payments per service within their Major Procedures fell due to the transition by 5.1 percent 

annually (more than the 3.1 percent overall effect for this BETOS)— and that 82 percent of 

Medicare payments made to thoracic surgeons are in this BETOS. Further, within the Major 

Procedures group the PE RVUs were reduced to a greater extent for cardiovascular services, 

which are the dominant type of major procedures furnished by this specialty (detail not shown).

A similar pattern is evident for gastroenterologists (whose total payments per service fell 

3.7 percent annually due to the new PE RVUs). Other Procedures is the dominant BETOS group 

for these physicians, accounting for 53 percent of their total payments. Although total payments 

per service for Other Procedures rose 1.0 percent annually across all specialties due to the new 

PE RVUs, total payments per service in this BETOS for gastroenterologists actually fell 6.6 

 

11 Changes in RVUs and payments by specialty and by BETOS (separately) are shown in Appendix B.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 10 -

percent annually due to the PE changes. This occurred because PE RVUs were substantially 

reduced for upper gastrointestinal endoscopies and colonoscopies— two services within Other 

Procedures that account for nearly half of gastroenterologists’ total Medicare payments (detail 

not shown).
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 11 -

Figure 2. Average Annual Change in PE RVUs and in Impact of PE RVUs on Total Payments, 

by Specialty, 1998-2002

-3.7

4.2

-8.9

3.6

1.9

-2.1

13.8

5.7

2.6

-10.6

10.1

3.6

-2.3

2.6

4.9

1.5 1.5 1.2 1.7

6.4

2.6

4.4

2.2

1.0

-1.0

-4.3

-1.8

0.7

-0.8

-3.7

-15

-10

-5

0

5

10

15

20

CARDIOLOGY 

FAMILY/GENERAL PRACTICE

GASTROENTEROLOGY 

INTERNAL MEDICINE 

OTHER MEDICAL 

GENERAL SURGERY 

DERMATOLOGY 

OPHTHALMOLOGY 

ORTHOPEDIC SURGERY 

THORACIC SURGERY 

UROLOGY 

OTHER SURGICAL 

RADIOLOGY 

PATHOLOGY 

OTHER 

Specialty

Percent

PE RVUs Impact of Resource-Based PE RVUs on Total Payments

Note: Specialty "Other Surgical" includes Neurosurgery, Ophthalmology, Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive Surgery. Speciality "Other Medical" includes Neurology, Physical 

Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. Specialty “Other” includes several non-physician services (eg, therapy services, physician assistant services); physician 

group practices and other organizations (e.g., labs, imaging centers); seven other (low Medicare prevalence) physician specialties (e.g., maxillofacial surgery); other/unknown care providers. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 12 -

