What is an RVU?

The Medicare Resource-Based Relative Value Scale (RBRVS) is the method by which Medicare sets reimbursement rates for each Current Procedural Terminology (CPT) code assigned to every physician encounter; thus physicians’ services are counted in RVU’s.   For example, a level one office visit may be assigned an RVU of 1, a level three office visit might be assigned an RVU of 1.5, and a surgical procedure might be assigned an RVU of 20.

RVUs are published in the Federal Register each November.  Medicare bases RVUs on the following: (i) Physician work, which takes into account the physician’s expertise, the time and technical skill spent in performing the entire service including the mental effort and judgment expended by the physician prior to, during and after the patient encounter terminates, including documentation of the service; (ii) Practice expense, which accounts for the cost to operate a medical practice; and (iii) Professional liability insurance expense, which estimates the relative risk of services/cost to insure against the risk of loss in providing the service.

Each component of the relative value unit (work, practice expense and professional liability) assigned to each CPT Code, is then multiplied by the Geographic Practice Cost Index (GPCI) for each Medicare locality, which takes the cost of delivery of health care services based on locale into account, and which is further adjusted by a conversion factor that is set by the Centers for Medicare and Medicaid Services (“CMS”) on an annual basis. The Medicare Conversion Factor (CF) is a national value that converts the total RVUs into the dollar amounts paid by Medicare to physicians for the services they provide.

In New York City Suburbs/Long Island, New York the GPCI for the Work RVU, PE and Malpractice are 1.051, 1.289, and 1.235 respectively.  The Physician practice conversion factor for calendar year 2010 was $36.0846.  Thus, the formula for deriving the dollar amounts paid by Medicare for any service performed by a physician would be as follows:

[(Work RVU x 1.051) + (PE RVU x 1.289) + (MP RVU x 1.235)] x 36.0846.

In these days of physician hospital integration, hospitals are using RVU’s as a measure of physician productivity in order to calculate physician compensation. The advantage of using RVUs as a measure of productivity is that the RVU is independent of the physician’s charge schedules, patients’ insurance coverage, the reimbursement fee schedules assigned by any payor for any CPT code, or the practitioner’s ability to collect reimbursement revenue for any physician encounter.  In addition, the RVU method of measuring productivity reflects the reality that every patient encounter is not equal.

The WRVU lends itself to methods of setting compensation because the RVU is a reliable and objective measure of productivity.   The RVU is derived by simple math, using verifiable data published by CMS, at least annually.  The RVU eliminates any risk to the physician related to employer negotiated rates, capitated fees, reductions in reimbursement rates or failure or delays in collections.

There are arguments against an RVU based compensation formula, which can cause cherry-picking within a physician group for complex cases or procedures with higher RVU’s, and for day shifts that result in higher volume and therefore in higher RVU’s.   Additionally, an RVU based compensation model will reward the physician who can work faster, notwithstanding results, and will penalize a methodical physician who takes more time with his patients, and may realize better results.  The RVU model rewards efficiency, but not necessarily quality.  Another potential drawback of the RVU method is the creation of RVUs by physicians who over-utilize tests or procedures to drive up the RVU’s.  It is for this reason that RVU’s do not have to be sole basis of the compensation formula.  Compensation that is primarily based on RVU’s can provide for bonuses that are tied to quality metrics and citizenship.

In order to set compensation in a new employment arrangement, the employer can tie the compensation to be paid to the physician employee to his or her historic RVU productivity, or to RVU benchmarks published in national surveys.  There are nationally recognized companies that publish physician compensation surveys annually.  These surveys benchmark physician compensation based on specialty and geographic location.  The compensation surveys measure productivity by RVU’s, gross charges, collections and/or patient encounters.  The compensation surveys benchmark physician compensation at varying levels including, 25th percentile, 50th percentile, 75th percentile and 90th percentile.  Thus, an employer might pay a physician employee based on an annual salary that is tied to the 50th percentile for compensation with a commensurate expectation that the physician employee generate RVU’s benchmarked at the 50th percentile for RVU productivity.  A simple RVU based formula however can result in anomalies where a physician’s productivity exceeds the 90th percentile.  This requires the employer to calculate a value for the RVU’s that exceed the 90th percentile for RVU’s.

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