What Are RVUs and How Did They Come About?
Key takeaways:
Relative value units (RVUs) assign a reimbursement value to each procedure a healthcare provider (HCP) performs.
RVUs were developed through a collaboration between Medicare and the American Medical Association (AMA) to address healthcare expenditures and reimbursement rates.
Productivity is measured through RVUs. And it is often used as a determination in compensation packages for HCPs.
Relative value units or RVUs are a method for calculating reimbursement for services provided by healthcare providers (HCPs). In simplest terms, each Current Procedural Terminology (CPT) code billed by an HCP is assigned an RVU. And the RVU determines the reimbursement amount when the CPT code is billed. However, arriving at the actual compensation level is more complex and requires several adjustments and calculations.
Let’s explore the history and specifics of RVUs and what they mean for HCPs.
When were RVUs first used?
In the late 1980s, the rising cost of Medicare expenditures coupled with low reimbursement rates for primary care providers prompted researchers to re-evaluate compensation systems.
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Before RVUs, HCP services were paid based on what was considered a reasonable and customary rate for the service provided. This was known as Medicare’s Customary, Prevailing, and Reasonable (CPR) charge system. Medicare used a median-charge level initially set at the 90th percentile — but later decreased to the 75th percentile — for customary changes of the same specialty physicians in a region.
The CPR system led to a wide range in compensation with nothing to prevent HCPs from raising their fees. But raising fees did not necessarily mean increased payments. This resulted in stagnation, even as technology advanced and the complexity of treatment increased.
In 1992, with input from the American Medical Association (AMA), Medicare established a standardized fee schedule based on RVUs.
RVUs define value based on:
Clinical and nonclinical resources required
Expertise required to deliver the service
The extent of HCP work required
How do HCPs use RVUs?
Beyond calculating reimbursement for services provided, RVUs are used extensively to capture and monitor the productivity of HCPs. RVUs reflect the time, skill, and training needed to provide a service.
Under the RVU model, more complex procedures and patients have a higher RVU than low-acuity patients and procedures do. Rather than compensation based solely on the number of patients seen per day, the actual work involved in caring for those patients can be captured. Many healthcare systems base HCP compensation structure on the productivity shown through RVUs. This often consists of a salary bonus potential depending on RVU.
Calculate reimbursement for specific procedures
Measure HCP or group productivity
Measure performance analytics by health system, provider, or payer
Measure utilization allocation
Perform cost benchmarking
How are RVUs relevant for patients?
Don’t expect patients to ask about RVUs specifically. But they will ask you about service fees. Essentially, the RVU translates to cost to the patient. While RVUs do not represent an exact dollar amount, CPT codes correspond to an RVU that determines total payment. Price transparency allows patients to calculate what their ultimate out-of-pocket costs are likely to be.
Does the RVU formula ever change?
The formula used to calculate RVUs remains the same. However, the cost factors may be adjusted over time. The RVU formula is complex and adjusted to reflect changes in geographic location.
The basic formula is calculated using:
Conversion factor (CF): The CF is the dollar amount assigned to an RVU. Calculation takes into account the country’s overall economic state, number of Medicare beneficiaries, money spent in years past, and changes in coverage regulations. The CF attempts to balance demand for medical services against economic limitations.
Geographic practice cost indices (GPCIs): GPCI adjusts for differences across geographic locations, accounting for market conditions and business costs. The goal is to avoid overpayment or underpayment based on service location.
Total RVUs: Total RVU combines three types of RVU: work RVU, practice expense (PE) RVU, and malpractice (MP) RVU before arriving at a final RVU value. MP RVU is a reflection of professional liability insurance cost based on the risk associated with a CPT code. PE RVU is the cost of clinical and nonclinical labor expenses to the practice. And it includes medical and office supplies and equipment. A categorization is also calculated to consider where the service was provided, such as non-facility locations (HCP office) versus facility locations (like surgery centers and hospitals).
The Centers for Medicare and Medicaid Services (CMS) updates the variables of HCP work, PE, and professional liability insurance relative values annually.
Are RVUs good or bad for HCPs?
While the RVU system allows for more standardized reimbursement, it is not a perfect system.
RVUs are meant to reflect the total amount of HCP work performed. However, capturing administrative tasks — such as electronic medical record (EMR) charting or non-patient-facing time — is challenging. It's estimated that HCPs spend an additional 2 hours of administrative time for every hour of direct patient care. But this time is difficult to capture and reimburse in the current RVU system.
Further critics of the RVU system point out that time-consuming visits, like those requiring complex disease management, have low compensation compared to procedural services. This gives specialists or surgeons a monetary advantage. RVUs also may not accurately reflect workload, complexity, and surgical time — even among surgical specialties.
Since HCP compensation structure includes RVU-based productivity measures, an HCP must carefully determine if the structure is attainable and if it’s proportionate to their base salary.
How do RVUs affect an HCP’s ability to spend face-to-face time with patients?
Because face-to-face time is a challenge to capture for reimbursement, RVU systems may impact a HCP’s willingness to extend their office visit times.
If HCPs wish to bill based on time, there are specific coding requirements that must include:
Detailed explanation of the extended services
HCP documentation of at least an additional 20 minutes beyond the service reference time
Visit start and end times
Time-based billing makes sense for HCPs that spend extensive face-to-face time with patients or a large amount of time preparing for and coordinating care. But standard offices don’t support time-based billing in their traditional evaluation and management billing processes, because of the extra documentation required.
The bottom line
RVUs are a method used to calculate reimbursement for services provided by HCPs. While it’s not perfect, the RVU system is an improvement over the CPR system — a system that led to variable compensation and rising Medicare expenditure. While it supports a standardized fee system, the RVU system does so at the cost of prioritizing productivity measures that many HCPs may find unattainable.
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