2002 Payment 

Distribution (Percent) PE RVUs Work and PLI RVUs Total RVUs Payment Rate

Impact of PE RVUs on 

Total Payments

Total 100.0 1.9 -0.3 0.7 1.9 0.7

Cardiology 100.0 -3.7 -0.8 -2.3 -1.0 -1.8

Evaluation And Management 38.0 5.1 0.0 1.7 3.3 1.7

Imaging 35.5 -3.4 -2.3 -3.1 -2.1 -2.3

Major Procedures 14.6 -15.1 -1.0 -6.9 -6.0 -6.3

Other Procedures 0.4 -5.1 -0.8 -3.1 -3.1 -2.6

Tests 11.6 -6.9 -0.3 -4.3 -3.4 -4.3

Family/General Practice 100.0 4.2 0.2 1.7 3.6 1.5

Evaluation And Management 86.3 4.7 0.2 1.7 3.8 1.5

Imaging 3.6 -1.3 -1.8 -1.3 0.0 -1.0

Major Procedures 1.1 -7.6 1.0 -2.1 -2.1 -2.9

Other Procedures 6.7 11.0 0.2 4.9 6.4 4.7

Tests 2.4 -3.4 -1.0 -2.6 -1.0 -2.3

Gastroenterology 100.0 -8.9 -0.3 -4.0 -2.9 -3.7

Evaluation And Management 44.0 4.0 0.0 1.2 2.9 1.2

Imaging 0.6 -0.8 -1.8 -1.0 -0.3 -0.5

Major Procedures 1.8 -3.1 2.4 0.5 0.5 -1.0

Other Procedures 53.1 -15.5 -0.8 -7.3 -6.6 -6.6

Tests 0.4 -4.3 -1.3 -3.1 -1.8 -2.6

Internal Medicine 100.0 3.6 0.0 1.5 3.1 1.5

Evaluation And Management 82.4 5.9 0.0 1.9 4.0 1.9

Imaging 5.5 -2.1 -2.3 -2.1 -0.8 -1.5

Major Procedures 0.8 -11.3 0.2 -4.6 -3.7 -4.6

Other Procedures 8.2 1.0 -0.5 0.2 1.0 0.5

Tests 3.0 -4.8 -0.8 -3.4 -2.3 -3.1

Other Medical Specialties 100.0 1.9 -0.3 0.5 1.9 0.7

Evaluation And Management 72.2 2.2 -0.3 0.5 1.9 0.7

Imaging 1.5 -1.5 -1.5 -1.5 -0.5 -1.3

Major Procedures 1.2 -4.3 1.0 -1.0 0.7 -1.5

Other Procedures 17.0 2.2 -0.3 0.7 2.2 1.0

Tests 8.0 1.5 -0.8 0.5 1.7 1.0

General Surgery 100.0 -2.1 0.7 -0.5 0.5 -0.8

Evaluation And Management 28.0 4.7 0.0 1.7 3.6 1.7

Imaging 5.6 -3.4 -1.0 -2.6 -1.8 -2.1

Major Procedures 45.0 -5.1 1.5 -1.0 -0.8 -2.1

Other Procedures 20.3 -2.1 0.5 -0.5 0.2 -0.8

Tests 1.2 -5.1 -2.6 -4.3 -3.4 -3.4

Dermatology 100.0 13.8 -0.3 6.4 8.2 6.4

Evaluation And Management 26.4 10.7 -0.3 4.7 6.6 4.7

Imaging 0.0 -1.0 0.0 -0.5 -0.5 -0.5

Major Procedures 0.1 11.9 -2.3 3.3 2.6 4.7

Other Procedures 73.2 15.0 -0.3 7.0 8.8 7.0

Tests 0.3 6.8 0.2 5.1 5.5 4.9

Ophthalmology 100.0 5.7 -0.8 2.4 4.0 2.6

Evaluation And Management 47.6 19.2 0.0 8.6 11.4 8.6

Imaging 3.0 7.2 -1.8 4.2 4.9 4.9

Major Procedures 0.4 5.3 0.0 2.4 3.6 2.4

Other Procedures 49.0 -3.1 -1.3 -2.3 -1.5 -1.5

Tests 0.0 0.7 -1.8 0.0 1.5 0.5

Table 1. Average Annual Change in Payment Rates and RVUs, by Specialty and Type of Service, 1998-2002 

Average Annual Percent Change
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 13 -

2002 Payment 

Distribution (Percent) PE RVUs Work and PLI RVUs Total RVUs Payment Rate

Impact of PE RVUs on 

Total Payments

Orthopedic Surgery 100.0 2.6 -0.5 0.7 1.5 1.2

Evaluation And Management 23.4 10.7 0.0 4.0 6.4 4.0

Imaging 8.6 -0.5 -1.0 -0.8 -0.3 -0.5

Major Procedures 44.6 -4.3 -1.0 -2.6 -2.1 -1.8

Other Procedures 23.4 11.6 -0.3 5.1 5.1 5.3

Tests 0.1 2.4 -1.0 1.0 0.0 1.5

Thoracic Surgery 100.0 -10.6 0.5 -4.0 -3.4 -4.3

Evaluation And Management 11.1 2.6 0.0 1.0 2.9 1.0

Imaging 2.6 -3.7 -1.3 -2.9 -2.1 -2.3

Major Procedures 81.6 -12.4 0.7 -4.6 -4.3 -5.1

Other Procedures 3.9 -2.3 -0.3 -1.3 -1.3 -1.0

Tests 0.9 -5.4 -1.8 -4.3 -3.7 -3.4

Urology 100.0 10.1 -0.3 4.4 6.2 4.4

Evaluation And Management 35.5 9.9 0.0 3.8 6.4 3.8

Imaging 4.7 0.0 -1.0 -0.3 0.5 0.0

Major Procedures 19.0 5.7 -0.8 2.4 3.6 2.6

Other Procedures 40.6 14.2 -0.3 6.6 8.2 6.6

Tests 0.1 4.9 -0.8 2.9 2.6 3.1

Other Surgical Specialties 100.0 3.6 -0.3 1.5 2.6 1.7

Evaluation And Management 38.2 10.7 0.0 4.2 6.8 4.2

Imaging 2.6 0.2 -1.5 -0.3 -0.5 0.2

Major Procedures 26.5 -6.3 -0.3 -2.9 -2.9 -2.6

Other Procedures 28.4 7.0 -0.3 3.1 4.2 3.3

Tests 4.3 1.7 -6.3 0.5 2.4 1.5

Radiology 100.0 -2.3 -0.5 -1.5 -0.3 -1.0

Evaluation And Management 2.0 1.9 0.0 0.7 4.0 0.7

Imaging 75.1 -2.3 -0.5 -1.5 -0.3 -1.0

Major Procedures 5.7 -7.6 0.5 -2.6 -0.8 -2.9

Other Procedures 17.0 -1.0 -1.0 -1.0 -0.8 -0.8

Tests 0.3 -7.3 -2.1 -5.1 -4.0 -4.3

Pathology 100.0 2.6 -0.3 0.7 1.9 1.0

Evaluation And Management 80.4 1.2 -0.5 0.2 1.2 0.5

Imaging 0.4 -2.1 -1.0 -1.5 0.7 -1.0

Major Procedures 0.1 -11.6 -1.0 -5.7 -6.3 -5.1

Other Procedures 1.5 3.1 -0.3 1.0 1.2 1.0

Tests 17.7 10.3 0.2 3.6 5.9 3.6

Other Professionals 100.0 4.9 0.0 2.2 3.1 2.2

Evaluation And Management 50.8 9.2 0.0 3.3 3.8 3.3

Imaging 12.3 -0.8 -2.3 -1.0 -2.1 -0.5

Major Procedures 4.0 -4.8 0.0 -2.3 -3.4 -2.3

Other Procedures 28.2 5.1 0.5 2.4 4.9 2.2

Tests 4.6 6.8 -0.8 4.2 4.9 4.4

Source: Urban Institute analysis of 1998 and 2002 summaries of physician/supplier claims.

