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What Is an RVU?
By Leora F. Ardizzone, Esq

The Medicare Resource-Based Relative Value Scale (RBRVS) is the method by which Medicare sets reimbursement rates for each CPT code assigned to every physician encounter; thus, physicians’ services are counted in relative value units, or RVUs.  For example, a level 1 office visit may be assigned an RVU of 1, a level 3 office visit may be assigned an RVU of 1.5, and a surgical procedure may be assigned an RVU of 20.

RVUs are published in the Federal Register each November. Medicare bases RVUs on the following: physician work, which takes into account the physician’s expertise, the time and technical skill spent in performing the entire service, including the mental effort and judgment expended by the physician prior to, during, and after the patient encounter terminates, including documentation of the service; practice expense, which accounts for the cost to operate a medical practice; and professional liability insurance expense, which estimates the relative risk of services/cost to insure against the risk of loss in providing the service.

Each component of the RVU (work, practice expense, and professional liability) assigned to each CPT code is then multiplied by the Geographic Practice Cost Index (GPCI) for each Medicare locality, which takes into account the cost of delivery of healthcare services based on locale and is further adjusted by a conversion factor set by the Centers for Medicare & Medicaid Services (CMS) on an annual basis. The Medicare Conversion Factor (CF) is a national value that converts the total RVUs into the dollar amounts paid by Medicare to physicians for the services they provide.  

In the New York City suburbs/Long Island, N.Y. area, the GPCI for the work RVU, pratice expense (PE), and malpractice (MP) are 1.051, 1.289, and 1.235, respectively. The physician practice conversion factor for calendar year 2010 was $36.0846. Thus, the formula for deriving the dollar amounts paid by Medicare for any service performed by a physician would be [(Work RVU x 1.051) + (PE RVU x 1.289) + (MP RVU x 1.235)] x 36.0846.

The advantage of using RVUs as a measure of productivity is that the RVU is independent of a physician’s charge schedules, patients’ insurance coverage, the reimbursement fee schedules assigned by any payer for any CPT code, or a practitioner’s ability to collect reimbursement revenue for any physician encounter. In addition, the RVU method of measuring productivity reflects the reality that every patient encounter is not equal.

The work RVU lends itself to methods of setting compensation because the RVU is a reliable and objective measure of productivity.  It is derived by simple math using verifiable data published by the CMS at least annually. The RVU eliminates any risk to a physician related to employer-negotiated rates, captivated fees, reductions in reimbursement rates, or failure or delays in collections.

— Leora F. Ardizzone, Esq, is a healthcare attorney in Long Island with more than 17 years of experience in health and finance law.