rcm glossary

Practice expense (PE) element

Practice expense (PE) element is the portion of healthcare service cost that encompasses non-physician clinical staff, medical supplies, equipment, and other overhead expenses.

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What is Practice Expense (PE) Element?

The Practice Expense (PE) element is a crucial component of the Medicare Physician Fee Schedule (MPFS) used to determine the reimbursement rates for healthcare services provided by physicians and other healthcare professionals. It represents the costs associated with running a medical practice, including overhead expenses, staff salaries, equipment, supplies, and other non-physician expenses.

The PE element is one of the three key components used in calculating the Medicare payment for a specific service, along with the Work Relative Value Unit (RVU) and the Malpractice RVU. These three components are multiplied by a conversion factor to determine the final reimbursement amount.

The PE element is further divided into direct and indirect practice expenses. Direct expenses are those that can be directly attributed to a specific service, such as medical supplies or equipment used during a procedure. Indirect expenses, on the other hand, are costs that are not directly tied to a specific service but are necessary for the overall operation of the practice, such as rent, utilities, and administrative staff salaries.

Difference between Practice Expense (PE) Element and Work RVU

While the Practice Expense (PE) element and the Work RVU are both components of the Medicare Physician Fee Schedule, they represent different aspects of the reimbursement calculation.

The Work RVU measures the relative time, effort, and skill required to perform a specific service compared to other services. It takes into account factors such as the complexity of the procedure, the intensity of the physician's work, and the level of training and expertise required. The Work RVU is primarily focused on the physician's professional work and does not directly consider the practice expenses associated with providing the service.

On the other hand, the Practice Expense (PE) element specifically accounts for the costs incurred by the practice in delivering healthcare services. It includes both direct expenses, such as medical supplies and equipment, as well as indirect expenses like rent, utilities, and administrative staff salaries. The PE element provides a more comprehensive view of the overall costs associated with running a medical practice.

Examples of Practice Expense (PE) Element

To better understand the concept of the Practice Expense (PE) element, let's consider a few examples:

1. Direct Practice Expense:

Suppose a physician performs a minor surgical procedure in their office. The direct practice expenses associated with this service may include the cost of disposable surgical instruments, local anesthesia, sterile drapes, and other medical supplies used during the procedure.

2. Indirect Practice Expense:

In a primary care clinic, the indirect practice expenses may include the rent or mortgage payments for the clinic space, utilities such as electricity and water, office supplies, and salaries of non-physician staff members like receptionists, nurses, and medical assistants. These expenses are necessary for the overall operation of the practice but are not directly tied to a specific service.

3. Equipment Costs:

The PE element also considers the depreciation or lease costs of medical equipment used in the practice, such as examination tables, diagnostic machines, or surgical tools. These costs are allocated to each service based on the equipment's usage and expected lifespan.

4. Overhead Expenses:

Overhead expenses, such as insurance premiums, maintenance and repairs, software licenses, and billing services, are also included in the PE element. These costs are necessary for the smooth functioning of the practice and are distributed across various services provided.

It is important to note that the specific costs included in the PE element can vary depending on the specialty and location of the practice. Medicare periodically updates the PE values based on data collected from surveys and other sources to ensure accurate reimbursement rates.

In conclusion, the Practice Expense (PE) element is a vital component of the Medicare Physician Fee Schedule used to determine reimbursement rates for healthcare services. It accounts for the direct and indirect expenses associated with running a medical practice, providing a comprehensive view of the costs incurred. Understanding the PE element is essential for healthcare professionals and organizations involved in revenue cycle management to ensure accurate reimbursement and financial sustainability.

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