Table 1 (con't.) Average Annual Change in Payment Rates and RVUs, by Specialty and Type of Service, 1998-2002 

Note: To hold service mix constant, we applied 1998 and 2002 payments and RVUs to the 2002 service mix. Results are very similar using the 

1998 service mix (Appendix A). "Major Procedures" include Breast, Colectomy, Cholecystectomy, TURP, Hysterectomy, Cardiovascular, 

Orthopedic, Exploratory, and Other. "Other Procedures" include Eye Procedures; Ambulatory and Minor groupings of Skin, Musculoskeletal, 

Hernia Repair, Lithotripsy and Other Procedures; Oncology; Endoscopy; and Dialysis. Specialty "Other Surgical" includes Neurosurgery, 

Ophthalmology, Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive Surgery. Speciality "Other Medical" includes Neurology, 

Physical Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. “Other Professionals” include several nonphysician services (eg, therapy services, physician assistant services); physician group practices and other organizations (e.g., labs, imaging 

centers); seven other (low Medicare prevalence) physician specialties (e.g., maxillofacial surgery); other/unknown care providers. 

Average Annual Percent Change
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 14 -

Among specialties who gained as a result of the PE RVU changes, Table 1 shows that 

they experienced large PE RVU increases in the BETOS groups that dominate their Medicare 

practices. Dermatologists, who gained the most (6.4 percent annually) in terms of total payments 

per service from the PE RVU changes, receive 73 percent of their Medicare revenues from Other 

Procedures and 26 percent from E&M services. While the new PE RVUs raised payments for 

these BETOS groups overall, the impact was particularly high for these services among 

dermotologists, with total payments per service increasing 7.0 percent annually for Other 

Procedures and 4.7 percent annually for E&M. 

Urologists witnessed 4.4 percent annual increases in their total payments per service due 

to the new PE RVUs, due to increases in each of their dominant BETOS groups. Among these 

physicians, the new PE RVUs increased payments per service by 6.6 percent annually for Other 

Procedures, 3.8 percent for E&M, and 2.6 percent for Major Procedures. Combined, these 

BETOS groups account for 95 percent of their Medicare payments. Further, the services 

urologists furnish within these groups had increases well above the average of the overall 

BETOS groups (detail not shown).

The third largest payment gain by specialty occurred among ophthalmologists, whose 

total payments rose 2.6 percent annually due to the new PE RVUs. Their gains are due largely to 

payment increases within E&M services, which account for 48 percent of ophthalmologists’ 

Medicare revenues. The new PE RVUs increased ophthalmologists total payments per service 

among E&M by 8.6 percent annually, compared to a 2.4 percent annual increase among all 

physicians. This gain was large enough to offset a 1.5 percent average annual reduction in 

ophthalmologists’ total payments per service for Other Procedures, which accounts for a large 

share (49 percent) of their Medicare revenues.

Beneficiary Utilization

Change in payments per service by BETOS or specialty did not appear to be 

accompanied by systematic changes in beneficiary utilization. As seen in Figure 3, both service 

use and total RVU volume per beneficiary increased on an average annual basis in all five 

BETOS groups, despite the fact that payments per service increased for some groups and 

decreased for others. For example, the largest increases in total RVU volume per beneficiary 

occurred in Imaging Services (9.5 percent) and Tests (7.2 percent)— two BETOS groups whose 

payments each fell 1.3 percent annually due to the new PE RVUs. However in Major

Procedures, total RVU volume per beneficiary rose only 3.1 percent, while total payments fell 

substantially (3.1 percent) in this BETOS group due to the new PE RVUs. 

Figure 4 shows that service use and total RVU volume per beneficiary increased across 

all specialties, but the average annual rates of increase varied considerably, from a low of 0.2 

percent to 8.2 percent. However, this variation does not seem to be related to the magnitude or 

direction of the changes in payments by specialty. The largest average annual increase in RVU 

volume occurred for cardiologists (8.2 percent), whose total payments per service fell by 1.8 

percent annually due to the PE RVU changes. An offset pattern was not evident, however, 

among thoracic surgeons. This specialty lost the most payments per service as a result of the 

new PE RVUs (4.3 percent annually), while their RVU volume per beneficiary increased only 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 15 -

Figure 3. Average Annual Change in Per Beneficiary Use of Services, 

by Type of Service, 1988-2002

2.6

4.4

3.8

9.0

4.7

3.6

3.1

5.3

7.2

9.5

0

1

2

3

4

5

6

7

8

9

10

EVALUATION AND

MANAGEMENT

IMAGING MAJOR PROCEDURES OTHER PROCEDURES TESTS 

Type of Service

Percent

Service Volume RVU Volume

Note: "Major Procedures" include Breast, Colectomy, Cholecystectomy, TURP, Hysterectomy, Cardiovascular, Orthopedic, Exploratory, and Other. "Other Procedures" include Eye Procedures; Ambulatory and 

