President Lyndon Johnson signed the legislation creating the Medicare program into law in 1965. In its initial form, the Medicare program included two distinct areas of responsibility: Payment for inpatient hospital care and certain long-term nursing services through Part A, and payment for physician and outpatient services through Part B. The law stipulates separate funding and eligibility requirements for Part A and Part B. Those who individually or through their spouse have contributed more than 40 quarters to FICA (Social Security and Medicare tax) do not pay separately for Part A coverage. Part B, on the other hand, is an optional benefit that requires payment of a monthly premium. In addition to Part A and Part B, Congress more recently created Part C to encompass Medicare managed care (“Medicare Advantage”) plans and Part D to provide prescription drug insurance coverage.

From the inception of the Medicare program in 1965 until the early 1990s, the government paid physicians for services to Medicare beneficiaries based on “usual and customary” charges. Then, beginning in the mid-1970s, physician charges began increasing faster than anticipated, leading to the first of many steps to control growth in the program. In 1975 Congress limited increases in physician charges to growth in the Medicare Economic Index (MEI), a calculated value, similar to the Consumer Price Index, that measures growth in the operating expenses facing physicians. The index also includes an offsetting adjustment for economy-wide productivity growth. During the period from 1984 to 1991, Congress determined the maximum allowable growth in charges annually.

During the 1980s, rapid growth in the cost of medical services led to a review of the Medicare payment system. What was abundantly clear to
health care policy analysts at the time was that market forces and the use of historical prices had proven ineffective in producing a rational pricing system for physician services. These analysts noted wide geographic variability in the charges for the same services and seemingly no discernible relationship among the time, effort, risk, and incurred costs in providing care and the charges requested for that care.

Several other factors contributed to the sense of urgency that something needed to be done. With improved access to health care for the elderly along with the development of expensive new drugs and technologies, our seniors were beginning to live longer and use more resources than government actuaries had originally estimated. It was also becoming abundantly clear that the “baby boomer” demographic tidal wave was going to create substantial stress on the system. Then, as now, policy pundits, supported by the selfinterest of certain segments of the medical community, beat the drum about inadequate payments for primary care as well as the perverse incentives in the payment system that promoted intervention rather than prevention.

During the 1980s, a team of Harvard researchers led by William C. Hsiao analyzed the components of physician work, making realistic comparisons across all physician services possible for the first time. Hsaio defined physician work as being dependent on the time involved, the mental effort and judgment expended, the physical effort and technical skill required, and the psychologic stress that occurs when an adverse outcome has serious consequences. Through physician surveys, Hsaio determined relative work values and times for a broad array of physician services. Once these key services had values, the researchers then used a number of techniques to assign values to the remaining services, thus creating a comprehensive relative value scale for physician services. In 1988 Hsaio submitted this work to the Health Care Financing Administration (renamed in the early 2000s the Centers for Medicare and Medicaid Services [CMS]). Then, in 1989, Congress passed the Omnibus Reconciliation Act (OBRA89), mandating the transition of Medicare physician payments from the previous charge-based system to Hsaio’s resource-based relative value system (RBRVS). The provisions of this law took effect in January 1992, and the RBRVS was born. Along with instituting the RBRVS, OBRA89 also provided for a system to control the growth in Medicare spending, known as Medicare Volume Performance Standards, and limited the ability of a participating physician to bill the patient for the difference between Medicare’s payment and the normal physician charge.

Medicare assigns each RBRVS service separate relative value units (RVU) for work, practice expense, and professional liability insurance. The Center
for Medicare and Medicaid Services (CMS) updates these values annually. Each geographic region has a geographic adjustment factor to correct for variations in local costs from the national average. The sum of the geographically adjusted RVUs, multiplied by the national RBRVS conversion factor, produces the allowed Medicare payment. Medicare beneficiaries are also responsible for a defined percentage of the charge as well as an annual deductible amount that the beneficiary must satisfy before Medicare begins paying. Hsaio’s work at Harvard established the spectrum for work RVUs. Initially, Medicare determined practice expense and professional liability RVUs based on historical charges. Later on, both these parts of the RBRVS triad became resource-based.

The RBRVS system classifies procedures into a number of “global periods.” Within the global period, the Medicare payment for the service reflects all usual services related to the procedure. The global period begins either the day before the procedure for major procedures or the day of the procedure for minor procedures. The global period continues from the day of the procedure and ends after the number of days assigned.

Major procedures have a global period of 90 days (090 global period). Minor procedures have a global period of either 0 (000 global period) or 10 (010 global period) days. For some procedures, the global period does not apply; thus the payment covers only the procedure itself, and the physician can report and have Medicare pay for other services without reduction in payment for multiple procedures or the need to report modifiers to justify these other services. These services have a global period of XXX assigned. For some services, Medicare has determined that they are always reported with another service, and associated services are included in the global payment for the other service. These “add-on” codes have a ZZZ global period. Finally, for a number of services, Medicare does not assign a global period, delegating this responsibility to the regional Medicare carriers. These services have a global period of YYY, and are typically unlisted surgical procedures. Table 210.1 lists some examples of procedures known to anesthesiologists and the Medicare-assigned global period.