As we move forward in our discussions on RVUs and the Resource-Based Relative Value Scale database, it is important to become familiar with the Physician Fee Schedule (PFS) Relative Value Files. These can be downloaded from the CMS website. These files are available, sorted by release date and version and contain all of the RVU data relied upon by Medicare (and most third-party payers).
Of interest is the fact that not every procedure code listed in the database is associated to an RVU. In fact, of the 15,866 individual procedure code/modifier line items listed within the table for the July 2014 release, 7,008 have no total RVU associated to them. When this happens, the reason can often be found in the Status Indicator column in the table. For example, an "X" in that column reports that code as a "Statutory Exclusion," meaning that the procedure is not payable and as such, no RVU values are reported. An "E" in that column indicates that the procedure is "Excluded from Physician Fee Schedule by regulation," meaning that CMS chose to exclude it for one reason or another and as such, there is no associated payment and no RVUs. Others, however, such as those procedures represented by an ''I" in the status column ("Not valid for Medicare purposes"), while excluded from payment, do, in fact, have associated RVU values if such values were originally created. These include commonly used codes such as consults (99241 – 99245 and 99251 – 99255).
One question we might ask is, "Why wouldn't there be any associated RVU values for those codes that are paid by Medicare?" The answer is that their consumption of resources is either variable (such as supplies), known (such as with drugs), or associated to a code with a non-standard definition (such as those ending in 99). It makes sense, actually, since all but the latter codes do not have a direct involvement of provider resources. For example, a drug (j-code) is just a supply with a known value and the provider does not add or take away from the value or resources consumed by that drug. If, however, the drug is injected, there is normally an injection code and that code will be associated to an RVU value because there is an associated cost in both dollars and time for that procedure.
Even amongst those procedures that do have associated RVU values, not all of those values are represented. For example, of the 8,859 procedure code/modifier line items in the PFS RBRVS database, 963 do not have a work RVU; this is a real concern for those looking to establish work RVU-based compensation plans. Again, we need to ask "Why?" For some, it's a modifier issue. For example, of those procedures that have a total RVU but no work RVU, 833 are associated to a TC modifier. This modifier indicates that the procedure is a technical component only and the resources are associated only to the cost of the equipment and testing/procedures and not inclusive of the physician time and effort. For each of these procedure codes, you will also see an associate modifier -26, which describes the physician time and effort associated to the global procedure. Others define supplies and/or services that exclude the physician's participation.
So what do we do with these line items that lack either all or some RVU components? My advice is to leave them alone; they are absent these values for a reason. But for some, like those codes ending in 99, you may want to create RVU values.
There are two methods to do this that tend to work out pretty well.
The first is to divide the Medicare allowed amount by the current conversion factor. For example, procedure code 80051 (electrolyte panel) has a Medicare fee amount but no associated RVU values. In Florida, Medicare allows $9.57. If I divide this by the current conversion factor of 35.8228, I get a total RVU value of 0.267.
Some procedures lack both a fee schedule amount and RVU values, such as 48999 (pancreas surgery procedure). In the second method, we find a similar procedure that has RVU values and adjust that accordingly. For example, we might use code 48146 (pancreatectomy) as a starting point with a work RVU of 30.6, a practice expense RVU of 16.59, and malpractice expense RVU of 6.24 (total RVU = 53.43). Maybe the physician determined that the 48999 procedure required 25 percent more time and effort. In this case, just multiply each of the components by 1.25 and you have your new RVU value.
In summary, it is important to know that, not only are there procedures without RVU values, but they lack those values for a reason — and sometimes it is a good reason. As such, use care when assigning RVU values to procedures that do not have them. Often, there are better ways to figure out resource consumption.
Want more information about RVUs, productivity, and compensation from expert Rosemarie Nelson? Join us Sept. 19 & 20 in Philadelphia, for Practice Rx, a new conference for physicians and office administrators.
When it comes to managing practice finances, physicians have few better tools at their disposal than the Relative Value Unit (RVU). RVUs can be used for everything from helping to determine compensation in a multi-physician practice to deciding whether to take a buyout offer from a hospital system.
What are RVUs?
RVUs are part of the system Medicare uses to decide how much it will reimburse physicians for each of the 9,000-plus services and procedures covered under its Physician Fee Schedule, and which are assigned current procedural terminology (CPT) code numbers. The dollar amount for each service is determined by three components: physician’s work, practice expenses, and malpractice insurance.
(Physician’s work, in turn, is divided into four subcomponents: the time it takes to perform the service, the technical skill and/or physical effort required to perform the service, the amount of mental effort and judgment required, and the stress arising from any potential risk to the patient from performing the service.)
Each of these three components is assigned an RVU. Then, to account for variations in living and business costs across the country, each of the three components is multiplied by a factor known as the Geographic Practice Cost Index, or GPCI. The three components are added together, and the resulting sum is then multiplied by a dollar amount known as the conversion factor to arrive at the reimbursement dollar figure:
The dollar amount of the conversion factor is established each year by Congress. The RVUs themselves are determined as part of what’s known as the Resource-based Relative Value Scale (RBRVS), a system for describing, quantifying, and reimbursing physician services relative to one another. The values in the RBRVS scale are reviewed periodically by a panel of physicians, known as the Relative Value Scale Update Committee (RUC), representing every sector of medicine.