Minor groupings of Skin, Musculoskeletal, Hernia Repair, Lithotripsy and Other Procedures; Oncology; Endoscopy; and Dialysis.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 16 -

Figure 4. Average Annual Change in Per Beneficiary Use of Services, 

by Specialty, 1998-2002

1.5

8.2

4.2

5.1

4.2

3.1

1.5

0.2

2.2

3.6

6.4 6.6

8.6

6.4

3.6

2.2

0.7

0.0

4.2

1.2

5.9

2.4

3.6

2.6 2.6

5.9

1.0

8.0

4.2

5.9

0

1

2

3

4

5

6

7

8

9

10

CARDIOLOGY 

FAMILY/GENERAL PRACTICE

GASTROENTEROLOGY 

INTERNAL MEDICINE 

OTHER MEDICAL 

GENERAL SURGERY 

DERMATOLOGY 

OPHTHALMOLOGY 

ORTHOPEDIC SURGERY 

THORACIC SURGERY 

UROLOGY 

OTHER SURGICAL 

RADIOLOGY 

PATHOLOGY 

OTHER 

Specialty

Percent

Service Volume RVU Volume

Note: Specialty "Other Surgical" includes Neurosurgery, Ophthalmology, Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive Surgery. Speciality "Other Medical" includes Neurology, Physical 

Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. Specialty “Other” includes several non-physician services (eg, therapy services, physician assistant services); physician 

group practices and other organizations (e.g., labs, imaging centers); seven other (low Medicare prevalence) physician specialties (e.g., maxillofacial surgery); other/unknown care providers. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 17 -

0.2 percent annually. With the possible exception of thoracic surgery (and their near-zero annual 

increases in service use and total RVU volume), the increases in volume seen on Figures 3 and 4 

suggest that access problems are not apparent at the national level, by BETOS and or by 

specialty. 

Table 2 shows the change in service use and RVU volume per bene ficiary for each 

specialty/BETOS combination. There are a few instances in which utilization declined for a 

specialty/BETOS combination. In particular service use, total RVU volume, or both fell per 

beneficiary for Tests furnished by five of the 15 specialty groups. Tests comprise less than 4 

percent of physician payments overall, and even less for the five specialties. Among the other 

BETOS groups, utilization of E&M and Other Procedures increased across all specialties. 

Utilization fell slightly (roughly 1.0 percent or less) for Major Procedures furnished by each of 

three specialties (general surgeons, ophthalmologists, thoracic surgeons) and for Imaging 

Services furnished ophthalmologists.12 

Simple utilization trends are difficult to interpret, since changes in per beneficiary 

utilization can be due to many factors. For example, clinically appropriate changes may occur 

due to technological advances that increase the provision of some services and decrease use of 

other services. Changes in payment rates can create incentives to increase or decrease service 

provision as well, although the appropriateness of these changes cannot be assessed in isolation. 

While the increased utilization rates on Table 2 do not offer preliminary indication of access 

problems by specialty or BETOS during the implementation period of the new PE RVUs, it is 

beyond the scope of this project to analyze factors affecting utilization change or to draw 

conclusions regarding the appropriateness of the change that occurred. 

 Assignment Rates

Congress asked MedPAC to identify changes in Medicare participation and assignment 

rates during the transition period to the new PE RVUs. A participating physician is one who 

agrees to accept assignment on all of his or her Medicare physician claims for the coming year. 

Assignment refers to accepting the Medicare fee schedule amount as full charge for a service and 

thus billing beneficiaries only for applicable Medicare deductible and coinsurance amounts. 

Participating physicians receive program payments directly from Medicare, while nonparticipating physicians do not receive direct payment and are paid based on only 95 percent of 

the fee schedule amount.

 We examined a standard measure of physicians’ willingness to accept assignment— the

percent of allowed charges paid on assignment— by BETOS, specialty, and specialty/BETOS 

 

12 An extreme volume increase in seen in dermotologists’ provision of imaging services. Our data 

explorations suggest the presence of original claims coding errors regarding specialty group. Imaging is a negligible 

share of dermotologists’ 2002 payments (about one-third of one percent).
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 18 -

combination. We also examined the rate of assigned services and total RVUs. We found 

extremely little change in these measures during the transition to the new PE RVUs. Table 3 

shows that the percent of assigned charges rose from 98 percent in 1998 to 99 percent in 2002 

overall, and was generally as high or higher for most specialty/BETOS combinations. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 19 -

