Relative Value Units (RVUs) are used by Medicare (and private insurance companies) to determine how much physicians are paid for providing healthcare services. Total RVUs have three components. Add to these the GPCI and the Medicare Conversion Rate and there are five elements necessary for accurate reimbursement calculation. These are all explained below. The PFSRVU file for 2020 is available from the Medicare Website.
Practice Expense (RVUp): This is composed of the direct costs (supplies, non-physician labor, equipment cost, etc.), and a factor accounting for the indirect costs, of providing the medical service (overhead for the office). In the Medicare PFSRVU database there are facility practice expenses and non-facility practice expenses. When these two values are the same that means there is no Site of Service Differential, the procedure is considered “facility-only” and the Office-Based surgical suite is not reimbursed. NON-FAC PE and FAC PE is discussed in more detail here.
Malpractice Expense (RVUm): This includes malpractice (professional liability) and other insurance expenses. These cost are separated from general overhead expenses so they can be tracked separately, and because they vary quite widely based on geography.
Physician Work (RVUw): This includes items such as the physician’s time (salary), training, skill, judgment, etc. necessary to provide the service. If a procedure is more complex, it is assigned a higher “work” value. This value is the same whether the procedure is perform in the office or a facility.
The three values above equal the total RVU’s for a given procedure or service. Once that is calculated it is multiplied by the GPCI, below and the current Medicare Conversion Factor (2020=$36.09) to determine the Medicare Allowable Reimbursement. Medicare pays 80% of the Medicare Allowable and the patient is responsible for the remaining 20%.
Geographic Practice Cost Indices (GPCI): Any given procedure would be more expensive if it was provided in San Francisco CA than in rural Tennessee. These are national GPCI tables and these apply the same to all procedures.
There’s a geographic adjustment for practice expense, another for malpractice expense, and a third GPCI for physician work).
The Formula is:
Relative Value = (Practice Expense RV * Practice Expense GPCI) + (Malpractice RV * Malpractice GPCI) + (Physician Work RV * Physician Work GPCI)
There are other factors that impact reimbursement such as modifiers and the 150% Rule (where the second procedure is paid at 50% and not 100%) or when surgical assistants are used.
On this website I include numerous examples of RVUs and how they break out by different types of procedures.
The total RVUs determine reimbursement rates for each procedure provided by a physician. Procedures are coded using CPT Codes–a standard developed and provided by the American Medical Association (AMA). Multiply the RVU for a procedure by the Medicare Conversion Factor to arrive at a Medicare reimbursement rate for any given CPT code.