All About RVUs: What the Relative Value Unit System Really Means
Starting a new job as a physician is exciting, challenging and nerve wracking all at the same time. Residency programs prepare you well to care for patients with a myriad of complex medical conditions, but rarely prepare you for the challenges you will encounter in the business side of medicine.
After residency, you are prepared to diagnose, but are you prepared to bill or code the appropriate diagnoses? These skills are not taught in school or residency. This article will help, by explaining the Relative Value Unit (RVU) aspect of billing. Please go to the following page for more information regarding other aspects of the Medicare Physician Fee Schedule.
Let us start from the beginning:
WHAT IS RVU AND HOW DOES IT AFFECT YOUR EARNINGS:
According to Bendix, in 1988, the Centers for Medicare and Medicaid Services commissioned a study from the Harvard School of Public Health to look at the resources and costs associated with the services that doctors provide. By 1992, the RVU system was instituted in an effort to control the spiraling costs of medical care in the United States. This initial system has undergone several changes. Through annual reviews, new services, geographic locations and average costs are updated.
Today, Medicare Part B pays physicians based on the Medicare Physician Fee Schedule or PFS. RVUs are part of this system, which consists of 9000-plus services and procedures that have assigned current procedural terminology (CPT) code numbers. Each RVU has a dollar amount and is determined by three components:
- Physician’s work
- Practice expenses
- Malpractice insurance.
The PFS dollar amounts adjust to reflect variation between geographical areas. The geographic practice cost index (GCPI) establishes payment locations for each of the three factors of the RVU per CMS.
The impact of RVU is not only important to Medicare patients. Almost all commercial insurance carriers use the Medicare fee schedule as the benchmark for their reimbursements as well. It is important to understand RVUs regardless of the type of practice you work.
How Total RVUs Work
The formula for calculating the total payment Medicare will offer you for your services might seem cumbersome at first:
[(Physician Work RVUs * Physician Work GPCI) + (Practice Expense RVUs * Practice Expense GPCI) + (Malpractice Insurance RVUs * Malpractice Insurance GPCI)] * Conversion Factor = Total Medicare Payment
Luckily, this calculation is not quite as difficult as it may seem. As long as you, as the physician, can provide the correct numbers and codes, an accurate estimate is calculated. As the physician or APN, you are not expected to know and understand the total RVUs, as this is a function of your practice or healthcare system’s billing office. However, you do need to understand RVUs as the language used by payers of physician’s services. Not knowing this language will likely lead to inaccurate billing and payment practices.
A Closer Look at the three components of wRVU:
- Physician Work
As of 2014, Medicare has provided a list of over 9,000 services as defined in its Physician Fee Schedule. A group of 29 specialist physicians known as the American Medical Association’s Specialty Society Relative Value Scale Update Committee (RUC) is responsible for judging the difficulty of certain services and dictating an appropriate compensation.
In order to do this, the RUC breaks down physician work into four main components for each physician service:
- Technical prowess and physical effort
- Amount of time needed
- Stress and anxiety
- Mental effort and judgment
As the most valuable part of treatment expenses, physicians’ work accounts for the largest part of the total RVU at around 50 to 53 percent. This is an important factor to remember when signing a contract with future employers. Your work is the largest factor in terms of payment for the practice as a whole.
· Practice Expense
Maintaining a physician’s practice is not an easy task, so Medicare is willing to pay you for the time and money spent sustaining your facility. For example, Medicare might award you some payments in order to cover equipment, rent, supplies, and non-medical staff costs. This includes direct costs, such as time staff spend with the patient, and indirect costs, such as the use of a billing service or maintenance of a waiting room.
With this ideology in mind, self-standing facilities usually earn more practice expense RVUs than a hospital-based practice. The reasoning is that is it more expensive to operate an individual practice in terms of equipment and facility, than it is to share these with others in a larger practice or building. Typically, practice expenses make up 45 percent of the total RVU.
· Malpractice Insurance
The smallest part of the total RVU is malpractice insurance. This insurance covers any mistakes you might make when providing care for patients. Generally, it only accounts for approximately four percent of an RVU.
Geographical Practice Cost Index (GPCI)
The GPCI adjusts the cost of services based on the location services are provided.
While all other factors are pre-set values, the GPCI is what accounts for regional differences in compensation. Because the cost of living differs across the country, Medicare has devised a multiplication factor that provides more compensation for areas where it costs more to maintain a business. This factor is why a doctor in Pennsylvania, which has a low cost of living, might technically make less than a doctor in California, where the cost of living is higher.
The RUC reviews the GPCI every three years, and makes changes as necessary to ensure accurate pay for physicians based on where they practice.
After you have calculated all of this data, the conversion factor transforms the equation into a true dollar amount. The conversion factor is set by Congress each year, so it can vary depending on how the economy is doing. As of 2017, the conversion factor was $35.89, which was an increase from $35.80 the year before.
HOW RVU works/ CALCULATED.
The table below provides the Conversion Factors for some common CPT codes. The first code, 99203 is a New Patient Visit CPT code in which a detailed history and exam was completed with a low complexity and moderate contributory factors. This visit consisted of 30 minutes of face-to-face time with the patient. As you can see below, this code has a complexity factor of 1.42.
Let us compare this with CPT code 99205, which is also a New Patient Visit CPT code. However, in this visit, a comprehensive history and exam were performed in which a high level of complexity and high level of severity took place during a 60-minute face-to-face visit. This code has a higher complexity factor, at 3.17.
New Patient Visit CPT Codes
How RVUs Affect Your Compensation
With many practices choosing to use the RVU formula to calculate physician compensation, it is important to have a comprehensive understanding of this system. Below are a few important factors to consider:
- The use of a RVU formula for compensation is an objective measure of physician work. The RVU reflects the amount of time, skill, training and intensity required to provide the given service. A well-visit checkup would have a lower RVU than an invasive surgical procedure. Therefore, a physician seeing three high acuity patients per day would carry a higher RVU than a physician seeing 10 lower acuity patients per day. Work is calculated by the RVUs associated with the visit, not the number of patients seen.
- Many new physicians and APNs believe they only need to focus on the RVUs accumulated. However, you must remember to multiply the RVU by the Conversion Factor (CF) to get an idea of what the calculated productivity will be.
Below is an example:
|Total RVU/year||Conversion Factor||Total Annual Productivity|
Final Useful Tips:
- Other forms of compensation include Quality models. (insert link to other article)
- Accurate CPT coding is important. Over or under-coding can have grave consequences. As a provider, you should always be able to justify what codes you used when billing.
- Legally a wRVU is a wRVU-difference with the Collection based model.
- When compensation is calculated using a RVU model, you get the same credit for seeing the patient regardless of payer. For instance, if you see a Medicare patient or a Medicaid patient, you will receive the same compensation. Payer mix is not a factor in a RVU compensation model.
- In a “Collection” based model of compensation, you earn based on the amount of revenue you generate. Therefore, a Medicaid patient would provide a lower reimbursement to you compared to a Medicare patient. The payer mix of your patient is much more important in this type of system.
- In an RVU system, every practice is paid the same wRVUs. What varies is the CF, which you have to be prepared to negotiate in order to receive a higher level of compensation. This is the same for APN, however the CF will be lower (85% of the corresponding physician value).