Service Volume RVU Volume

Total 4.2 4.7

Cardiology 5.9 8.2

Evaluation And Management 3.6 3.3

Imaging 11.2 15.7

Major Procedures 7.6 7.8

Other Procedures 4.2 3.8

Tests 4.2 7.4

Family/General Practice 2.6 4.2

Evaluation And Management 1.9 4.0

Imaging 1.9 7.4

Major Procedures 3.3 3.1

Other Procedures 7.4 5.3

Tests 6.6 5.3

Gastroenterology 2.6 5.1

Evaluation And Management 1.7 2.6

Imaging -2.6 1.5

Major Procedures -0.5 3.1

Other Procedures 5.3 7.4

Tests -3.1 0.7

Internal Medicine 3.6 4.2

Evaluation And Management 3.3 4.0

Imaging 3.3 8.8

Major Procedures -0.8 0.5

Other Procedures 7.8 4.7

Tests 0.2 1.7

Other Medical Specialties 2.4 3.1

Evaluation And Management 1.7 2.4

Imaging 2.9 5.9

Major Procedures 0.2 2.9

Other Procedures 3.3 3.1

Tests 5.5 9.4

General Surgery 1.5 1.0

Evaluation And Management 0.2 1.5

Imaging 9.7 11.2

Major Procedures 0.5 -0.5

Other Procedures 1.9 1.7

Tests 1.7 3.1

Dermatology 5.9 5.9

Evaluation And Management 3.1 3.3

Imaging 56.6 49.7

Major Procedures 6.4 5.3

Other Procedures 7.4 7.0

Tests 2.6 7.2

Table 2. Average Annual Change in Per Beneficiary Use of Services, by Specialty and 

Type of Service, 1998-2002

Average Annual Percent Change
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 20 -

Note: To hold RVU valuation constant (data column 2), we applied 2002 RVUs to the 1998 and 2002 data. Results are very similar using 

1998 RVUs. "Major Procedures" include Breast, Colectomy, Cholecystectomy, TURP, Hysterectomy, Cardiovascular, Orthopedic, 

Exploratory, and Other. "Other Procedures" include Eye Procedures; Ambulatory and Minor groupings of Skin, Musculoskeletal, Hernia 

Repair, Lithotripsy and Other Procedures; Oncology; Endoscopy; and Dialysis. Specialty "Other Surgical" includes Neurosurgery, 

Ophthalmology, Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive Surgery. Speciality "Other Medical" includes Neurology, 

Physical Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. “Other Professionals” include several 

non-physician services (eg, therapy services, physician assistant services); physician group practices and other organizations (e.g., labs, 

imaging centers); seven other (low Medicare prevalence) physician specialties (e.g., maxillofacial surgery); other/unknown care providers.

Source: Urban Institute analysis of 1998 and 2002 summaries of physician/supplier claims.

Service Volume RVU Volume

Ophthalmology 1.2 1.5

Evaluation And Management 1.2 1.7

Imaging 0.0 -1.3

Major Procedures -0.8 -1.0

Other Procedures 1.9 1.5

Tests -6.3 -5.7

Orthopedic Surgery 4.2 4.2

Evaluation And Management 2.4 2.9

Imaging 3.6 6.2

Major Procedures 3.1 3.8

Other Procedures 8.6 5.7

Tests -2.1 -2.9

Thoracic Surgery 0.0 0.2

Evaluation And Management 0.2 1.0

Imaging 5.3 6.4

Major Procedures -1.0 -0.3

Other Procedures 1.9 5.5

Tests -4.6 -3.4

Urology 0.7 2.2

Evaluation And Management 0.2 1.2

Imaging 0.5 0.5

Major Procedures 0.7 5.5

Other Procedures 1.5 2.2

Tests 32.0 1.2

Other Surgical Specialties 2.2 3.6

Evaluation And Management 0.7 1.0

Imaging 6.6 11.9

Major Procedures 6.2 5.5

Other Procedures 4.9 4.4

Tests 3.3 3.8

Radiology 3.6 6.4

Evaluation And Management 2.9 3.3

Imaging 3.3 6.2

Major Procedures 6.2 4.9

Other Procedures 7.0 7.8

Tests -0.3 2.9

Pathology 6.4 6.6

Evaluation And Management 4.4 5.1

Imaging -2.3 -3.4

Major Procedures 5.7 4.4

Other Procedures 7.2 6.4

Tests 12.6 14.9

Other Professionals 8.6 8.0

Evaluation And Management 5.1 5.3

Imaging 3.1 19.2

Major Procedures 9.4 5.1

Other Procedures 16.8 10.5

Tests 7.6 11.4

Table 2 (con't). Average Annual Change in Per Beneficiary Use of Services, by 

Specialty and Type of Service, 1998-2002

Average Annual Percent Change
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 21 -

