Relative Value Unit (RVU) is A Standard in Medical Billing
1. RVUs for Determining Physician Compensation Benchmarks for Comparing Peers
For physicians who spend most of their time performing clinical services, hospitals frequently select the relative value unit (RVU) as the Standard for setting compensation. [1] Various companies and organizations publish RVU-based compensation data, including the American Medical Association,[2], [3] the Medical Group Management Association (MGMA), and Sullivan Cotter. [4] RVUs are a valuable concept to understand for an overview of medical coding and medical billing in healthcare.
These companies publish surveys that normalize and standardize physician compensation based on RVUs for each medical specialty, such as cardiology or orthopedics, and each geography. Even when it is uncertain what services a physician might have performed in the COVID-19 pandemic, due to the increase in telemedicine (i.e., remote delivery healthcare patient evaluation and management over the internet), the industry has turned to RVUs[5]
Current Procedural Terminology (CPT®)[6] is a coding system established by the American Medical Association (AMA) and describes procedures and services performed by physicians and other healthcare professionals. Hospitals bill for the surgical procedures and other work, a physician, performs using CPT medical codes. Certain CPT and HCPCS Level II codes have an assigned, standardized RVU. Because every service a physician bills for (or a hospital or other entity on behalf of a physician), RVUs have been accepted as a Standard benchmark for normalizing physician compensation regardless of whether the physician has an RVU-based compensation contract or another contract.
In other words, if the specific compensation arrangement between a physician and a hospital is unknown, CPT codes and the associated RVUs provide a scale for comparing physicians in different medical specialties. Alternatively, if physicians have different compensation methods that need to be compared, RVU-based survey data has become the standard. The Stark II law prohibits physicians from self-referring. Medicare antikickback laws also prohibit fraud and abuse by individuals and organizations and mandate that compensation between a hospital and a physician cannot represent an inducement or a referral reward. [7] MGMA surveys may be used to standardize compensation.
RVU-based compensation is a Standard measure for evaluating disparate physician compensation arrangements and benchmarking them to compare compensation within a specific medical specialty in False Claims Act Cases. (See United States of America ex. Rel. Elin Baklid-Kunz v. Halifax Hospital Medical Center et. Al. Case no. 6-09-CV-1002-ORL-31DAB) [8]
- Survey reports that can be used to determine the hourly rate for medical directorships under the Stark law (identified in the Stark II final rule):[9]
- Medical Group Management Association (MGMA) — Physician Compensation and Production Survey Report
- Sullivan, Cotter & Associates Inc.— Physician Compensation and Productivity Survey
- Hay Group— Physician Salary Survey Report
- ECS Watson Wyatt — Hospital and Health Care Management Compensation Report
- William M. Mercer—Integrated Health Networks Compensation Survey
A geographic practice cost index (GPCI) has been established for every locality for each of the three components of a procedure’s relative value unit. The GPCIs are applied to calculate a fee schedule payment amount by multiplying the RVU for each component by the GPCI for that component.
The RVUs have three components:
- Work RVUs (sometimes referred to as ‘wRVU’),
- Practice expense RVUs and
- Malpractice insurance cost RVUs
The premise of the model is to align physician effort (as measured by work RVU productivity) with compensation levels through the use of independent compensation surveys. For example, if a physician’s work RVUs are approximately the median of published survey data, the physician’s compensation would be set at the median. Physicians may prefer this model as it allows a physician to be compensated for services rendered regardless of a patient’s ability to pay. Physicians are not incentivized to treat uninsured or underinsured patients in a collections-based model. Hospitals may prefer the work RVU compensation model as it allows a hospital to compensate an employed or contracted physician for services rendered to unassigned patients, which may further the hospital’s ability to serve the local community.[10]
EXAMPLE:
33361 – Transcatheter aortic valve replacement (TAVR)[11] with prosthetic valve; percutaneous femoral artery approach
Work RVUs measure a physician’s specific time and effort to provide a specific service. Total RVU is not used for physician compensation because it measures a physician’s work effort and the cost of a physician’s malpractice insurance and practice overhead. Compensation surveys will report both total RVUs and work RVUs. The Medical Group Management (MGMA) Physician Compensation and Production Survey reports that the median total RVUs for an internal medicine physician is over 9,000, and the median work RVUs is nearly 5,000. It would not be a valid assumption to benchmark work RVUs to total RVU survey data. The predominant metric observed by physician compensation consultants is the physician work RVU.
A medical coding modifier may or may not be used with a CPT® code. A modifier is two characters (letters or numbers) appended to a CPT or HCPCS Level II code.[12]
2. Relative Value Units in Fee Schedules, such as Medicare
Since 1992, Medicare payments have been made under the MPFS (“Medicare Physician Fee Schedule”) for the services of physicians and other billing professionals. Physicians’ services paid under the PFS are furnished in various settings, including physician offices, hospitals, ambulatory surgical centers (ASCs), skilled nursing facilities and other post-acute care settings, hospices, outpatient dialysis facilities, clinical laboratories, and beneficiaries’ homes. Payment is also made to several suppliers for technical services, most often in settings where no institutional payment is made.[13]
Payments are based on the relative resources typically used to furnish the service. Relative value units (RVUs) are applied to each service for work, practice, and malpractice expenses. These RVUs become payment rates through the application of a conversion factor. Geographic adjusters (geographic practice cost indices) are also applied to the total RVUs to account for cost variation by geographic area. Payment rates are calculated to include an overall payment update specified by statute.
- The MPFS assigns RVUs to each Current Procedural Terminology (CPT) code for work, practice expense, and malpractice. RVUs are based on wage data for multiple specialty occupations and assess physician labor on several levels.
