RVUs Boost Practice Efficiency and Profitability (Updated 2022)

Relative Value Units (RVU) are part of the U.S. Medicare reimbursement formula, designed to measure the value of services provided by physicians. In hospitals, health systems or large group practices, a physician’s salary is often calculated on the number of RVUs provided. But independent physicians should pay careful attention to RVUs too – because RVU data can help you to set competitive prices, negotiate payer contracts, accurately predict payments, grow your practice, and evaluate mergers and acquisition opportunities.

 

How Did RVUs Come About?

Historically, Medicare paid physicians based on “usual, customary and reasonable” pricing. This meant that doctors nearly charged whatever they liked, and Medicare paid a percentage. Many argued that the result was procedures tending to be overpriced, while consulting, preventative and management services tended to be underpriced.

For example, a doctor making a complicated diagnosis might have been paid $40, while another doing a routine colonoscopy was paid $600. Procedural costs remained high even as technology reduced actual work times by 75% or more in many cases. Insurance companies argued that the system encouraged iniquities and lobbied for changes.

There were other problems with the “usual, customary and reasonable” pricing model. The only way to compare the productivity and efficiency of various providers was to count the number of patients they saw and the procedures completed each day. This failed to factor in the varying complexity of cases, or differences in specialties and geographic areas. A plastic surgeon in Beverly Hills was on a comparable footing with a general practitioner in rural Kentucky.

 

In 1989, the Omnibus Budget Reconciliation Act created a new Medicare fee schedule, called the Resource-Based Relative Value Scale (RBRVS). Today, the schedule defines 9,000 different healthcare services. Each service is assigned a specific value, called the RVU, which determines physician compensation. RVUs attempt to account for time typically spent with a patient, and the severity of the presenting issue, and eliminate considerations of total revenue or payer mix. They are now the national standard for physician compensation.
 

How Are RVUs Calculated?

Three components make up the Total RVU, each adjusted by the Centers for Medicare & Medicaid Services (CMS) according to your geographic location.

1. Physician Work RVU evaluates the time and clinical skill necessary to treat a patient during a specific encounter. It usually runs about 52% of the total RVU.
2. Practice Expense RVU calculates the costs of labor, building space, equipment and office supplies. It typically comprises 44% of the total.
3. Professional Liability Insurance Expense RVU documents the cost of malpractice insurance premiums. It represents about 4% of the total.

 

What is Total RVU?

Total RVU is simply the sum of the three component RVUs described above. It is multiplied by the Medicare Conversion Factor, a national number set annually that converts the RVU into a dollar amount.

 

What Is Included in the Work RVU?

 

Work RVUs are the most used portion of the formula. They are primarily based on the time a physician spends on a given activity. For instance, a dermatologist’s Work RVU for a complex skin graft would be significantly greater than for a wart removal. Other factors include the amount of technical skill, critical judgment, mental acuity, and stress demanded by the procedure. Work RVUs are calculated by collecting wage data from seven professional groupings.

 

Work RVU units of time are assigned to each of three stages of medical practice:

1. Pre-service work performed before a procedure, such as consultations or clinical preparation
2. Intra-service work conducted during a procedure itself, including office visits
3. Post-service work including documentation, post-op visits and treatment, and post-discharge visits after surgery

 

What Is the 2022 Medicare Conversion Factor?

 

According to the American Journal of Neuroradiology, “The Conversion Factor (CF) is the number of dollars assigned to an RVU. It is calculated by use of a complex formula that accounts for the overall state of the economy of the United States, the number of Medicare beneficiaries, the amount of money spent in prior years, and changes in the regulations governing covered services.”

 

In late December 2021, the CMS announced a conversion factor of $34.6062 for 2022. This is 0.82% less than the 2021 factor of $34.8931, but not as harsh as the 10% cut that the medical profession had anticipated.

 

How to Calculate RVU for Physicians

Computing RVUs requires only basic arithmetic using a simple formula:

 

 

*The Geographic Practice Cost Index (GPCI) is an adjustment used to account for regional differences is operational costs such as salaries, rent and malpractice insurance.

 

Example of Calculating RVU for Physicians

 

Let’s say you’re a provider practicing in Manhattan. Two of your most common codes are the established patient Evaluation and Management (E/M) CPT codes of 99213 and 99214.

 

Calculating your Total RVU for Code 99213, assuming a GPCI for Manhattan, would look like this:

 

(Work RVU [1.37] x 1.056) + (Practice Expense RVU [1.52] x 1.203) = (Malpractice RVU [0.2] x 2.031) =Total RVU [3.68148]

 

[insert a simple graphic to illustrate this – maybe a chalkboard image?]