1998 2002

Total 0.98 0.99

Cardiology 0.99 0.99

Evaluation And Management 0.98 0.99

Imaging 0.99 1.00

Major Procedures 0.99 1.00

Other Procedures 0.98 0.99

Tests 0.99 0.99

Family/General Practice 0.97 0.98

Evaluation And Management 0.97 0.98

Imaging 0.98 0.99

Major Procedures 0.99 1.00

Other Procedures 0.96 0.98

Tests 0.95 0.99

Gastroenterology 0.99 0.99

Evaluation And Management 0.98 0.99

Imaging 0.97 0.98

Major Procedures 0.98 0.99

Other Procedures 0.99 0.99

Tests 0.95 0.95

Internal Medicine 0.97 0.98

Evaluation And Management 0.96 0.98

Imaging 0.97 0.99

Major Procedures 1.00 1.00

Other Procedures 0.98 0.99

Tests 0.96 0.97

Other Medical Specialties 0.98 0.99

Evaluation And Management 0.98 0.98

Imaging 0.99 1.00

Major Procedures 0.99 1.00

Other Procedures 1.00 1.00

Tests 0.98 0.99

General Surgery 0.99 0.99

Evaluation And Management 0.99 0.99

Imaging 0.99 1.00

Major Procedures 0.99 1.00

Other Procedures 0.99 0.99

Tests 0.99 1.00

Dermatology 0.96 0.98

Evaluation And Management 0.95 0.97

Imaging 0.97 0.99

Major Procedures 0.98 0.99

Other Procedures 0.96 0.98

Tests 0.92 0.93

Ophthalmology 0.98 0.99

Evaluation And Management 0.97 0.98

Imaging 0.98 0.99

Major Procedures 0.99 0.99

Other Procedures 0.99 0.99

Tests 0.98 0.99

Orthopedic Surgery 0.99 0.99

Evaluation And Management 0.99 0.99

Imaging 0.99 0.99

Major Procedures 0.99 0.99

Other Procedures 0.99 0.99

Tests 0.99 1.00

Table 3. Percent of Allowed Charges Paid on Assignment, by Specialty and Type of Service, 1998 and 2002

Percent in:
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 22 -

1998 2002

Thoracic Surgery 0.99 0.99

Evaluation And Management 0.99 0.99

Imaging 1.00 1.00

Major Procedures 0.99 0.99

Other Procedures 0.99 0.99

Tests 0.99 0.99

Urology 0.98 0.99

Evaluation And Management 0.98 0.99

Imaging 0.99 0.99

Major Procedures 0.98 0.99

Other Procedures 0.98 0.99

Tests 0.99 1.00

Other Surgical Specialties 0.97 0.98

Evaluation And Management 0.97 0.98

Imaging 0.97 0.98

Major Procedures 0.98 0.99

Other Procedures 0.98 0.99

Tests 0.97 0.99

Radiology 0.99 0.99

Evaluation And Management 0.99 0.99

Imaging 0.99 0.99

Major Procedures 1.00 1.00

Other Procedures 0.99 0.99

Tests 0.99 1.00

Pathology 0.99 0.99

Evaluation And Management 0.99 0.99

Imaging 0.95 1.00

Major Procedures 0.96 1.00

Other Procedures 0.99 0.99

Tests 0.99 1.00

Other Professionals 0.97 0.98

Evaluation And Management 0.99 0.99

Imaging 0.99 1.00

Major Procedures 1.00 0.99

Other Procedures 0.98 0.99

Tests 0.99 1.00

Source: Urban Institute analysis of 1998 and 2002 physician/supplier procedure summary files. 

Table 3 (con't.) Percent of Allowed Charges Paid on Assignment, by Specialty and Type of Service, 1998 

and 2002

Notes: To hold charges constant in calculating assignment rates, we applied 2002 charge rates. Results were 

similar using 1998 charge rates. "Major Procedures" include Breast, Colectomy, Cholecystectomy, TURP, 

Hysterectomy, Cardiovascular, Orthopedic, Exploratory, and Other Major Procedures. "Other Procedures" include 

Eye Procedures; Ambulatory and Minor groupings of Skin, Musculoskeletal, Hernia Repair, Lithotripsy and Other 

Procedures; Oncology; Endoscopy; and Dialysis. Physician specialty "Other Medical" includes Neurology, 

Physical Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. "Other 

Surgical" includes Neurosurgery, Ophthalmology, Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive 

Surgery. “Other Professionals” include several non-physician services (eg, therapy services, physician assistant 

services); physician group practices and other organizations (e.g., labs, imaging centers); seven other (low 

Medicare prevalence) physician specialties (e.g., maxillofacial surgery); other/unknown care providers.

Percent in:
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 23 -

The largest drop in assignment— from 97 percent in 1998 to 89 percent in 2002— occurred 

among Tests furnished by family practitioners and general practitioners. These services account 

for only 2.4 percent of this group’s payments, and include tests not paid under the Medicare fee 

schedule. Rates of assigned services and total RVUs are virtually identical to the assigned 

charge results (not shown).

Summary

Payments to physicians comprise about 30 percent of all Medicare payments, and 

practice expenses are 42 percent on average of physician payments under the Medicare physician 

fee schedule. In 1994, Congress required that a resource-based system be developed for PE 

payments to replace the prior payment system based on physicians’ charges. The new PE system 

was phased in between 1999 and 2002. 

This study analyzed the impact of the new payment policy on PE relative value units 

(RVUs) and total Medicare payments per service, by physician specialty, type of service 

(BETOS group), and specialty/BETOS combination between 1998 and 2002. It also identified 

changes in beneficiary utilization rates and physician assignment rates during the period.

As expected, the resource-based PE system resulted in some redistribution of payments 

across types of service and specialties. In terms of service types, the largest change occurred for 

E&M Services and Major Procedures. Total payments per service among E&M services 

increased an average of 2.4 percent per year due to the new PE RVUs, and fell 3.1 percent per 

service among Major Procedures. Total payments per service increased as a result of the new PE 

RVUs for ten of 15 specialty groups analyzed. Dermatologists and urologists experienced the 

largest average annual gains, with total Medicare payments per service increasing 6.4 percent 

and 4.4 percent, respectively. Thoracic surgeons and gastroenterologists experienced the largest 

average annual losses due to the new PE RVUs, with Medicare payments per service falling 4.3 

percent and 3.7 percent, respectively. Our findings of actual change over the period are fairly 

consistent with the program’s initial predictions of impacts by specialty (HCFA 1998b). 

