What Are Relative Value Units (RVUs)?

RVUs are the basic component of the Resource-Based Relative Value Scale (RBRVS), which is a methodology used by the Centers for Medicare & Medicaid Services (CMS) and private payers to determine physician payment.

RVUs, or relative value units, do not directly define physician compensation in dollar amounts. Rather, RVUs define the value of a service or procedure relative to all services and procedures. This measure of value is based on the extent of physician work, clinical and nonclinical resources, and expertise required to deliver the healthcare service to patients. RVUs ultimately determine physician compensation when the conversion factor (CF), dollars per RVU, is applied to the total RVU.

Under the RBRVS, physician payment for services are determined by:

  1. Total RVUs
  2. Geographic Practice Cost Indices (GPCIs)
  3. Conversion Factor (CF)

Note: Some CPT® codes consider additional factors, defined by CMS as professional or technical component (TC) fees.

What Is the Role of RVUs in a Physician Fee Schedule?

The use of RVUs to valuate medical services reformed healthcare payment systems. Originally created as the principle unit of the RBRVS for CMS, RVUs became the foundation of the Medicare Physician Fee Schedule (MPFS), as well as the basis of most commercial fee schedules.

Prior to the implementation of the RBRVS in 1992, physicians set charge rates for the medical care they provided to patients. Price uniformity came by way of Medicare’s Customary, Prevailing, and Reasonable (CPR) charge system (similar to the Usual, Customary, and Reasonable (UCR) system used by private health insurers).

In the CPR system, Medicare defined customary charges as the median of physician’s charges for a given service and initially set the prevailing charge at the 90th percentile of the customary charges of all same-specialty physicians in a region. Medicare defined the reasonable charge as the lowest of payments received for a customary charge, or the prevailing charge, in the Medicare payment area.

Problems with CPR/UCR

Charges for the same service under the CPR system led to considerable variance in physician compensation. Individual Medicare carriers with unique policies magnified compensation disparity, with some carriers paying all providers one prevailing charge for a service, while others paid each specialty physician a different prevailing rate for that service.

Also, nothing within CPR regulations prevented physicians from raising their fees. To control Medicare costs, CMS reduced the prevailing charge from the 90th to the 75th percentile. This development, though, which linked increases in prevailing charges to increases in the Medicare economic index (MEl), left payments impervious to changes in clinical practice and technology.

To illustrate the resulting problem, CPR critics cite cataract surgery, which is among the oldest procedures in medical history, as well as one of the most common. Despite the evolution of surgical techniques that had reduced operating time, physician payments in 1985 remained in the ballpark of $6,000—and consumed 4% of Medicare’s budget—long after the cost of cataract surgery had been halved.

In addition to compensation for procedures remaining high after their costs decreased, compensation for office visits failed to keep pace with economic trends and lagged after increases in the complexity and cost to diagnose and manage patients.

Similarly, physician payments plateaued across geographic areas. Although innovations in technology and clinical practice made its way to rural areas, compensation for rural physicians overlooked advancements and held to the prevailing charges of the ‘70s.

Enter the RBRVS

In 1992, Medicare revolutionized the way it paid for physician services. Instead of basing payments on physician charges, the federal government, with help from the American Medical Association (AMA), established a standardized physician fee schedule based on relative value units.

Now in place for 28 years, the RBRVS schema is not without its critics. Among concerns, some industry experts say that compensating physicians based on effort rather than outcome could drive the overuse of high-RVU procedures. Criticism aside, though, the RBRVS proved to be a giant leap towards supporting a fair and equitable basis for physician compensation.

Understanding RVUs

Not all physician services represented by a Current Procedural Terminology (CPT®) code or Healthcare Common Procedure Coding System (HCPCS) Level II code are created equal. Some services require a considerable investment of physician time and effort, clinical staff, and specialized equipment. Other services require inappreciable time and resources.

To implement a fee schedule built on the principle that payments for medical procedures and services should reflect the costs of providing them, CMS adopted the RBRVS, which calculates fees for each service and procedure based on a single measure—the relative value unit. Using code descriptors as vignettes, medical codes were assessed and assigned RVUs that ranked the resources used to provide the services on a common scale.

In other words, the RVUs assigned to a procedure or service compares its value relative to other procedures or services. A service with 6 total RVUs means the resources consumed in delivering that service are 6 times greater than those consumed by a procedure with 1 RVU.