Why they were created
The RVU/RBRVS system was created as a way of bringing more uniformity to Medicare’s reimbursement systems while also trying to rein in spiraling medical spending, explains H. Christopher Zaenger, principal of Z Management Group in Barrington, Illinois, and a Medical Economics editorial consultant. Until then, Medicare based its reimbursements on what it determined were the “uniform, customary, and reasonable” fees for a service in a given market.
In 1988, the Centers for Medicare and Medicaid Services commissioned a study from the Harvard School of Public Health to look at the resources and costs associated with the services that doctors provide. That study led to the introduction of the RBRVS system in 1992. It has been in use ever since, although not without controversy.(See “Liked or loathed, RUC wields broad influence.”)
Using RVUs for practice management
From a practice management perspective, understanding RVUs is important because “they are the language the payers speak when contracting with practices, and for reimbursing doctors for the work they do,” explains Jeffrey Milburn MBA, CMPE, an independent national practice consultant with the Medical Group Management Association (MGMA.) “It’s kind of a national standard, and like it or not, doctors need to be familiar with the system.”
The reimbursement impact of the RVU system is not limited to Medicare. “If you look at most contracts today, you see that virtually every commercial carrier benchmarks its fee schedule to the Medicare fee schedule,” says Zaenger. “Historically it’s always been higher than what Medicare pays, but over the last three to five years that has changed, and now there are some plans that actually pay less than Medicare.”
The percentage of the Medicare fee schedule a commercial insurer will pay often is a function of the supply of, and demand for, the type of service a practice provides. “I always refer to what I call the geographic and specialist monopoly,” explains Milburn. “For example, if you’re the only orthopedic group in town, you have not only a geographic monopoly but a specialty monopoly. That would give you a lot of leverage with the insurance company, which means it will pay much more than Medicare.”
Conversely, if many practices are providing the same service in a community—or if only one commercial payer includes the community’s physicians in its panel, the doctors will have to accept whatever rate the payer sets, even if it’s less than Medicare, or risk losing patients.
Along the same lines, RVUs are a useful way of comparing how well payers reimburse for the same service or procedure, says Frank Cohen, principal of the Frank Cohen Group, a medical consulting firm in Clearwater, Florida and a Medical Economics editorial consultant. To do so, says Cohen, first divide the practice’s total expenses for the year by the practice’s RVUs, to produce a dollar cost per RVU.
Armed with that information, says Cohen, “you can go to a payer and say ‘I do so much better with these other payers that it’s not worth it for me to see your patients anymore.’ You’ll have a lighter patient load and you’ll make more money.” And while practices sometimes balk at the idea of giving up any patients, “sometimes the best thing you can do for your business is to send the bad payers to your competitors.”
Knowing the costs and revenues associated with specific procedures and payers can yield an additional benefit, Cohen notes. In most cases, costs and revenues tend to increase relative to each other. But occasionally a practice may encounter certain procedures where, for whatever reason, the cost-to-revenue ratio is much higher than in others. In those cases, he says, he advises practices to try to negotiate a “carve out,” whereby the payer reimburses at a higher rate for those procedures.
Cohen also advises clients to measure their providers’ productivity-per RVU relative to one another. That can be done by calculating each provider’s revenue and RVUs as a percentage of the practice’s total revenue and RVUs, and then dividing the results. (See table, “RVU-based productivity).
Cohen cautions, however, that there may be valid reasons for a provider’s low ratio, such as his or her willingness to see more Medicaid patients than others in the practice. “Rather than looking at the ones that are doing poorly and ask what they’re doing wrong, I prefer to look at why some are doing better, and see if there’s something that can be applied to the ones not doing as well,” he says.
RVUs and physician compensation
Another potential function for RVUs is as a tool to help multi-physician practices determine how much to pay their physicians. Practices typically use them for this purpose in one of two ways, says Milburn. The first is straight productivity, whereby the practice multiplies the number of work RVUs the doctor generates by its own conversion factor to arrive at a compensation figure.
The conversion factor typically is determined by dividing the national median compensation for a specialty by the median number of work RVUs for that specialty, data for which can be obtained from the MGMA or American Medical Group Association. That conversion factor acts as a “market rate” for doctors in that specialty for each RVU they produce, says Milburn.
The second approach is to pay each physician a salary plus a bonus tied to the number of work RVUs generated over a base number, such as 2000 RVUs. “When a practice wants to put in a productivity incentive, that’s typically how they will do it,” says Milburn.
With hospital systems across the country looking to grow, RVUs can be among the tools a practice uses to decide whether to sell, says Zaenger. That’s because most large systems use RVUs to set physician compensation and productivity bonuses. “They really need to analyze their practice from an RVU standpoint, so if the hospital says they will be benchmarked at, say, 4600 RVUs per year for their evaluation and management services, they know if that’s a realistic number for them to attain.”