Total RVU volume per beneficiary grew over the period across all BETOS groups, with 

increases ranging from 3.1 percent (Major Procedures) to 7.2 percent (Tests). Total volume also 

grew across all specialties, although the range of increase was much greater, from a low 0.2 

percent annually for thoracic surgeon services to 8.2 percent annually for cardiology services. 

The assignment rate rose from 98 percent to 99 percent over the period, and was uniformly high 

for most specialty/BETOS combinations.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 24 -

Acknowledgements

We gratefully acknowledge Sherry Smith and Todd Klemp, American Medical 

Association, for their assistance in providing annual RVU files, and Mark Miller, Kevin Hayes, 

Nancy Ray, and Cristina Boccuti, MedPAC, for their comments on earlier drafts of this report. 
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 25 -

References

Abt Associates, Inc. Briefing Paper: Summary of Technical Approach. HCFA Contract No. 

500-95-0009. May 24, 1995.

Becker E, Dunn D, and Hsaio W. “Relative Cost Differences Among Physicians’ Specialty 

Practices,” JAMA 260(16):2397-2402, October 28, 1988. 

Board of Trustees. Annual Report of the Boards of Trustees of the Hospital Insurance and 

Supplementary Medical Insurance Trust Funds, March 23, 2004, Table III-B-1. available at: 

http://www.cms.hhs.gov/publications/trusteesreport/2003/tabiiib1.asp

Fisher I. The Making of Index Numbers. Boston: Houghton Mifflin, 1922. 

Gordon RJ. Macroeconomics. 7th ed. New York: Addison Wesley, 1998.

HCFA (1997a). “Medicare: Physician Fee Schedule for Calendar Year 1998; Payment Policies 

and Relative Value Unit Adjustments and Clinical Psychologist Fee Schedule; Final Rule.” 

Federal Register 62(211):59047+, October 31, 1997.

HCFA (1997b). “Medicare Program; Revisions to Payment Policies Under the Physician Fee 

Schedule, Other Part B Payment Policies, and Establishment of the Clinical Psychologist Fee 

Schedule for Calendar Year 1998; Proposed Rule.” Federal Register 62(117): 33158-33305, 

June 18, 1997. 

HCFA (1998a). “Medicare Program; Revisions to Payment Policies Under the Physician Fee 

Schedule for Calendar Year 1999; Proposed Rule.” Federal Register 63(108):30817:31012, 

Friday, June 5, 1998. 

HCFA (1998b). “Medicare Program; Revisions to Payment Policies and Adjustments to the 

Relative Value Units Under the Physician Fee Schedule for Calendar Year 1999; Final Rule and 

Notice.” Federal Register 63(211):58813-59187, Monday, November 2, 1998. 

CMS (2004). Health Care Financing Review Medicare and Medicaid Statistical Supplement, 

2002, Table 55, available at http://www.cms.hhs.gov/review/supp/2002/table55.pdf

MedPAC. Report to the Congress: Medicare Payment Policy. Washington, DC: MedPAC, 

March 2003, pg. 75.

PPRC. 1996 Annual Report to Congress. Washington, DC: PPRC, 1996, Chapter 9. 

PPRC. 1997 Annual Report to Congress. Washington, DC: PPRC, 1997, Chapter 13. 

U.S. House of Representatives, Committee on Ways and Means. 1994 Green Book: Overview 

of Entitlement Programs: Background Material and Data on Programs within the Jurisdiction 

of the Committee on Ways and Means. Washington, DC: Government Printing Office, July 15, 

1994, Appendix E. Available at: http://aspe.hhs.gov/94gb/
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Zuckerman S, Holahan J, Popkin J, et al. “Measuring prices of Medicare physician services. 

Medical Care 31(8):694-710, August 1993.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 27 -

Type Of Service 

PE RVUs (1998 

Service Mix)

PE RVUs (2002 

Service Mix)

Payment Rate (1998 

Service Mix)

Payment Rate (2002 

Service Mix)

Impact of PE RVUs 

on Total Payments 

(1998 Service Mix)

Impact of PE RVUs 

on Total Payments 

(2002 Service Mix)

