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Most of the reimbursements for pediatric practices today are based on Fee for Service (FFS) payments. The FFS payment system is based on the value of the work provided by the providers. The Relative Value Unit (RVU) is the most common system used to value procedures or work completed by pediatric practices. The CPT codes billed for well visits, sick visits, and procedures have a RVU that determines a common reimbursement. While the value of the RVU might be determined in a standard fashion, the actual contract reimbursement varies widely by payer contract rate dependent on a number of factors including location of the practice and the ability of the practice to negotiate higher than the standard fee schedule.
Let’s look a little closer at the RVUs. The details can be overwhelming the first time a person learns about the concept. There are three main components to consider when determining the RVU: the physician work, practice expense, and malpractice expense.
Physician Work: This is the amount of time and skill needed to treat a patient for a specific task identified. Usually the physician work is about 45%-48% of the RVU related to a procedure.
Practice Expense: This is the overhead cost of the practice including practice staff (non-providers), supplies, rent, utilities, etc. This is usually 45-48%.
Malpractice expense: This is the malpractice expense associated with the task. This is usually 5-8%.
Medicare has a national formula that provides some geographic adjustments for RVUs based on location. There might be a slight adjustment up or down based on the area of the country. Many payers use the Medicare RVU numbers and provide their reimbursement based on a % of Medicare (some use this benchmark while other payers create their own number per market and call it “Market rate” or something similar). It would be a very time consuming process to calculate the RVUs for every procedure in the pediatric practice so if you decide to evaluate this in detail, recommend selecting a few common codes in the practice and work through the details.
Reimbursement across payers varies so just using the RVUs generated by pediatric provider is usually not a good measure to evaluate a provider’s compensation. A better method for independent pediatric groups is to evaluate the billed and paid per provider over a period of time and benchmark this to their compensation.
While RVUs seem complicated, they provide a method to calculate work and have discussions with payers about reimbursement. Additionally, RVUs are one method to identify how much workload per provider and/or per payer. This information could be used to identify a problem payer that a contract needs to either be re-negotiated or drop the payer from the practice. The RVU per provider is another source of information of how productive the provider is in addition to revenue per provider. For an independent practice, the revenue per provider drives the compensation discussion.