For example, CPT® code 69209 Remove impacted ear wax unilateral is assigned 0.40 total RVUs. But cleaning out a mastoid cavity is more extensive and involves more resources, which is why Medicare assigns CPT® code 69220 Clean out mastoid cavity 2.25 total RVUs. By comparison, 69150 Extensive ear canal surgery correlates to 29.25 total RVUs.

Types of RVUs

To accurately capture the consumption of time, effort, and money involved in providing a service to patients, the RBRVS model utilizes three specific components, or types of RVUs, that, when totaled, determine payment. These RVU types measure the following:

  • Work RVUs account for the provider’s work when performing a procedure or service. Variables factored into this value include technical skills, physical effort, mental effort and judgement, stress related to patient risk, and the amount of time required to perform the service or procedure. Work RVUs account for 50.866% of the total RVU for a code.
  • Practice expense (PE) RVUs reflect the cost of clinical and nonclinical labor and expenses of the practice. These include medical supplies, office supplies, clinical and administrative staff, and pro rata costs of building space, utilities, medical equipment, and office equipment. Practice expense RVUs account for 44.839% of the total RVU for a given service.
  • Malpractice (MP) RVUs reflect the cost of professional liability insurance based on an estimate of the relative risk associated with each CPT® code. Malpractice RVUs account for 4.295% of a service’s total RVUs.

With recommendations from the AMA’s Specialty Society Relative Value Scale Update Committee (RUC), CMS updates physician work, practice expense, and professional liability insurance relative values annually to address changes in medicine, technology, and economy. Each year, RUC also examines new, revised, and potentially misvalued codes to determine a relative value by comparing the physician work to existing codes. Statutory mandate requires CMS to review all components of the RBRVS every 5 years at a minimum.

Note: While Medicare has specific payer systems and rules, most non-Medicare payers, including private health plans, use the RBRVS as the basis for determining payments.

Non-Facility & Facility RVUs

Because the expense of providing a service may differ depending on where the service is performed, place of service (POS) factors into reimbursement. Of the nearly 50 official places of service, each with a unique POS code, CMS makes a distinction and organizes all places of service into 2 categories:

  • Non-facility usually refers to the physician’s office (POS code 11).
  • Facility can refer to an inpatient hospital (POS code 21), ambulatory surgery center (POS code 24), or skilled nursing facility (POS code 31).

Regardless of POS, work and MP RVUs for a CPT® or HCPCS Level II code remain unchanged. POS comes into play and impacts reimbursement when CMS and other payers determine that practice expenses for a service or procedure are less when delivered at a facility (compared to a non-facility).

When a physician provides certain services in a facility, the facility—rather than the physician practice—covers overhead costs (i.e., clinical personnel, equipment, supplies). In these instances, CMS and commercial payers assign 2 different PE RVUs to the CPT® or HCPCS Level II code—a non-facility PE RVU and a facility PE RVU. Physician reimbursement, then, depends on the POS code, which tells payers where the service was performed.

For example, CPT® code 36217 Selective catheter placement, arterial system; initial third order or more selective thoracic or brachiocephalic branch, within a vascular family is assigned 6.29 work RVUs and 1.21 MP RVUs. These values remain the same whether the procedure is performed in a non-facility or facility.

PE RVUs for this code, though, vary depending on the place of service. Medicare’s 2020 National Physician Fee Schedule Relative Value File lists 46.44 PE RVUs when CPT® 36217 is performed in a non-facility. When this procedure is performed in a facility, PE RVUs drop to 2.02 because overhead costs are not incurred by the physician.

CPT® Code 36217 Work RVUs PE RVUs Malpractice RVUs Total RVUs
Non-Facility 6.29 46.44 1.21 53.94
Facility 6.29 2.02 1.21 9.52

To calculate the total RVUs for a CPT® or HCPCS Level II code, add the work RVUs, MP RVUs, and either the facility or non-facility PE RVUs (as applicable to your POS).

You can find POS details in the Medicare Claims Processing Manual 100-04, Chapter 26, Section 10.5.

Geographic Practice Cost Indices

Physicians in Anchorage pay twice as much for non-clinical staff as physicians in Oklahoma City. A kilowatt hour of electricity costs 3 times more in Hawaii than in Louisiana. Office space in San Francisco is 5 times higher than in Albuquerque.

With the goal of achieving fair and equitable physician compensation, CMS incorporates a geographic practice cost index (GPCI) into the RBRVS to neutralize regional economies.

