1. Avalere Health LLC | The intersection of business strategy and public policy
The Need for Dedicated
Evaluation and Management
Codes
Prepared for AAFP
May 2013

2. © Avalere Health LLC
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Overview of Avalere Approach
 Propose and validate the hypothesis that a visit to primary care
physicians (PCPs) as described currently by an evaluation and
management (E/M) codes are more complex a deserve differential
payment from E/M codes billed by specialists
» Use of the same E/M code for both PCPs and specialists
shortchanges PCPs in economic terms because a single set of
relative value units (RVUs) and payment level are assigned to it
» This issue is of particular importance for PCPs given their relatively
greater use of the E/M codes than specialists to describe and bill for
their work
Avalere assessed current research on complexity of physician services to
serve as the foundation of our analysis.

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Resource Based Relative Value Scale (RBRVS) Is the
Foundation for Physician Payment
MPFS Payment Is Based on Three Factors:
Work RVU MP RVUPE RVU
RVU=Relative Value Unit
 Prior to 1992, physician payment in the U.S. was based upon the
concept of usual and customary reimbursement
 In 1992, Medicare implemented the Medicare Physician Fee Schedule
(MPFS) based on the RBRVS system to pay for physician and other
healthcare provider services and procedures
» Original payment system was developed by the Harvard School of
Public Health
 Time
 Intensity
» Technical skill & physical
effort
» Mental effort & judgment
» Stress due to potential
patient risk
 Direct Inputs (non-physician)
» Clinical labor
» Medical supplies
» Medical equipment
 Indirect Inputs
» Overhead expenses
 Defined from professional
liability insurance premium
data and allocated based
upon a risk-of-service
methodology

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Physician Work: Three Phases
 Work RVUs are calculated using three phases of physician work:
 Intra-service work is calculated using a magnitude estimation that ranks work in
relation to a reference code using a ratio scale
» Intensity of work per unit of time (IWPUT) is a measurement used to compare
intra-service time and an estimated Work RVU to similar reference codes
Pre
Preparing to see the patient, reviewing records, and communicating
with other healthcare professionals (all physician time prior to patient
encounter)
Intra
Work provided while the physician is with the patient and/or family, or
“face-to-face” time
Post
Arranging for further services, reviewing study results, and
communicating with the patient, their family, or other healthcare
professionals

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All Physicians Use The Same E/M Codes Report Patient Visits
 E/M codes are divided into broad categories based on place or type of service
» E/M codes are further divided into two or more subcategories based on
patient status (e.g., new patient or established patient)
» The subcategories are then separated based on level or complexity of
service (Level 1 represents the least complex encounter; Level 5 represents
the most complex encounter)
 Seven elements may be used to determine level of E/M service; however, only
key components are necessary for identifying the level E/M
Key Components Contributory Factors
 History
 Examination
 Medical decision making
 Counseling
 Coordination of care
 Nature of presenting problem
 Time*
*Time may only be used to determine level of E/M service when more than 50 percent of a E/M encounter is
spent counseling and/or coordinating care
Office-based E/M services represent 55% of total RVU-based Medicare payments
to family physicians, but only 17% of Medicare payments to specialists.

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All Physicians Use Same Key Criteria to Determine Level of
Visit
History Exam Medical Decision Making
History should include
reviews of:
 Chief complaint
 History of present illness
 Review of systems
 Past family, medical,
and social history
The extent of the history is
dependent upon clinical
judgment and nature of
presenting problem
Four levels of
examination are detailed
by CPT, these include:
 Problem focused
 Expanded problem
focused
 Detailed
 Comprehensive
The extent of the exam is
dependent upon clinical
judgment and nature of
presenting problem
Medical decision making is
based on:
 Number of diagnoses or
treatment options
 Complexity of data to be
reviewed
 Risk of complications
and/or morbidity or
mortality
Four levels of complexity are
outlined by CPT:
 Straightforward
 Low complexity
 Moderate complexity
 High complexity
*For new patient visits, providers must complete all three key components. However, during established
patient visits, providers need only complete two of the three key components, typically medical decision making
and exam.

