The Intake

Insights for those starting, managing, and growing independent healthcare practices

What independent practices need to know about RVUs

Here’s why independent physicians should pay attention to RVUs and how RVU data can help practices to set competitive prices, grow their practice, and more.

RVUs for independent practices

At a Glance

  • Relative Value Units (RVUs) are a standard measure of the time and effort it takes a physician to provide a service. They form the basis for how Medicare and many other insurers determine reimbursement rates.
  • Though originally designed for Medicare, RVUs can provide valuable insights for independent physicians and practices.
  • RVUs help practices to set competitive fees, negotiate payer contracts, predict revenue, and more.

Relative Value Units (RVU) are part of the United States Medicare reimbursement formula, designed to measure the value of services provided by physicians and other healthcare professionals. 

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 — RVU data can help you to set competitive prices, negotiate payer contracts, accurately predict payments, grow your practice, and evaluate merger and acquisition opportunities.

How did RVUs come about?

Historically, Medicare paid physicians based on “usual, customary and reasonable” (UCR) pricing. This meant that doctors charged whatever they liked, and Medicare paid a percentage of the charge. 

The incentive to bring in more payments to cover one's costs was high — and the problem was easy to solve by simply charging more. The result of the UCR model was that Medicare and other insurers got higher and higher bills from doctors, driving up healthcare costs. In just 10 years, healthcare spending in the US tripled. By the mid-1980s, Medicare began to look for pricing alternatives.

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.

These units form the basis for Medicare payment — and many other insurers use the scale to calculate their reimbursement rates as well. ”

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 unit value, called the relative value unit. The “total” RVU is a combination of 3 components: malpractice RVU, work RVU, and practice expense RVU. These units form the basis for Medicare payment — and many other insurers use the scale to calculate their reimbursement rates as well. 

The component work RVU is often used for physician productivity reporting and 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 reimbursement. 

Medical Billing Benchmark Report

How are RVU payments calculated?

  1. Physician Work RVU evaluates the time and clinical skill necessary to treat a patient during a specific encounter. It usually runs about 51% of the total RVU.
  2. Practice Expense RVU calculates the costs of labor, building space, equipment, and office supplies. It typically comprises 45% of the total.
  3. Professional Liability Insurance (Malpractice) Expense RVU documents the cost of malpractice insurance premiums. It represents about 4% of the total.

To derive the Medicare payment, each of the components is adjusted by the Centers for Medicare & Medicaid Services (CMS) according to your geographic location. These adjustments are geographic practice cost index (GPCI). Finally, the formula includes an annually-updated conversion factor issued by the federal government. 

For each CPT code, the formula derives the annual Medicare reimbursement rate: 

[(Physician work RVU * Physician work GPCI) + (Practice Expense RVU * Practice expense GPCI) + (Malpractice expense RVU * Malpractice expense GPCI)] * Conversion Factor = Medicare payment 

What does the work RVU include?

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. RVU calculations are overseen by the RVS Update Committee (RUC), which has members representing various specialties.

Work RVUs are the most used portion of the formula. ”

 Work RVU units of time are assigned to each of 3 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 proposed 2024 Medicare conversion factor?

According to a report by 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.”

On July 13, 2023, CMS announced the proposed 2024 conversion factor: $32.75, a decrease of $1.14 from the calendar year (CY) 2023 conversion factor of $33.89. The overall Medicare reimbursement rate will be lowered by 3.34%, as proposed.  The government typically finalizes the conversion rate weeks prior to the new year. 

Example of calculating RVU for physicians

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 would look like this:

CPT®2023 Work RVU2023 Practice Expense RVU*2023 Malpractice RVUTotal RVU

 *Transitioned, non-facility practice expense RVU

CPT is a registered trademark of the American Medical Association. 

Doing a similar exercise for Code 99214 would result in a Total RVU of 3.79, as highlighted in the table. Note that this is quite a bit larger than the Total RVU for Code 99213, which makes sense. A moderate level of evaluation and management (30-39 minutes) service should be valued higher than a lower level of evaluation and management (20-29 minutes).

Let’s say you’re a provider practicing in Nevada, and you want to calculate your Medicare reimbursement for 99213 in 2023. The 2023 conversion factor is $33.8872, which the CMS sets annually. You can take the units listed on the table for the code — 99213, that is — and marry up the GPCIs for Nevada (which is coded as “01312 – NEVADA”).  