For every Medicare-defined payment area, 3 distinct GPCI adjustments (work GPCI, PE GPCI, MP GPCI) are applied to the 3 types of RVUs used to calculate payment. These adjustments are updated every 3 years by CMS and account for differences in the cost of furnishing physician services across regions of the U.S.

The degree of fee variance among the 111 Medicare localities can be inferred from the following sample of GPCI adjustments:

LOCALITY NAME 2020 Work GPCI 2020 PE GPCI 2020 MP GPCI
Beaumont 0.994 0.934 0.695
East St. Louis 0.993 0.939 1.723
Georgia (excluding Atlanta) 0.987 0.889 0.989
Manhattan 1.054 1.192 1.823
Mississippi 0.978 0.856 0.521
New Mexico 0.990 0.908 1.207
NYC Suburbs/Long Island 1.044 1.214 2.425
Seattle 1.031 1.170 0.854
Wisconsin 0.990 0.949 0.322

When the corresponding GPCI adjustments of a locality are applied to the 3 RVUs types, total RVUs for a procedure can vary significantly.

For example, Medicare assigns 21.47 total RVUs for both facility and non-facility sites to CPT® code 24341 Repair, tendon or muscle, upper arm or elbow, each tendon or muscle, primary or secondary (excludes rotator cuff). After GPCI adjustments, though, the total RVUs for 24341 performed in Georgia (excluding Atlanta) fall below the national average by 1.27 RVUs and are instead reimbursed for 20.196 total RVUs.

To determine the GPCI-adjusted total RVUs for a procedure or service in your area, apply the formula:

(work RVUs x work GPCI) + (PE RVUs x PE GPCI) + (MP RVUs x MP GPCI)

Expanding on the above example, the final RVUs for 24341 when provided in an East St. Louis physician’s office are:

(9.49 work RVUs x 0.993 work GPCI) + (10.18 PE RVUs x 0.939 PE GPCI) + (1.8 MP RVUs x 1.723 MP GPCI) = 22.083 total RVUs

Total RVUs for the same procedure performed at a Long Island hospital are:

(9.49 work RVUs x 1.044 work GPCI) + (10.18 PE RVUs x 1.214 PE GPCI) + (1.8 MP RVUs x 2.425 MP GPCI) = 26.630 total RVUs

MPFS Conversion Factor

An RVU must be multiplied by a dollar conversion factor (CF) to become a payment schedule. Medicare calculates an annual CF based on the previous year’s CF and adjusts to maintain budget neutrality. The MPFS CF trends incrementally upward each year, barring a major rescaling of RVUs.

Conversion Factor (CF)

2016 2017 2018 2019 2020
$35.8043 $35.8887 $35.9996 $36.0391 $36.0896

In simplest terms, the conversion factor converts the value expressed in RVUs to dollars. It represents a constant monetary amount, meaning the annual CF is universally applied to all services and procedures for a given payment year (aside from anesthesia services, for which CMS applies a separate fee schedule methodology and CF.)

In the previous section, we calculated the GPCI-adjusted total RVUs for CPT® code 24341 Repair arm tendon/muscle when performed in different locations. Georgia’s total RVUs of 20.196, when multiplied by the CF, translates to $728.87 in reimbursement. The same procedure in Long Island receives $961.08 based on 26.630 RVUs.

Here’s the complete formula used to determine physician compensation:

Medicare Physician Fee Schedule Payment Rates Formula

[(work RVU x work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = final payment

Again, the sum of the 3 geographically weighted RVU types multiplied by the Medicare CF determines the Medicare payment.

In the table below, you’ll see 4 calculations for 1 service based on 2 payment regions and 2 PE RVUs. While CMS assigns a national average of 24.97 RVUs (or $901.16 in reimbursement) to CPT® 52317 Litholapaxy: crushing or fragmentation of calculus by any means in bladder and removal of fragments; simple or small (less than 2.5 cm), the actual fee schedule varies for each location and place of service.

The Manhattan physician receives almost $600 more when performing the procedure in the office (non-facility) versus the hospital (facility). All factors entering this fee calculation remain the same, except for the PE RVUs.

In both the facility and the non-facility, the Manhattan physician’s reimbursement exceeds the Beaumont physician’s reimbursement. The determinants in these calculations are the 3 GPCI adjustment factors.

While total RVUs differ in each instance, it’s important to realize that payments are resource based and relatively valued to achieve equitable physician compensation. Though it seems almost paradoxical, a fair and equitable fee schedule requires different physician payments to ensure physicians are paid the “same”.