Total 1.7 1.9 1.9 1.9 0.7 0.7

Office Visits 13.0 13.0 7.8 7.8 5.3 5.3

Hospital Visits -4.3 -3.7 0.2 0.2 -1.3 -1.0

Emergency Room Visits -10.2 -9.9 -0.5 -0.3 -2.6 -2.3

Home Visits 10.3 12.1 3.8 4.4 3.1 3.6

Nursing Home Visits -4.3 -3.7 1.9 1.9 -1.3 -1.0

Specialist Visits 12.6 13.3 6.8 7.2 4.9 5.3

Consultations 1.0 1.7 1.9 2.2 0.2 0.5

Major Procedures (Other Than Cardiovascular 

And Orthopedic) -4.8 -3.1 -1.0 -0.3 -1.8 -1.3

Major Procedures Cardiovascular -13.1 -12.7 -4.8 -4.6 -5.4 -5.1

Major Procedures Orthopedic -2.9 -3.1 -1.5 -1.8 -1.3 -1.3

Eye Procedures -4.8 -4.6 -2.3 -2.3 -2.3 -2.3

Ambulatory Procedures 8.2 8.4 4.4 4.7 3.8 3.8

Minor Procedures 12.6 12.8 7.6 7.8 5.5 5.5

Oncology -0.3 -0.3 -0.3 -0.3 -0.3 -0.3

Endoscopy -7.9 -8.9 -3.4 -4.0 -3.4 -4.0

Dialysis Services 3.1 3.1 2.6 2.6 1.2 1.2

Standard Imaging -1.0 -0.8 0.5 0.2 -0.5 -0.5

Advanced Imaging -1.0 -1.0 -0.5 -0.8 -0.8 -0.8

Echography -3.7 -3.7 -2.1 -2.1 -2.3 -2.3

Imaging/Procedures -9.9 -8.9 -3.1 -3.1 -3.7 -3.4

Lab Tests 16.5 16.6 9.2 9.4 6.8 7.0

Other Tests -4.3 -3.4 -2.3 -1.5 -2.9 -2.1

Appendix A. Impact of Controlling for Service Mix with 1998 versus 2002 Data in Calculating Price Index Variables, by Type of Service, 

1998-2002 

Note: "Other tests" include Electrocardiograms, Cardiovascular Stress Tests, EKG Monitoring, and Other.

Source: Urban Institute analysis of 1998 and 2002 summaries of physician/supplier claims.
The Urban Institute / Effect of Implementation of Resource-Based PE RVUs - 28 -

Type of Service or Specialty 

2002 Payment 

Distribution 

(Percent) PE RVUs 

Work and PLI 

RVUs Total RVUs Payment Rate

Impact of PE RVUs 

on Total Payments 

Total 100.0 1.9 -0.3 0.7 1.9 0.7

Evaluation And Management 52.0 6.8 0.0 2.4 4.2 2.4

Imaging 14.2 -2.1 -1.3 -1.8 -1.0 -1.3

Major Procedures 9.7 -7.3 0.0 -3.1 -2.6 -3.1

Other Procedures 20.3 2.2 -0.5 0.7 1.9 1.0

Tests 3.8 -1.8 -0.8 -1.5 -0.3 -1.3

Cardiology 10.3 -3.7 -0.8 -2.3 -1.0 -1.8

Family/General Practice 10.6 4.2 0.2 1.7 3.6 1.5

Gastroenterology 2.9 -8.9 -0.3 -4.0 -2.9 -3.7

Internal Medicine 17.1 3.6 0.0 1.5 3.1 1.5

Other Medical Specialties 9.3 1.9 -0.3 0.5 1.9 0.7

General Surgery 4.3 -2.1 0.7 -0.5 0.5 -0.8

Dermatology 3.2 13.8 -0.3 6.4 8.2 6.4

Ophthalmology 7.6 5.7 -0.8 2.4 4.0 2.6

Orthopedic Surgery 4.8 2.6 -0.5 0.7 1.5 1.2

Thoracic Surgery 1.4 -10.6 0.5 -4.0 -3.4 -4.3

Urology 2.7 10.1 -0.3 4.4 6.2 4.4

Other Surgical Specialties 3.5 3.6 -0.3 1.5 2.6 1.7

Radiology 8.5 -2.3 -0.5 -1.5 -0.3 -1.0

Pathology 1.4 2.6 -0.3 0.7 1.9 1.0

Other Professionals 12.5 4.9 0.0 2.2 3.1 2.2

Source: Urban Institute analysis of 1998 and 2002 summaries of physician/supplier claims.

Appendix B. Average Annual Change in Price Index Variables, by Type of Service and by Specialty, 1998-2002 

Average Annual Percent Change

Note: To hold service mix constant, we applied 1998 and 2002 payments and RVUs to the 2002 service mix. Results 

are very similar using the 1998 service mix (Appendix A). "Major Procedures" include Breast, Colectomy, 

Cholecystectomy, TURP, Hysterectomy, Cardiovascular, Orthopedic, Exploratory, and Other. "Other Procedures" 

include Eye Procedures; Ambulatory and Minor groupings of Skin, Musculoskeletal, Hernia Repair, Lithotripsy and Other 

Procedures; Oncology; Endoscopy; and Dialysis. Specialty "Other Surgical" includes Neurosurgery, Ophthalmology, 

Obstetrics/Gynecology, Otolaryngology, Plastic/Reconstructive Surgery. Speciality "Other Medical" includes Neurology, 

Physical Medicine/Rehabilitation, Psychiatry, Pulmonary Disease, Nephrology, Allergy/Immunology. “Other 

Professionals” include several non-physician services (eg, therapy services, physician assistant services); physician 

group practices and other organizations (e.g., labs, imaging centers); seven other (low Medicare prevalence) physician 

specialties (e.g., maxillofacial surgery); other/unknown care providers.