Understanding Relative Value Units

The Role of RVUs in Medical Bills

what does rvu stand for
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Trying to puzzle out what the abbreviation RVU means on your medical bill? It stands for relative value unit and it is used specifically in the United States Medicare system. Understanding this method of billing can help if you receive a medical bill and want to understand how your costs are calculated.

Within the Medicare system, relative value units (RVUs) are calculated for three aspects that go into your medical care: how much work is required from the provider, the practice as a whole, and the amount of malpractice insurance the provider carries. Doctors are usually compensated based on a combination of salary (a set amount paid out over a year's time) plus relative value units (RVU).

RVU Compensation Based on Volume of Work

RVUs stand in for the amount of physician work, resources, and knowledge needed to treat a patient.

Physician work RVUs account for amount of work a physician must do to treat a patient. For example, a surgical procedure requires a higher level of time, skill, and intensity compared to a simple well-patient visit. Based on this model, a surgeon will typically charge more for the same amount of time spent operating on a patient than an internist will for a check-up. In other words, a surgical procedure will yield a higher RVU. Even if patient is self-pay or the patient is uninsured, with the RVU method, the physician will get paid regardless of the financial or insurance status of the patient.

Practice expense RVUs account for the labor and expenses of the practice itself, like the office, staff, materials, and equipment. Generally, medical services that happen in a hospital have a lower practice expense RVU than those that happen in offices or clinics, because hospitals will incur these fees themselves.

Professional liability insurance RVUs account for the cost of malpractice insurance insurance for the physician and/or the practice.

Each of the three RVUs are also adjusted because costs can vary greatly based on the geographic area where you receive medical care. These adjustments are based on the geographic cost price index and are called GPCIs. Every three years, the Centers for Medicare and Medicaid Services updates the GPCI numbers.

Physician work is generally the most changeable aspect of an RVU. This is why it may look different on different bills you receive.

Calculating RVUs

There are multiple factors involved in calculating RVUs. For example, the medical center or hospital where a doctor provides treatment may offer an RVU rate that's different from another facility (even one that provides similar services).

The actual cost for the physician’s services is calculated when a conversion factor (CF), dollar per RVU, is applied to the Total-RVU. 

Here are the steps used to calculate relative value units:

  • Determine the RVU for each service provided based on the CPT or procedure code: CPT codes are developed by the American Medical Association to identify the codes most often used by physicians. They're expressed according to numbers ranging from 90000 to 99999. The lower the code, the less involved the procedure. For instance, CPT code 99210 might be equal to 1 RVU, while code 99211 might equal to 1.5 RVUs.
  • Determine the compensation for each RV: If the compensation for 1 RVU equals $30.00, then the incentive for 99210 would be $30.00 [1 (RVU) x $30.00 (rate)]
  • Determine the threshold for receiving an incentive: This depends on whether or not the physician is on a salary plus RVU model, or a model that also includes incentives based on total RVUs per month (this is more rare). If on an incentive model, for example. if the threshold for receiving an incentive is 300 RVUs per month, then the physician would receive an incentive for every RVU over 300. If a doctor has 350 RVUs for the month, then the physician would receive an incentive of $1500.00 (50 RVUs x $30.00). If the physician is on a straight commission pay scale, then the compensation for 350 RVUs for the month would be $10,500.00.
  • Include the geographic practice cost index (GPCI): Geographic cost price index is another important factor in calculating RVU. When RVU is calculated, the RVU for each of the three factors is calculated, then multiplied by the GPCI in the area.

How RVU is Determined

In order to determine the compensation paid for each RVU, each medical office or facility must factor in several elements by considering:

  1. How much skill, expertise, and effort does a physician need to adequately treat a patient for each CPT code?
  2. What does the fee schedule look like? How much does the medical office expect to receive in reimbursement for each CPT code? 
  3. Will a percentage of the expected revenue be used to determine the RVU rate?
  4. What is a competitive compensation for physicians receiving compensation based on productivity?

The Future of RVUs

While RVUs have been popular, especially from the standpoint of recruiting new medical staff, there is a strong possibility that in the future this system will be replaced with a pay-for-performance system. Not all physicians or practices find this system useful or beneficial to patients.

Many healthcare trends forecast that healthcare costs eventually will not be based on quantity or productivity, but rather on quality. Patient satisfaction, safety, and quality of care are beginning to influence the way health care providers are being paid.

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