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What are RVUs and how do RVUs impact Payment to Medical Practices?

What are RVUs and how do RVUs impact Payment to Medical Practices?

A challenge in the US Healthcare system is that there are patients that seek care, providers/physicians that want to provide quality care and receive appropriate payments for helping patients with their care and payers that establish the payment rules and want to minimize payments to providers.   Payers include commercial payers (e.g. Aetna, Cigna, United, Blue Cross/Blue Shield) and government payers (Medicare, Medicaid).  Payers increased their influence and control over the last 25 years and are responsible for the majority of the payments in the Healthcare system.  There is a built in conflict of interest between providers and payers since providers want to provide quality care and payers are charged with minimizing payment for care. Although much of the ‘buzz words’ today in Healthcare include paying for value vs. volume, using an ACO (Accountable Care Organization), and providing quality incentive payments, the Relative Value Units (RVUs) is a method that was designed decades ago to provide a ‘fair’ payment for work to providers.  Think as the RVUs as a consistent way to develop a fee schedule for a procedure based on the area of the country.

Prior to RVUs there was “usual, customary, and reasonable” for reimbursing providers.   RVUs helped Medicare create a Medicare Fee schedule.  Many payers use the Medicare fee schedule as a starting point for designing their own Fee schedule.  The RVU is a calculation to determine the value of each service.  The value is usually determined via evaluating three components:  Physician work RVU, Practice Expense RVU, Professional Liability RVU.   For calculating the RVU value for a procedure (such as 99213) in a medical practice, usually the physician work is about 45%-55% of the value, the practice expense is 40%-50% of the value and the professional liability is 5%-10% of the value.  There were methods developed to provide a weighting for the RVU for different geographic areas.

The RVU provides information to estimate the cost of the three components to develop an estimated cost for a procedure (e.g. 99213).  This is how the Medicare Fee schedule is designed and developed.   An example, using this approach, would be if a practice receives payment of $73.40 for CPT code 99213 about $38 is related to the physician work, about $31 is for the practice cost (facility, supplies, support staff), and about $4 is for Medical Liability.   A more predictable approach for the United States Healthcare system would be for all payers to reimburse providers the same as the Medicare Fee schedule.  This does not currently occur in our Healthcare system.  What actually occurs in the US Healthcare system is that some areas of the country the commercial payers reimburse for a fee above the Medicare established fee schedule while in other areas of the country some of the payers reimburse below the Medicare Fee schedule.  This difference by payer is one of the primary reasons why practices were bought by larger groups or Health systems so the larger entity could negotiate larger fees or in some cases, minimal acceptable fees.  This original medical practice consolidation occurred in the 1990s (shortly after the changed Healthcare system) and after a few years many of the large Health systems realized that the forecasts of greater reimbursements had a limit which led to many groups separating and going back to independent status (The practice costs were higher than the hospital systems forecasted and the reimbursements did not cover all these costs).

Although the ideas around ACOs and paying for quality care are good in concept, at the end of the day, there needs to be fair payment to providers for care of patients.  Using RVUs calculation to pay a consistent fee for a procedure, in concept, is an attempt to provide consistency in payment to providers for a service.  If the RVU concept was implemented as policy with one consistent fee schedule for all payers per procedure/CPT code for a certain area, the incentive would move toward providing more cost effective care.   Independent Provider groups provide both cost effective and quality care to their patients.

To learn more about RVUs, I recommend reading an article published in January 2015 titled “The Basics, Relative Value Units (RVUs)” by the National Health Policy Forum and/or read Frank Cohen’s book titled “RVUs, Applications for Medical Practice Success”.