[(Physician work RVU * Physician work GPCI) + (Practice Expense RVU * Practice expense GPCI) + (Malpractice expense RVU * Malpractice expense GPCI)] * Conversion Factor = Medicare payment 

[(1.30 * 1.0) + (1.28 * 1.0) +  (0.10 * 1.098)] * 33.8872 = $91.14979

The result is your payment rate from Medicare for 99212 in Nevada in 2023 — $91.15.  The math is simple, but it requires some effort. To make it easy on yourself, check out the free calculator provided by CMS. You can quickly calculate and compare rates by year, code, and geography. 

Download the report

How to maximize your RVUs

Now that you understand how RVUs are calculated and why they’re important, let’s explain how you can increase your RVUs to promote financial sustainability. In a fee-for-service payment model, the more RVUs you bill, the more reimbursement you’ll receive. Of course, you need to ensure you provide medically necessary services, but hopefully you get the idea. As the number of RVUs you bill increases, so do your payments. 

Here are 7 ways to maximize your RVUs.

1. Document every procedure and service you perform

In a busy medical practice, it’s easy to overlook everything you do for patients. Maybe it’s administering a vaccine, ordering an ancillary service or lab test, screening a patient for alcohol misuse, or so many other billable services. Each time you provide a service and don’t bill for it, you’re missing out on payment to which you’re entitled. Note that some of these omissions could have an associated high-yield RVU. 

2. Don’t forget to perform necessary preventive screenings

A recent study found that patients were less likely to undergo a screening during a telehealth visit than an in-person visit early in the pandemic. Review workflows for in-person and telehealth visits to identify and address care gaps. 

3. Be as specific as possible

For example, distinguishing between a complex and simple abscess incision and drainage can make a significant difference in RVUs. Partner with your medical coders and billers to identify documentation requirements for the most common procedures and services you offer. You may be surprised to discover that a bit more specificity can greatly enhance your payment.

4. Focus on medical decision making and time when billing office visits

To justify a higher-RVU office visit evaluation and management (E/M) code, you’ll need to be more mindful of how you document medical decision making and time spent with the patient. Review the E/M guidelines that took effect January 1, 2021

5. Leverage new RVU opportunities

As new medical codes are created, there are new opportunities to capture additional RVUs. For example, as of January 1, 2024, physicians could start billing for social determinants of health assessments, caregiver training services, community health integration, and principal illness navigation. Review MLN9201074 for more information.

6. Increase visit volume

Another way to maximize RVUs is to simply see more patients and bill more visits. Adding more hours to your workday is one way to do that. However, streamlining your processes can also help. For example, you can leverage your electronic health record to streamline documentation, e-prescribe, and save time during each visit. You can use patient self-service tools like online scheduling to reduce administrative burdens on front-end staff. You can expedite the check-in process by leveraging an electronic patient intake. There are many technological avenues to consider, all of which may help you add an additional appointment slot (or more) to your schedule.

Also be sure to take a look at your no-show rate. How high is it? If you’re planning to see 30 patients a day, but only 25 show up, that’s a problem. Increasing your visit volume could require you to rethink your process for appointment reminders and automate that process.

7. Provide more high-value procedures and services

For example, new patient visits have higher work RVUs than established patient visits. Therefore, closing your panel to new patients may be detrimental to your finances. Likewise, there could be procedures you don’t currently offer that could add value to your patients and your bottom. These include skin procedures, transitional care management, chronic care management, and more. Consider whether you can provide these services and how your care team can assist you.

RVUs are important for independent physicians

Physicians who work in hospitals, health systems or large practices often receive compensation based on 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 complex, 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. ”

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

Andy Swanson, SVP of Product Strategy and Sales for the Medical Group Management Association offers 3 scenarios for when RVU data can be especially beneficial to smaller practices.

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. Physicians 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.

“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:

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.

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Alesa Lightbourne, healthcare writer

Alesa Lightbourne is an award-winning author, professor, and former dean of an international business school. As a healthcare writer, her clients have included Fortune 50 companies, and her works have appeared in mainstream business, scientific, and medical publications.

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Elizabeth Woodcock

Dr. Elizabeth Woodcock is the founder and principal of Atlanta-based Woodcock & Associates. She has focused on medical practice operations and revenue cycle management for more than 25 years. She has led educational sessions for a multitude of national professional associations and specialty societies, and consulted for a diverse range of clients.

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