Relative Value Units (RVUs)
Medicare uses a physician fee schedule to determine payments for over 7,500 physician services. The fee for each service depends on its relative value units (RVUs), which rank on a common scale the resources used to provide each service. These resources include the physician’s work, the expenses of the physician’s practice, and professional liability insurance. To determine the Medicare fee, a service’s RVUs are multiplied by a dollar conversion factor.1 Estimating and updating the RVUs is a labor-intensive process because there are no readily available, up-to-date data on the resource requirements of each service.
Physician services, which are described by Current Procedural Terminology (CPT) codes and Healthcare Common Procedure Coding System (HCPCS) codes, range from those that require considerable amounts of physician time and effort, clinical staff, and specialized equipment, to those that require little if any physician time and minimal other resources. For each service, Medicare determines RVUs for three types of resources. Physician work RVUs account for the time, technical skill and effort, mental effort and judgment, and stress to provide a service. Practice expense RVUs account for the nonphysician clinical and nonclinical labor of the practice, as well as expenses for building space, equipment, and office supplies. Professional liability insurance RVUs account for the cost of malpractice insurance premiums. Although the actual percentages vary from service to service, physician work and practice expenses comprise 52 and 44 percent of total Medicare expenditures on physician services, respectively
There’s more than one way to determine your physician’s payment.
Medicare fee-for-service payments are calculated based on relative value units (RVUs) assigned to each covered CPT®/HCPCS Level II code. As defined in Medicare’s National Physician Fee Schedule Relative Value File, there are three RVU categories that, when totaled, determine payment.
- Work RV Us account for the provider’s work when performing a procedure or service. Work RVUs typically account for 50 percent or more of the RVU total for a given code.
- Practice expense (PE) RVUs ref lect the cost of non-physician labor and expenses for building space, equip-ment, and office supplies.
- Malpractice (MP) RVUs ref lect the cost of malpractice insurance for each procedure or service.
Work and MP RVUs for a given code remain the same whether the service is provided in the physician’s office, an inpatient hospital, or any other healthcare setting. But because the expense of providing a service may differ depending on where the service is provided (facility versus non-facility), the Physician Fee Schedule (PFS) lists separate columns to describe “facility” and “non-facility” PE RVUs.
Apply the Formula to Determine Final RVUs
To determine the true total RVUs for a procedure or service in your area, you would apply the following formula:
(work RVUs x work GPCI) + (PE RVUs x PE GPCI) + (MP RVUs x MP GPCI
To find the RVU total for a specific code, simply calculate the sum of work RVUs, MP RVUs, and either the facility or non-facility PE RVUs (as applicable to your POS). For example, per the 2021 National Physician Fee Schedule Relative Value File, CPT® 17260 Destruction, malignant lesion (eg, laser surgery, electrosurgery, cryo-surgery, chemosurgery, surgical curettement), trunk, arms or legs; lesion diameter 0.5 cm or less is assigned 0.96 work RVUs, 0.09 MP RVUs, and 1.85 non-facility PE RVUs or 0.99 facility PE RVUs, for a total of 2.90 non-facility RVUs or 2.04 facility RVUs. Note that non-facility and facility totals for each active CPT® code may be found in the Physician Fee Schedule Relative Value File (columns M and L, respectively)
For example, to determine the final RVUs for 17260 when pro-vided in a physician office in Seattle, apply the formula as follows:
(0.96 work RVUs x 1.036 work GPCI)
- (1.85 non-facility PE RVUs x 1.194 PE GPCI)
- (0.09 MP RVUs x 0.776 MP GPCI) = 3.2733 RVUs
In the facility setting, the total is found by applying the same formula, but using the facility PE RVUs:
(0.96 work RVUs x 1.036 work GPCI)
- (0.99 facility PE RVUs x 1.194 PE GPCI)
- (0.09 MP RVUs x 0.776 MP GPCI) = 2.24646 RVUs
RVU concept more in detail
Relative value units (RVUs) – RVUs capture the three following components of patient care.