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Problems with RBRVS and E/M Systems
 New codes and mix of services are incorporated less into RVU changes
for primary care physicians than for physicians in aggregate
Growing intensity of physician care seen in increasing RVUs
 Same number of RVUs are assigned to a single E/M visit, regardless of
the specialist rendering the service
The current system also does not account for the variation in
intensity when E/M services are rendered by different specialists
The limitations of both E/M and RBRVS systems yield an inherent
disadvantage to PCPs relative to specialists

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Numerous Frameworks and Studies Have Been Developed to
Measure Physician Work Complexity
Source: Safford M, Allison J, Kiefe C. Patient Complexity: More Than Comorbidity. The Vector Model of
Complexity. J Gen Intern Med. 2007 December; 22(Suppl 3): 382–390.
Boisot M, Child J. Organizations as Adaptive Systems in Complex Environments. Organ Sci. 1999;10(3):237-
252.
Non-Clinical Factors
Building on Systems Theory to Measure
Medical Care Complexity
 Some models have sought to look more
explicitly at the following factors as
contributors to complexity of medical
care
» Socioeconomic,
» Cultural,
» Environmental, and
» Behavioral
 The “Vector Model” of complexity
conceptualizes these and other factors
as having formal relationships that exert
influence on health that can lead to a
complex patient
 Complexity may include both:
» Cognitive complexity: quantity and content
of information flows
» Relational complexity: interactions by which
the information flows between agents
 The following are needed to translate this to the
medical setting of E/M services as a gauge of
complexity:
» A count of how many elements in the
universe of care are used to evaluate and
manage a patient,
» The variability that is seen in the
arrangement of the elements, and
» The diversity of the relationships among
elements

9. Katerndahl
Complexity/Density Model
The intersection of business
strategy and public policy

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Katerndahl Complexity/Density Model Demonstrates a Method
for Calculating the Relative Complexity of Patient Encounters
 The model’s five step approach:
Katerndahl D, Wood R, Jaen C, Family medicine outpatient encounters are more complex than those of cardiology
and psychiatry, JABFM, January-February 2011, Vol 24. No. 1, 6-15.

11. © Avalere Health LLC
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The Basis of the Katerndahl Complexity/Density Model Is
Specific Inputs and Outputs
 The method uses count, variability across encounters, and the proportion of all
possible combinations these inputs and outputs comprise to measure
“complexity”; density is computed when complexity is measured per time unit
Components Groups Individual Components of Encounter Possible Categories (n)
Inputs Reasons for visit 355
Diagnosis 491
Body systems examined/tests ordered 96
Patient characteristics (sex, race,
ethnicity)
16
Total Inputs
Outputs Medications 113
Procedures 37
Other therapies 46
Patient Disposition 5
Total Outputs
Total Encounter Total Inputs + Total Outputs
Katerndahl D, Wood R, Jaen C, Family medicine outpatient encounters are more complex than those of cardiology
and psychiatry, JABFM, January-February 2011, Vol 24. No. 1, 6-15.

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Results of the Katerndahl Model
 Few differences exist in the unadjusted input and total encounter complexity of
family medicine and cardiology; psychiatry index is less
» Cardiology encounters involved more input quantitatively but the diversity of
family medicine input eliminated the difference
 Difference do exist when time is a factor
» Family medicine has a greater complexity/density per hour, than both
cardiologist and psychiatrist
» Family physicians averaged 16 minutes per encounter less to care for 34
patients
Katerndahl D, Wood R, Jaen C, Family medicine outpatient encounters are more complex than those of cardiology
and psychiatry, JABFM, January-February 2011, Vol 24. No. 1, 6-15.

13. © Avalere Health LLC
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The Katerndahl Model Has Three Key Limitations
Katerndahl et al only analyzed
three specialties:
» family medicine,
» cardiology, and
» psychiatry
Unknown what results would be for other
specialties
Limited fields in the National
Ambulatory Medical Care Survey
(NMCS) source data base also
bound the authors’ work
Lack of availability of data with more input and
output fields reduces the relative difference in
the complexity/density of PCP versus
specialty care
The Katerndahl model reports
indices of relativity – not “real”
numbers
Additional work is needed to translate the
indices into a new E/M coding and payment
system that captures the relative
complexity/density

14. © Avalere Health LLC
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Key Recommendations
CMS should further the work begun by Katerndahl et al to validate
the authors’ findings across different sub-specialties
CMS should create interim E/M codes unique to PCPs in order to
support family physicians rendering the majority of primary care
services
Interim codes will provide immediate relief to these providers while CMS
conducts additional research regarding intensity and complexity, as well
as, awaiting results from various payment and delivery demonstrations