Relative Value Units: The Basis of Medicare Payments

Relative Value Units: The Basis of Medicare Payments

There’s more than one way to determine your physician’s payment.

Medicare fee-for-service payments are calculated based on relative value units (RVUs) assigned to each covered CPT®/HCPCS Level II code. As defined in Medicare’s National Physician Fee Schedule Relative Value File, there are three RVU categories that, when totaled, determine payment.

  1. Work RVUs account for the provider’s work when performing a procedure or service. Work RVUs typically account for 50 percent or more of the RVU total for a given code.
  2. Practice expense (PE) RVUs reflect the cost of non-physician labor and expenses for building space, equipment, and office supplies.
  3. Malpractice (MP) RVUs reflect the cost of malpractice insurance for each procedure or service.

Work and MP RVUs for a given code remain the same whether the service is provided in the physician office, an inpatient hospital, or any other healthcare setting. But because the expense of providing a service may differ depending on where the service is provided (facility vs. non-facility), the Physician Fee Schedule (PFS) lists separate columns to describe “facility” versus “non-facility” PE RVUs. You can find the place of service (POS) information you need to determine when to use the facility versus non-facility amounts in the Centers for Medicare & Medicaid Services (CMS) Claims Processing Manual 100-04, chapter 26, section 10.5.
Add It Up
To find the RVU total for a specific code, simply calculate the sum of work RVUs, MP RVUs, and either the facility or non-facility PE RVUs (as applicable to your POS). For example, per the 2015 National Physician Fee Schedule Relative Value File, CPT® 17260 Destruction, malignant lesion (eg, laser surgery, electrosurgery, cryosurgery, chemosurgery, surgical curettement), trunk, arms or legs; lesion diameter 0.5 cm or less is assigned 0.96 work RVUs, 0.12 MP RVUs, 0.91 facility PE RVUs, and 1.59 non-facility PE RVUs, for a total of 1.99 facility RVUs and 2.67 non-facility RVUs. Note that facility and non-facility totals for each active CPT® code may be found in the Physician Fee Schedule Relative Value File (columns M and L, respectively).
Adjust for Regional Cost Differences
Because the cost of practicing medicine varies by geographic location, CMS applies separate Geographic Practice Cost Indices (GPCI) to each of the three relative values (work, MP, and PE) used to calculate payment. CMS is required to update the GPCIs every three years.
The easiest way to find GPCIs for your location is by using the Physician Fee Schedule Look-Up Tool, found on the CMS website (go to: The tool allows you to search by code, locality, and type of information (e.g., RVUs, pricing information, or GPCIs).
For example, if you’re in Seattle and want to find the GPCIs for your area, select “Geographic Practice Cost Index” from the “Type of Information” pull-down menu, and then select “Specific Locality” from the “Select Carrier/Medicare Administrative Contractor (MAC) Option.” A “Carrier/MAC Locality” option displays where you can select “Seattle (King Cnty) WA” from the pull-down menu. Click “Submit” and the results will show you that the “GPCI WORK” for Seattle is 1.025, the “GPCI PE” is 1.155, and the “GPCI MP” is 0.495. The average GPCI value is 1. We know that work RVUs and PE RVUs are paid slightly higher than average in Seattle, while MP RVUs are paid at approximately half the average rate.
Apply the Formula to Determine Final RVUs
To determine the true, total RVUs for a procedure or service in your area, you would apply the following formula:
(work RVUs x work GPCI) + (PE RVUs x PE GPCI) + (MP RVUs x MP GPCI)
For example, to determine the final RVUs for 17260 when provided in a physician office in Seattle, apply the formula as follows:
(0.96 work RVUs x 1.025 work GPCI) + (2.67 non-facility PE RVUs x 1.155 PE GPCI) + (0.12 MP RVUs x 0.495 MP GPCI) = 4.12725 RVUs
In the facility setting, the total is found by applying the same formula, but using the facility PE RVUs:
(0.96 work RVUs x 1.025 work GPCI) + (1.59 facility PE RVUs x 1.155 PE GPCI) + (0.12 MP RVUs x 0.495 MP GPCI) = 2.87985 RVUs
Factor in Conversion Factor
To calculate payment, you must multiply the POS- and locality-specific RVU total by a dollar conversion factor (CF). The CF for 2015 was $33.9764. The CF is updated annually, but it is consistent for all POS and localities.
From our examples above, we already know the specific RVU totals for 17260 in the facility and non-facility settings in Seattle. To arrive at a current payment amount, we multiply these totals by the CF:

  • Seattle, facility: 2.87985 RVUs x 33.9764 CF = $97.85
  • Seattle, non-facility: 4.12725 RVUs x 33.9764 CF = $140.23

Here’s the complete formula used to arrive at these figures:
[(work RVU x work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = final payment
You can skip the math (and save time) by using the Physician Fee Schedule Search tool. If you select “Pricing Information” from the “Type of Information” pull-down menu, select “Seattle (King Cnty) WA” as your locality, and specify code 17260, the lookup tool will tell you the non-facility and facility prices for the code.
CMS, PFS Relative Value Files:
Physician Fee Schedule Look-Up Tool:
Physician Fee Schedule Search page:

John Verhovshek, MA, CPC, is managing editor at AAPC and a member of the Hendersonville-Asheville, N.C., local chapter.

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John Verhovshek, MA, CPC, is a contributing editor at AAPC. He has been covering medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University.

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