Understanding the RVU in Practice Management: Getting the Most Out of Using It in Your Practice

Under the Social Security Act, Medicare establishes a national fee schedule for physicians based upon Relative Value Units (RVUs). RVUs were part of the Resource-Based Relative Value Scale (RBRVS) adopted by Medicare in 1992. Medicare mandates updating of RVUs every 5 years and CMS has delegated the task to the Relative Value Update Committee (RUC), a committee of the AMA. Also charged to review RVUs is the Medicare Payment Advisory Commission (MedPAC), an independent federal body that Congress established in 1997 to analyze access, quality of care, and other issues affecting Medicare.

 The RBRVS reimbursement schedule assigns certain values to procedures/costs based upon Total RVUs. The total RVU consists of three separate components:  work (RVUw), practice expense (RVUPE) and malpractice (RVUMP). Further, Medicare adjusts payment by designating a geographic price cost index or GPCI and pays differently for the same procedure depending on the practice location. Another important component is the Conversion Factor (CF), which converts the RVU into a charge and reimbursement. The CMS Medicare CF for 2011is $33.9764.The payment formula is: 

[(RVUw x work GPCI) + (RVUPE x PE GPCI) + (RVUMP x malpractice GPCI)] x CF for the year in question.

Components of Total RVU
The major component of total RVU is the RVUw and accounts for about 50-53% of the total RVU. The RVUw is composed of two separate elements:  time (about 70%) and effort (about 30%). Time is generally figured by the time spent prior to a service, performing the service and the time spent following the service or procedure such as charting. Similarly, the effort or intensity also consists of the physical effort, skill and stress involved. Increasing complexity of a medical problem equals a higher RVUw.

The RVUPE is the next most weighted part (about 45%) of the total RVU formula. This includes: all non-physician and administrative payroll and benefits, all office expenses, cost of medical supplies and equipment and miscellaneous expenses such as accounting and legal. Medicare has gathered information by previous surveys and after figuring out per hour cost, then modifies this portion of the RVU for each specialty as well as for the type of facility.

What is the RBRVS and RVU system used for?
RVUs have continued to be used because they have become the standard measurement for cost benchmarking, been validated and used by almost all third party payers besides Medicare.

Depending upon the sophistication of the practice and electronic data gathering, valuable information can be obtained and utilized. In truth, RVUs are mistakenly thought to measure productivity. Every physician within a practice consumes resources and RVUs therefore measure resource consumption. For instance, RVUw’s are a measurement of time and effort put in by the physician. Therefore, if she records 4000 RVUw and is compensated $120,000, she has used $30 worth of resources for every RVUw. So, although we talk of physician productivity and relationship to RVUs, remember the real value of RVUs is costing or accurately measuring consumption of resources.

1. Practice efficiency, cost accounting purposes/fee schedule. A practice can determine expenses per RVU but this requires the business manager to track expense categories as well as total RVUs for each of the three expense categories (work, practice expense and malpractice).

3 Expense Categories 

Today, all practices should use RVU ‘costing’ to track revenues and derive the resources (translated to cost) consumed by the practice for a particular procedure or service. It is useful for instance to derive the cost per RVU for the practice. This can be done by first dividing the total cost by total RVUs (Total expenses/ sum of total RVUs = cost/RVU)

Each practice should have Total RVUs as well as each of the three components (RVUw, RVUPE and RVUMP) for each CPT code on a spreadsheet. This allows the practice to calculate dollar value for each component of the RVU by dividing total expenses for each of the three RVU categories.

2. Physician productivity & compensation. As mentioned, experts contend that RVUs are mistakenly thought to measure productivity rather than consumption of resources.  In any case, in 1999 only 11% of practices used RVUs as a tool for measuring productivity. The penetration is much higher today in practices utilizing some form of productivity compensation. Each physician’s productivity is measured by the Total RVUs recorded for each CPT code multiplied by the CF, which gives the practice reimbursement for each CPT code. In a lot of practices it is not uncommon to have part-time physicians. So, minutes per RVUw can also be calculated to arrive at evaluation of the part-time physician work. As an example, Family Practice, General Surgery, Internal Medicine and Obstetrics/Gynecology are generally around 20.97, 20.36, 21.20 and 22.04 minutes per RVUw. One has to be careful when compensation is based on RVUw because compensation rises with production and since the growth is not linear, the actual compensation per RVUw drops.

Where “team oriented” compensation plans are used, RVUws can be utilized to balance individual production and team production to mitigate a payer mix issue.

3. Contract negotiations. RVUs and Cost per RVU are two of the most common measurements used during contract negotiations between physicians and hospitals/insurance companies, for instance. It is therefore crucial to know the cost per RVU in order to see if a particular procedure is a money loser or profitable. Example: Let us use CPT code 99213 for a Level 3 office visit (non-facility) as an example and expense per RVU as in the previous table. To arrive at a potential profit for a contract for 1,000 office visits for the same CPT code, the analysis is illustrated below. The practice then has to decide whether the contract offer is worth accepting.

CPT Code Analysis 

However, during contract negotiations with an insurance company, the practice should not necessarily reject every contract based upon a CF that represents a losing proposition but evaluate the volume of procedures and the overall percentage of the practice revenue derived from the particular contract.

In summary, practice management systems should enter RVU of each code during the charge entry process. RVU data is valuable for cost accounting, productivity and compensation agreements within the practice as well as for external negotiations. Benchmarking is also easier with various groups such as the Medical Group Management Association (MGMA) or University Health Consortium, who track RVUs for specialty, type of practice and location. There are limitations to usage of RVUs for production/compensation, including the fact that physician experience, supervision of others, downtime (on call), coordination of care and complexity of service are not appropriately factored in.

About the Author

Bhagwan Satiani, MD, MBA, FACS, FACHE, is President of Savvy-Medicine (www.savvy-medicine.com), a business education...

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