NON-FACILITY: CPT® Code 52317
  Manhattan Physician’s Office Beaumont Physician’s Office
  RVUs GPCI RVUs RVUs GPCI RVUs
Work 6.71 x 1.054 = 7.072 6.71 x 0.994 = 6.669
Practice Expense 17.48 x 1.192 = 20.836 17.48 x 0.934 = 16.326
Malpractice 0.78 x 1.823 = 1.421 0.78 x 0.695 = 0.542
Total RVUs 24.97   29.329 24.97   23.537
PAYMENT Total RVUs (29.329) x CF ($36.0896) = $1,058.47 Total RVUs (23.537) x CF ($36.0896) = $849.44
FACILITY: CPT® Code 52317
  Manhattan Hospital Beaumont Hospital
  RVUs GPCI RVUs RVUs GPCI RVUs
Work 6.71 X 1.054 = 7.072 6.71 x 0.994 = 6.669
Practice Expense 2.55 X 1.192 = 4.896 2.55 x 0.934 = 2.381
Malpractice 0.78 X 1.823 = 1.421 0.78 x 0.695 = 0.542
Total RVUs 10.04   13.389 10.04   9.592
PAYMENT Total RVUs (13.389) x CF ($36.0896) = $483.20 Total RVUs (9.592) x CF ($36.0896) = $346.17

Global Surgical Packages

Medicare allocates a number of post-operative days to a procedure, based on the procedure’s severity, by assigning its medical code to one of 3 global surgical packages:

  • 0-Day Post-operative Period: Endoscopies and Some Minor Procedures, Codes with “000” in the MPFS
    • No pre-operative period
    • No post-operative days
    • Visit on day of procedure is generally not payable as a separate service.
  • 10-Day Post-operative Period: Other Minor Procedures, Codes with “010” in the MPFS
    • No pre-operative period
    • Visit on day of the procedure is generally not payable as a separate service.
    • Total global period is 11 days. Count the day of the surgery and the 10 days immediately following the day of the surgery.
  • 90-Day Post-operative Period: Major Procedures, Codes with “090” in the MPFS
    • One day pre-operative included
    • Day of the procedure is generally not payable as a separate service.
    • Total global period is 92 days. Count 1 day before the day of the surgery, the day of surgery, and the 90 days immediately following the day of surgery.

For billing and reimbursement purposes, all necessary services routinely furnished before, during, and after a procedure by a surgeon or members of the surgeon’s group and specialty are included in the global surgical package. The procedure code is assigned one total RVU value and receives a single payment encompassing all care associated with the procedure during the global period.

Global Package RVU Distribution

But sometimes a physician will perform only part of the global package. When reporting partial services, the total RVUs for most procedures are divided into pre-operative, intra-operative, and post-operative care.

For example, 24150 Radical resection of tumor, shaft or distal humerus is valued at 44.81 RVUs. Pre-operative care is valued at 1% or 4.48 RVUs. Intra-operative care is valued at 69% or 30.92 RVUs, and post-operative care at 21% or 9.41 RVUs.

A physician who provides only the intra-operative service will be reimbursed for 30.92 RVUs, or $1,115,89 (versus $1,617.17 for 44.81 total RVUs, had the physician provided the complete global package) for CPT® code 24150.

The 2020 National Physician Fee Schedule Relative Value File includes the percentages for each components of the global package.

  • The pre-operative portion of the global surgical package includes a history and physical examination and obtaining consents. Report the CPT® code with modifier 56.
  • The intra-operative portion of the global surgical package includes routine post-operative services provided in the hospital. Report the CPT® code with modifier 54.
  • The post-operative portion of the global surgical package includes routine post-operative services provided during an office visit after hospital discharge. Report the CPT® code with modifier 55.

RVUs & Multiple Procedures

When a provider performs multiple procedures during the same surgical session, payment may be adjusted for some services. Most CPT® code books and code lookup tools will alert you when payment adjustments apply.

Generally, a payment adjustment means that the procedure with the highest number of RVUs is reimbursed at 100%, with additional same-session procedures reimbursed at 50%. Some payment adjustments, though, involve procedure-specific rules.

