Understanding RVUs | Medicare Reimbursement

April 14, 2014

Relative Value Unit (RVU)Summary: Do you understand Relative Value Units (RVUs) as they relate to Medicare reimbursement? Is your physician compensation model based upon RVUs or a derivative thereof?

Relative Value Unit (RVU)Summary: Do you understand Relative Value Units (RVUs) as they relate to Medicare reimbursement? Is your physician compensation model based upon RVUs or a derivative thereof?

What is an RVU?

RVU stands for Relative Value Unit and is currently used by Medicare to determine the amount of reimbursement to providers. RVUs are basically a way of standardizing and comparing service volumes across all continuums. Traditionally reimbursement has predominately been based upon volume. The more services you provided, the more you earned. While this has served as a standard for many years, volume isn’t the end-all, be-all. Other factors such as acuity and skills required to perform the service have risen to the forefront. The key concept of RVUs is “relative value”. In theory, a physician who performs 3 complex surgeries would have a higher RVU than a primary care physician who sees 3 patients for wellness visits. In this example, the surgeon would receive more reimbursement.

How are RVUs calculated?

There are 3 components or separate calculations required to calculate RVUs – RVU, GPCI, and a Conversion Factor:

Relative Value Units (RVUs)

  • Physician work RVU (work RVU) – this is the combination of time and acuity for each service based upon individual CPT codes.
  • Practice Expense RVU (PE) – these are the expenses that go into running the practice aside from the physician time. They include things such as rent, equipment, supplies, and staff other than physicians.
  • Malpractice RVU (MP)– these are costs associated with professional liability expenses.

Geographic Practice Cost Indices (GPCI)

GPCI is used to differentiate reimbursement based upon geography. For example, the GPCI could be higher for a metropolitan city than it would for a rural area. The GPCI is calculated for each of the RVU calculations above (physician work, practice expense, and malpractice).

Conversion Factor

This component converts the RVU to a dollar unit or the amount of reimbursement.

RVUs are additionally calculated differently depending upon whether the service is facility or non-facility based. Facilities can include settings such as inpatient, outpatient, and emergency rooms. Non-facilities are generally free-standing physician practices.

According to CMS, the 2014 RVU calculations are as follows:

Payment = [(Work RVU * Work GPCI) + (PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * CF

Recommendations for RVU-Based Compensation

According to Merrit Hawkins, following are recommendations for RVU-Based Compensation:

  • The KISS Principle – Keep it Simple Stupid.  Physician compensation formulas can be very complex. One of the best ways to achieve physician buy-in is with a formula that is simple, straight forward and easy to understand. In general, calculate the dollar amount associated with each Work RVU. Set a threshold or minimum for each physician to attain. Base bonuses on RVUs above the threshold.
  • Remain current with changes in RVUs and CPT Codes.  RVUs are generally tied to CPT codes, so staying current with these changes and revising RVU calculation methods accordingly will create a fluid and dynamic RVU methodology. Additionally, the formulas to calculate RVUs are updated on the CMS site at least annually.
  • Align physician goals with hospital goals. Aligning goals between the hospital and the physician will create an atmosphere of synergy, loyalty, and ultimately profitability.
  • Include quality incentives as well. The ACA and other healthcare legislation are focused on quality outcomes. These should be included when considering physician compensation models.
  • Keep the physician shortage in mind. The physician shortage is expanding rapidly due to many factors surrounding healthcare and the ability to remain profitable. Achieving buy-in for physician compensation from the beginning is critical. You can’t afford to have your physicians leave in droves due to their compensation package or the inability to understand it.