Relative Value Units (RVU) are part of the reimbursement formula, designed to measure the value of services provided by physicians. In hospitals, health systems or large group practices, a physician’s salary is often calculated on the number of RVUs provided. But independent physicians should pay careful attention to RVUs too – because RVU data can help you to set competitive prices, negotiate payer contracts, accurately predict payments, grow your practice, and evaluate mergers and acquisition opportunities.
Historically, Medicare paid physicians based on “usual, customary and reasonable” pricing. This meant that doctors nearly charged whatever they liked, and Medicare paid a percentage. Many argued that the result was procedures tending to be overpriced, while consulting, preventative and management services tended to be underpriced.
For example, a doctor making a complicated diagnosis might have been paid $40, while another doing a routine colonoscopy was paid $600. Procedural costs remained high even as technology reduced actual work times by 75% or more in many cases. As a result, insurance companies lobbied for changes and that is how RVU’s came about.
Three components make up what is known as the Total RVU, each adjusted by the Centers for Medicare & Medicaid Services (CMS) according to your geographic location.
Physician Work RVU evaluates the time and clinical skill necessary to treat a patient during a specific encounter. It usually runs about 52% of the total RVU.
Practice Expense RVU calculates the costs of labor, building space, equipment and office supplies. It typically comprises 44% of the total.
Professional Liability Insurance Expense RVU documents the cost of malpractice insurance premiums. It represents about 4% of the total.
Total RVU is simply the sum of these three component RVUs value which are added together. This number is multiplied by the Geographic Pricing Index (GPCI) to account for location. That result is then multiplied by a conversion factor (CF) that changes every year and is published by CMS to get a final dollar amount.
Calculating payments using RVUs can seem like a daunting task, but it’s not difficult if you’re prepared. Look up the current RVUs for the procedure in question as well as the year’s exchange rate and use the prescribed formulas. There are also calculators that can help, and all calculations can be validated on the CMS site.
Calculating RVUs is easier with the proper formula and values to put into it.
- PW: Physician Work
- GPCI: Geographic Pricing Index
- PE: Practice Expenses
- PLI: Practice Liability Insurance
- CF: Conversion Factor
- PP: Physician Payment
- For in-facility procedures: (PW x PW GPCI + PE x PE GPCI + PLI x PLI GPCI) x CF = PP
- To calculate out-of-facility amounts: (PW x PW GPCI + Transitioned Non-Facility PE x PE GPCI + PLI x PLI GPCI) x CF = Out-of-Facility P
Doing a similar exercise for Code 99214 would result in a Total RVU of 5.10930. Note that this is quite a bit larger than the Total RVU for Code 99213, which makes sense. A moderate level of medical decision making (30-39 minutes) service should be valued higher than a low level of decision making (20-29 minutes).
There are other things to consider when you calculate RVUs:
- Remember that the fee you come up with may not be the exact amount of money a physician earns. Bilateral or multiple procedure payment rules could change the final payment.
- RVUs, conversion factors, and other parts of the process change from year to year. Stay up to date to get the most accurate numbers.
- Using a tool to calculate RVUs for you can make the process easier.
It’s important to develop a standard process for billing and paying staff. RVUs are only one method of doing this but provide many advantages over their alternatives.
We recommend that administrator and physicians focus on calculating RVUs for their 10 most frequently used codes. Total RVUs can then be used to approximate your practice’s performance and compare it against other benchmarks nationally.
Practicing quality medicine while maintaining and managing the bottom line is a balancing act that provider’s face daily. The Physicians Practice S.O.S. Group is committed to and has helped healthcare providers across the country with new practice startups, IRO needs, and providing practice management and compliance solutions. Call our office to discuss any needs you might have.
Regina Mixon Bates, CEO | The Physicians Practice S.O.S. Group | www.ppsosgroup.com