For managing finances, a computation of values or a formula is used in the United States Medicare for reimbursement of independent physicians. Known as Relative Value Units (RVUs), it was devised in 1988 to calculate the work rendered by physicians for treating patients. It differs chiefly from physician to physician in terms of services rendered; for e.g. the RVU of a patient visit will be lower than an invasive surgical procedure conducted on a patient. However, RVUs are useful in not just valuation of work/determining compensation but also to decide if a buyout offer from a hospital/clinic is worthy or not.
RVUs are decided by Medicare on a number of factors. It decides how much will each physician be reimbursed on the basis of services and procedures listed under the Physician Fee Schedule; and those that are assigned CPT code numbers (reviewed every five years). Further, each service is determined by the physicians work, his/her Practice expenses and malpractice. Each of the three aspects is assigned a RVU.
How is RVU Calculated?
Physician’s Work (RVUw): This constituent takes into account the time (taken prior, during and after the service), training, technical skill, the stress or mental effort, judgment and intensity required to perform a service. This usually accounts for almost 50-53% of the total RVU where time is 70% and effort is 30%; also, a global fee comprises the predicted physician inputs used in the global period (from the day of the surgery to the follow up day).
Costs (RVUpe): This component takes into account the rent, office expenses, medical supplies and equipment, staff administration, administrative payroll and benefits, required to run the practice; almost 45% of the total RVU. Also, this differs for physicians performing the services in a facility as here the facility incurs the costs of equipment’s etc. Hence the physicians are given a ‘facility based’ practice expense RVU which is usually lower than the office-based practice expense for the same service. (For example, if a diagnostic colonoscopy is provided in the physician’s office, the physician’s payment would be based on a practice expense RVU of 6.78; if the procedure is performed in a facility, the payment would be based on a practice expense RVU of 1.94. – nhpf.org)
Malpractice Expense (RVUmp): This liability varies (for e.g. it could be higher for obstetrics than a primary care physician).
These three factors are then multiplied by geographical adjustment – Geographic Price Cost Index (GPCI) which gives the cost for a particular location. This is then converted to a dollar amount by multiplying it with a conversion factor determining what Medicare or HMO has to pay for any service/procedure, and is location specific.
[(RVUw x work GPCI) + (RVUPE x PE GPCI) + (RVUMP x malpractice GPCI)] x CF for the year in question.
Why Were RVUs Created?
RVUs were created to bring about uniformity in the payment system and reduce the upward trend. Further, from a practice management perspective, RVUs were created as they are (the language) used by most payers for contracts and reimbursements. RVUs are also used to pay for multi-physician practices that can determine how much to pay physicians based on straight productivity (the practice multiplies the work RVUs with its conversion factor) and a salary plus bonus tied to a number of RVUs that have been generated over a base number (especially for adding productivity incentive) to arrive at the reimbursement number. It is also imperative that RVUs aid in recruiting and retaining physicians.
As RVUs are validated, they have gone to become the customary measurement for cost benchmarking. They are consistent, formula based, and the standard and acceptable norms for setting fee-for-service payments by Medicare and almost all other private insurance payers.
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