1.Physician work RVU – The relative level of time, skill, training and intensity to provide a given service. Each CPT® code is targeted for review at least every five years to determine the work RVU for a particular service and consider if it remains the same as the value previously set. Code values can increase or decrease if the components of service have changed during the preceding years. A code with a higher RVU work takes more time, more intensity or some combination of these two. Some radiation oncology codes, such as treatment codes, have no associated physician work.
2.Practice Expense RVU – This component addresses the costs of maintaining a practice including rent, equipment, supplies and nonphysician staff costs. The practice expense RVU is now calculated using a “bottom up” methodology where the direct costs of providing a service are calculated (staff time, supplies and equipment time) and indirect costs are allocated. Indirect costs are those that cannot be directly attributed the provision of a service, such as having a waiting room or a billing service. Direct costs are those that can be assigned to a specific service; a direct cost would be the actual supplies, equipment and staff time used for a given CPT code. Frequently, a CPT® code will be assigned a practice expense RVU for a facility setting, such as a hospital, and a different practice expense RVU for a nonfacility setting, such as a freestanding center. Generally, freestanding radiation oncology centers receive more practice expense compensation than hospital-based centers, since the practice expense of owning and operating equipment and providing staff resources are significantly more than the practice expenses covered by the physician in a hospital setting. As an aside, the hospital is paid under Hospital Outpatient Prospective Payment System (HOPPS or OPPS) for the radiation oncology equipment and services. Hospital-based physicians are paid under the Medicare Physician Fee Schedule (MPFS) in the same manner as freestanding-based physicians. 2009 is the third year of transition to a new methodology for calculating practice expense. The new methodology will be fully implemented in 2010. Therefore, the 2009 practice expense RVUs are often described as “transitioned” or “transitional.”
3.Malpractice RVUs – These are generally the smallest component of the RVU values and represent payment for the professional liability expenses. RUC and CMS rules suggest that these expenses are to be reviewed and updated on a bi-annual basis, but in practice, that has frequently not occurred. Geographic Practice Cost Indices (GPCI) – Geographic Practice Cost Indices account for the geographic differences in the cost of practice across the country. CMS calculates an individual GPCI for each of the RVU components — physician work, practice expense and malpractice. GPCIs are reviewed every three years.
Geographic Practice Cost Indices (GPCI) – Geographic Practice Cost Indices account for the geographic differences in the cost of practice across the country. CMS calculates an individual GPCI for each of the RVU components — physician work, practice expense and malpractice. GPCIs are reviewed every three years.
Conversion Factor (CF) – The conversion factor converts the relative value units into an actual dollar amount. The dollar multiplier (CF) is updated on an annual basis according to a formula specified by statute. Congress has the ability to override the statutorily defined formula, as it has done in the past several years. In 2009, the Conversion Factor adjusted for budget neutrality is $36.066.
Budget Neutrality (BN) – CMS is prohibited from changing its overall budget by more than $20 million. Should RVUs shift in such a way that the CMS budget is impacted by over $20 million, CMS must use a budget neutrality factor to bring its total payments back in line. CMS first used the BN in 2007 by applying it solely to the physician work RVUs, since a revaluation of physician work RVUs for evaluation and management codes lead to the expected overage. In 2009, CMS changed its BN application moving it to the conversion factor instead.
Facility/NonFacility – This designation identifies where services are provided. The Facility pricing amount generally covers services to inpatients or in a hospital outpatient clinic setting, but can include other settings. Off-site hospital-owned sites are also considered as “facilities” in the context of payment. NonFacility services are generally provided in a freestanding physician’s office, but can include other freestanding settings.
The formulas that reflect the above components and result in the 2009 physician fee schedule payment amount for each CPT® codes are:
Non-Facility Payment Amount = [(Work RVU * Work GPCI) + (Non-Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)] * [Conversion Factor adjusted for budget neutrality
Facility Payment Amount = [(Work RVU * Work GPCI) + (Facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)]
Key:
Conversion Factor adjusted for budget neutrality – dollar amount used to convert RVUs into a payment amount adjusted for budget neutrality to ensure that total Medicare payments comply with allowed total Medicare funding.
Facility – Reflects the site of service designation, facility services generally are provided to inpatients or in a hospital outpatient clinic setting, but can include other settings
