Relative Value Units: Part 1

Evolution of the RVU

One mechanism used frequently by practices to measure physician productivity is the RVU system. RVUs can help determine:

  • How much you are paid
  • How much it costs your practice to perform a procedure
  • How you manage your clinical area
  • How prepared you are to participate in quality measures to improve patient care and increase revenue.

The Resource Based Relative Value System (RBRVS) was established in 1992 by the Health Care Financing Administration now known as the Centers for Medicare and Medicaid Services (CMS). The system was based on a study conducted by Harvard University and the American Medical Association, the purpose of which was to estimate the relative amounts of “work” physicians contribute to the services they provide. The definition of “work” took into account the physician’s time, mental effort, judgment, technical skill, physical effort, and psychological stress.

The RBRVS system assigns a relative value unit (RVU) for each service provided by a physician.  The relative value of each service is the sum of RVUs representing three components:

  1. Physician work expenses—which accounts for (on average) 52% of the total relative cost of each service
  2. Practice expenses—cost of staff, facilities, and supplies (overhead), which accounts for an average of 44% of the total relative cost of a service
  3. Professional liability (malpractice) expenses—which accounts for an average of 4% of total relative costs

Each of these components is factored for geographic differences based on the area of the country in which the service is provided. The sum of these geographically adjusted RVUs for a particular service comprises the total RVU of that service. To convert this schedule into a fee schedule expressed in dollars, the total RVU of a given service is multiplied by a "conversion factor" - a dollar amount per RVU applied to all services in the relative value schedule. The conversion factor is updated each year using a formula that takes into account:

  • Growth in the Medicare Economic Index
  • A projected productivity gain thought to be achievable by all physicians
  • Growth in the gross domestic product

Although the RVU system is the basis used to establish payments to doctors for Medicare and Medicaid services, all insurance companies utilize some iteration of this system as well.

Using RVUs for Benchmarking in a Medical Practice

Many physicians criticize the concept of RVUs because the system is based on relative costs rather than on relative value to patients. While this criticism has merit, there has been no other system put in place to replace it. Whether or not the physician buys into the RVU system, there are many opportunities for using the system for benchmarking purposes. Indeed, many of the financial metrics used for benchmarking are driven by the RVU system and the practice’s revenue cycle. They include:

  • Payor benchmarking—setting and negotiating fees with payors
  • Coding benchmarking—comparing the frequency of use of evaluation and management codes to other physicians or practices
  • Collection rate and accounts receivable benchmarking—measures the success of the practice’s billing processes
  • Cost analysis—a calculation of what it costs to provide the services provided by the practice
  • Physician productivity—a comparison of the calculated work by RVU from one physician to the next

The most common use of the RVU system, productivity, is often used by owners of medical practices (including hospitals and hospital departments) to measure physician productivity and to set compensation. Part two of this article will focus exclusively on productivity, RVUs, and physician compensation and provide a detailed example of how RVU benchmark data may apply to you and your practice of medicine.

Leave a comment

norcal mutual opioids advertisement
Norcal Mutual

Learn More 
nm5001-PA-MedSocietyMag-SRPatientSafetyOpioids-970x90