 

Doing a similar exercise for Code 99214 would result in a Total RVU of 5.10930. Note that this is quite a bit larger than the Total RVU for Code 99213, which makes sense. A moderate level of medical decision making (30-39 minutes) service should be valued higher than a low level of decision making (20-29 minutes).

 

CPT	Work RVU	2022 PW GPCI	Practice Expense RVU	2022 PE GPCI	Malpractice RVU	2022 MP GPCI	Total RVU
99213	1.37	1.056	1.52	1.203	0.2	2.031	3.68148
99214	2.03	1.056	2.06	1.203	0.24	2.031	5.10930

 

Streamlining Your RVU Calculations

Andy Swanson, Vice President of Consulting Services at the Medical Group Management Association (MGMA), recommends that physicians focus on calculating RVUs for their 10 most frequently used codes. Total RVUs can then be used to approximate your practice’s performance and compare it against national benchmarks.

 

 

RVUs Importance For Independent Physicians

 

Physicians who work in hospitals, health systems or large practices are often paid based on a minimum number of work RVUs. So, independent physicians may assume that RVUs are irrelevant in a smaller practice – and miss an important opportunity for enhancing their practice’s efficiency and profitability. They may also assume that RVUs are complicated, and not worth the time of analyzing. Nothing could be further from the truth.

 

If you’re a physician in independent practice, you can use RVU information to your advantage in many ways:

• Checking to see whether your fees are competitive, justifiable, and sustainable
• Assessing payer fee schedules, which often include discrepancies between proposed and actual reimbursement
• Contrasting payment programs from various payers, to make sure you’re being treated fairly

Swanson offers three more scenarios for when RVU data can be especially beneficial to smaller practices, specifically when:
 

1. Physicians want to grow their practices

If your RVUs are low compared to national benchmark data – but your patient volume is high – chances are likely that you should take a closer look at practice efficiency to expand the practice. If your RVUs are already high, you may want to think about hiring additional physicians or mid-level providers who can increase patient volume even more.

2. Physicians want to merge practices

Practitioners considering merging their practice with another can use RVUs as part of the valuation process. How many RVUs does each physician generate? This is valuable information for ensuring that a consolidation is fair to everyone concerned, and that each practitioner pulls their own weight.

3. Physicians want a hospital or health system to purchase their practice

Total RVUs is a metric that lets hospitals evaluate the volume and level of patient care that physicians typically provide in a day, week, or month. Physician who are employed by the hospital or health system will most likely be paid based on RVUs. Assessing the practice’s existing track record helps physicians compare a potential salary offer against their current workload and earning power, and gives the hospital a method for deciding whether to move forward with an acquisition.

 

The Future of RVUs and Payment Reform

In a value-based payment model, payers are less interested in individual productivity, and more interested in population health management. Yet RVUs will remain key to the discussion, because they are “a metric that everyone can wrap their arms around,” stresses Swanson of MGMA.

“I think we’ve over-emphasized the importance of RVUs in the past because of their alignment with compensation. But that doesn’t mean that they don’t give us an important metric for examining physician productivity, and practitioner effectiveness in delivering patient care. RVUs hold a purpose even if they diminish in compensation alignment due to population health management and risk-based payment models,” he continues.

 

RVU Calculators

To save time and effort, you can use an RVU calculator to conduct research and gain insights on how the system works. Do an Internet search, or try one of these:

• MGMA’s interactive RVU calculation tool (available to MGMA members only)
• Free and Legal 2022 RBRVS Calculator (from PPC, requires downloading CPT data from CMS and entering it into a spreadsheet)
• AAPC’s RVU Calculator

 

According to PPC, its Free and Legal 2022 RBRVS Calculator “allows you to choose your CMS-driven location, set a Medicare Multiplier, and then, on a code-by-code basis, determine your pricing level relative to Medicare. If you then take the time to include your code volume and pricing, it will determine your practice’s FACF (i.e., how much you charge, on average, relative to Medicare). If you then provide your payment information, it will compare them to the Medicare fee schedule for you.”
 

RVUs: The Bottom Line

 

Rather than viewing RVUs as an annoying inconvenience, independent physicians should consider them an essential tool for better practice management. They can serve as a good barometer of practice efficiency and patient complexity, and provide valuable business insights, putting financial data at your fingertips for boosting profitability.

 

Helpful Resources on RVUs

 

• Download 2022 RVU files from the Centers for Medicare and Medicaid Services website.
• Contact your Kareo Solutions Consultant about your practice software and revenue cycle management needs or visit us at Kareo.com.