CMS Pub. 100-04, ch. 23, § 80.5.1

Reasonable Charge Gap-Filling

(Rev. 1, 10-01-03)

B3-5022.1

The relative value scales used to fill gaps in charge data for the Medicare program should,

to the extent possible, be those that contractors use in their own programs. Relative value

scales developed by contractors or by medical societies for States other than those in which

your Medicare service area is located should be carefully reviewed and validated before

they are used. Ensure that a relative value scale, which is used to estimate customary

charges or prevailing charges, accurately reflects charge patterns in the area you service.

Similarly, the conversion factor used with the relative value scale should reflect the known

customary charges of the physician or other person for whom a customary charge is being

estimated, or the known prevailing charges for services in the locality, as appropriate.

As a result of consent agreements with the Federal Trade Commission (FTC), relative

value scales formerly published by the American Academy of Orthopedic Surgeons, the

American College of Obstetricians and Gynecologists, the American College of Radiology,

and the California Medical Association have been withdrawn from circulation. The FTC

consent agreements did not bar the use of the related procedural terminology and coding

systems. However, do not use these four relative value scales to fill gaps in customary and

prevailing charge data.

This does not mean that you must discontinue using relative value scales to fill gaps in

customary charges or in determining prevailing charges. Instead use a system of relative

value units that has not been the subject of a consent agreement, or develop your own

system. A potential source of information in this regard is the relative value scale that has

been included with the CMS HCPCS. This relative value scale is included with HCPCS as

an informational item only. You may use it, revise it, or use some other relative value scale

if you deem it more appropriate.

You may, if necessary develop a relative value scale for gap-filling purposes by dividing

the unadjusted prevailing charges in a locality by a common denominator and filling the

gaps in the resulting “relative value scale” by relying on medical staff judgment or on other

persons with knowledge of the charging patterns and practices in your service area.

Alternatively, you may use a service area wide approach and/or the unweighted average of

the customary charges that have been made for a service, divided by a common

denominator.

For radiology codes (codes beginning with 7, local radiology codes, and R-codes in

HCPCS), you may use the national and local relative values used to make payment under

the radiology fee schedule.

Customary and/or prevailing charge conversion factors used with relative value scales to

fill gaps in reasonable charge screens should be calculated as outlined in A and B below.

(Develop separate customary charge conversion factors for each physician or supplier from

his known customary charges in the same category of services, e.g., medicine, surgery,

radiology, etc. Similarly, separate prevailing charge conversion factors, by locality (and by

specialty or groups of specialties as applicable), should be calculated based on the known

prevailing charges, by locality and specialty, or groups of specialties within the same

category of service. Customary charge conversion factors may only be calculated for a

physician for a category of service if the physician has at least seven customary charges for

services in that category of service upon which to base the conversion factor calculation. If

a physician does not have sufficient customary charges to calculate a conversion factor in

one category of service, this does not preclude the calculation of his customary charge

conversion factors for other categories of service for which he does have sufficient

customary charges).

A. Customary Charge

Use the following formula for the calculation of a customary charge conversion factor:

C/F = Customary charge conversion factor

CHG = The physician’s customary charge for a procedure

SVC = Number of times the physician performed the procedure

l-n = The different procedures the physician performed within a category of service

RVU = The relative value unit assigned to a procedure

SIGMA = Sum of

C/F = CHG1

RVUl x SVCl + CHG2

RVU2 x SVC2 .CHGn

RVUn x SVCn

_________________________________________________

SIGMA SVC1-n

EXAMPLE: Compute a customary charge conversion factor for a physician with the

following charge history: (May be for medicine, surgery, radiology, pathology.)

Procedure Frequency Customary Charge Relative Value

1 $ 3 5.00 1

2 7 12.00 2

3 5 35.00 4

4 4 20.00 3

5 6 8.00 1.5

25

Method

l. For each procedure, divide the customary charge by the relative value and multiply the

result by the frequency of that procedure in the physician’s charge history.

2. Add all the results of these computations.

3. Divide the result by the sum of all the frequencies.

Solution

(5x3)

1 + (12x7)

2 + (35x5)

4 + (20x4)

3 + (8x6

1.5 divided by 25=

(5 x 3) + (6 x 7) + (8.75 x 5) + (6.67 x 4) + (5.33 x 6) = 25

15 + 42 + 43.75 + 26.68 + 3l.98 = 25

159.41 = $6.40 (i.e., $6.38 rounded to the 25 nearest 10 cents)

To determine a physician’s customary charge for a particular procedure where there is no

reliable statistical basis, multiply the relative value of the procedure by the physician’s

customary charge conversion factor for the appropriate category of service (e.g., radiology,

medicine, surgery).

B. Prevailing Charges

The prevailing charge conversion factors used with the appropriate relative value scale are

developed from the same formula used for customary charge conversion factors, except

that:

CHG = The fully adjusted locality prevailing charge for a procedure by locality and

by specialty or group of specialties (regardless of the source of data from which the

locality prevailing charge was developed).

SVC = The number of times the procedure was performed by all physicians in the

same specialty or group of specialties and locality.

l-n = The different procedures within a category of service for which prevailing

charges have been established by specialty or group of specialties and locality.

The conversion factors calculated for any fee screen year reflect customary and prevailing

charges calculated on the basis of charge data for the year ending June 30 immediately

preceding the start of the fee screen year. Also, reasonable charge screens established

through the use of a relative value scale and conversion factors consist of two components.

Consequently, the conversion factors must be recalculated when there is any change in the

relative value units assigned to procedures (as may occur if you use a different or updated

relative value scale) in order to assure that the change(s) in unit values do not violate the

integrity of the reasonable charge screens. The economic index limitation, the no rollback

provision, and the Administrative Savings Clause are not applied directly to prevailing

charge conversion factors calculated in accordance with this section.

80.6 - Inflation Indexed Charge (IIC) for Nonphysician Services

(Rev. 2837, Issued: 12-13-13, Effective: 01-01-14 - payment reasonable charge basis/04-01-14 - payment national fee schedule basis, Implementation: 01-06-14 - payment reasonable charge basis/04-07-14 - payment national fee schedule basis)

A General

Effective for services rendered on or after October 1, 1985, an additional factor - the

inflation indexed charge (IIC), is added to the factors taken into consideration in

determining reasonable charges for non-physician services. Non-physician services are

defined as those Part B medical services, supplies, and equipment reimbursed on a

reasonable charge basis and not subject to the application of the Medicare Economic Index

(MEI).

Examples of items affected by the IIC are:

• Prosthetic and orthotic devices not subject to the fee schedules [Therapeutic Shoes

(2005 and prior), Intraocular Lenses (2014 and prior)];

• Blood products and transfusion medicine;

• Certain medical supplies used in connection with home dialysis (2011 and prior);

and

• Ambulance services (2001 and prior)