- Conversion factor—The conversion factor (CF) is the dollar amount assigned to an RVU. It is multiplied by the total RVU to determine the Medicare-allowed payment amount. The CF is the primary factor that determines increases or decreases in overall Medicare physician payment rates.
Physicians who provide care for Medicare beneficiaries receive reimbursement rates established annually by the Centers for Medicare and Medicaid Services (CMS) in the Medicare Physician Fee Schedule (MPFS). The agency assigns a value to each procedure a provider performs using relative value units (RVUs) and then adjusts the value over time using a conversion factor (CF), which is the dollar amount assigned to an RVU. The CF is the primary factor determining increases or decreases in overall Medicare physician payment rates.
In July 2023, CMS released the calendar year (CY) 2024 MPFS proposed rule, which announced changes to payment policy, including a proposed conversion factor of $33.89,[14] a 3.34% decrease from the current conversion factor in 2023. Since the passage of the Medicare Access and CHIP Reauthorization Act in 2015, annual changes to the conversion factor have been set in statute. However, the conversion factor is still subject to adjustments that account for budget neutrality and other factors, meaning that the real increase is often less than the statute prescribes. RVUs are reviewed and updated periodically but not annually, potentially creating a lag between physician reimbursement and increased care costs.
3. The RVU Disconnect between Fee Schedules and “Usual Customary and Reasonable” as to Charges
- The RVU Standards noted above are used by Medicare in part to determine fee schedules. The fee schedule is what Medicare pays after receiving a claim from a physician, hospital, or other healthcare provider. RVUs are not used to analyze customary charges.
- RVUs are also used as a benchmark to compare physicians’ productivity, but this is due to physician compensation by the provider for their work, not what a health plan pays to the organization that employs the physician. For example, a physician working in a practice or hospital is sometimes compensated based on wRVUs and may receive productivity bonuses. In contrast, the practice receives reimbursement based on a fee schedule, which is different.
[1] 2018. American College of Cardiology. Jesse E. Adams, III, MD, FACC; Alison Bailey, MD, FACC; Charles L. Campbell, MD, FACC; Larry Sobal
[2] American Medical Association physician compensation survey
[3] American Medical Association AMGA 2021 MEDICAL GROUP COMPENSATION SURVEY 2021 REPORT BASED ON 2020 DATA. http://www.amgaconsulting.com/wp-content/uploads/2021-Survey-Methodology.pdf
[4] Sullivan Cotter physician compensation survey. https://sullivancotter.com/surveys/physician-compensation-and-productivity-survey/
[5] Sullivan Cotter physician compensation survey. https://sullivancotter.com/surveys/physician-compensation-and-productivity-survey/ “Addressing COVID-19: Detailed Productivity Reporting. Additional data are being collected to understand COVID-19-related changes in physician and advanced practice provider work RVUs, compensation, and productivity ratios. This will also help to provide insight into emerging practice trends such as telemedicine and the use of virtualists. Organizations submitting this additional data will be eligible to purchase detailed analyses and results from the new findings.”
[6] CPT codes are a registered trademark of the American Medical Association. https://www.ama-assn.org/amaone/cpt-current-procedural-terminology
[7] 2007. Hobart Collins, CMPE. Fair and Square. Fair Market Value for Medical Directorships. MGMA Connexion Magazine, May/June 2007 issue.
[8] Case 6:09-cv-01002-GAP-TBS Document 292-6 Filed 05/29/13 Page 4 of 176 PagelD 16832
[9] 2007. Hobart Collins, CMPE. Fair and Square. Fair Market Value for Medical Directorships. MGMA Connexion Magazine, May/June 2007 issue.
[10] 2013. Johnathan Helm. Structuring and Assessing the FMV of Work RVU compensation models.
https://vmghealth.com/blog/structuring-assessing-fmv-work-rvu-compensation-models/
[11] Mayo Clinic, Transcatheter aortic valve replacement. Transcatheter aortic valve replacement (TAVR) is a minimally invasive heart procedure that replaces a narrowed aortic valve that fails to open properly (aortic valve stenosis). Transcatheter aortic valve replacement is sometimes called transcatheter aortic valve implantation (TAVI). TAVR may be an option for people who are at intermediate or high risk of complications from surgical aortic valve replacement (open-heart surgery). The decision to treat aortic stenosis with TAVR is made after a patient consults with a team of heart and heart surgery specialists, who work together to determine the best treatment option for a patient. TAVR can relieve the signs and symptoms of aortic valve stenosis and may improve survival in people who have severe symptoms.
[12] What is Medical Coding Modifiers? American Academy of Professional Coders (AAPC). https://www.aapc.com/modifiers/#:~:text=A%20medical%20coding%20modifier%20is,the%20meaning%20of%20the%20code.
[13] U.S. Department of Health and Human Services (“HHS”) Centers for Medicare and Medicaid Services (“CMS”). Calendar Year (CY) 2025 Medicare Physician Fee Schedule Final Rule. Medicare Parts A and B. https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2025-medicare-physician-fee-schedule-final-rule#:~:text=Payments%20are%20based%20on%20the,payment%20update%20specified%20by%20statute.
[14] U.S. Department of Health and Human Services (“HHS”) Centers for Medicare and Medicaid Services (“CMS”). “The final CY 2024 PFS conversion factor is $32.74, a decrease of $1.15 (or 3.4%) from the current CY 2023 conversion factor of $33.89.” https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2024-medicare-physician-fee-schedule-final-rule#:~:text=We%20are%20also%20finalizing%20coding,management%20or%20behavioral%20health%20visit.
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