If a procedure coincides with an endoscopic procedure with the same base code, the value of the base code is subtracted from the value of the second code reported. For example, codes 58562 Hysteroscopy remove myoma and 58561 Hysteroscopy remove leiomyomata both have 58555 Hysteroscopy diagnostic as their base code. If 58561 and 58562 are performed in a facility during the same surgical session, the RVUs determining reimbursement are calculated as:

  • Endoscopy 1: Reimbursement for code 58561 is based its full value of 10.48 RVUs.
  • Endoscopy 2: Reimbursement for code 58562 is based on its full value of 6.47 RVUs minus 4.42 RVUs for its base code 58555 (2.05 total RVUs).
  • Endoscopy 1 & 2: Total reimbursement for both procedures performed in the same session is paid according to 12.53 RVUs (10.48 RVUs for code 58561 + 2.05 RVUs for base code 58555).

But if the 2 endoscopy codes aren’t in the same code family (e.g., a laparoscopic procedure and a hysteroscopic procedure), endoscopic rules don’t apply, and reimbursement is paid in full for both services.

Another payment adjustment pertains to imaging rules. When an imaging procedure is performed on the same day as another imaging procedure in the same family (i.e., two ultrasounds), the higher valued imaging procedure is reimbursed at 100% for both the professional and technical components. The second imaging procedure is reimbursed 100% for the professional component and 75% for the technical component.

For example, CPT® code 76857 Ultrasound exam, pelvic limited is specified as an “88” code when performed with other ultrasound procedures. Therefore, if 76857 and 76830 Ultrasound, transvaginal are performed during the same office visit, the reimbursement is determined by:

  • Ultrasound 1: Reimbursement for code 76857 is based on its full value of 0.67 RVUs for the technical component and 0.71 for the professional component (1.38 total RVUs).
  • Ultrasound 2: Reimbursement for code 76830 is based on the full value of its professional component of 0.99 RVUs and 75% of its technical component of 2.45 RVUs. [0.99 + 0.75(2.45) = 2.83 total RVUs].
  • Ultrasound 1 & 2: The total reimbursement when both ultrasounds are performed on the same day is based on 4.21 RVUs (1.38 RVUs for code 76857 + 2.83 RVUs for code 76830).

The last payment rule applies to procedures performed bilaterally. Many codes are considered both unilateral and bilateral, meaning that RVUs assigned to the medical code remain the same whether the service is performed on 1 side or 2. But some CPT® codes (such as 27447 Total knee arthroplasty) are considered unilateral. When a unilateral procedure is performed bilaterally, RVUs increase according to the rules of its bilateral indicator.

RVU & Physician Reimbursement FAQs

  • How much is an RVU worth in dollars?

    The monetary value of an RVU is determined by the annual conversion factor. The 2020 Medicare conversion factor, as defined in the Medicare Physician Fee Schedule final rule, is $36.0896. This means Medicare will pay $36.0896 per RVU in 2020. For a service assigned 10 RVUs, Medicare will reimburse the physician $360.90.

  • What is the Medicare conversion factor (CF)?

    The Medicare conversion factor (CF) is a national dollar multiplier applied to a medical service or procedure’s geographically adjusted RVUs to determine the Medicare-allowed payment amount for physician compensation.

    Through the CF, issued by Medicare in every annual physician fee schedule, CMS maintains Part B spending at an acceptable level. The dollar amount assigned to the CF is calculated annually to achieve budget neutrality.

  • What is budget neutrality?

    Budget neutrality is the federal mandate that requires an upward adjustment in the relative expenditures in one area of the Medicare program to be offset by a downward adjustment in other areas so that actual Medicare spending remains within $20 million of the target.

    In the absence of statutorily required updates to the conversion factor, the new annual rate will reflect a budget neutrality adjustment based on changes to RVUs.

  • What is the budget neutrality adjustment?

    The budget neutrality adjustment is the percentage that, when multiplied by the previous year’s conversion factor, determines the next year’s CF. Calculated with a statutory formula by CMS’ Office of the Actuary, the budget neutrality adjustment ensures the MPFS maintains budget neutrality.

    The 2020 MPFS CF is $36.0896, which reflects a 0.14% budget neutrality adjustment:

    CY 2019 CF Factor $36.0391 x 1.0014 = CY 2020 CF $36.0896

  • How are RVUs calculated?

    Medicare fee-for-service payments are calculated based on relative value units (RVUs) assigned to each covered CPT® and HCPCS Level II code.

    [(work RVU x work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = final payment

    You can skip the math, though, with CMS’s Physician Fee Schedule Search Tool.

  • How do payment rates for facilities and non-facilities differ?

    Facility fees cover services provided to inpatients or in a hospital outpatient clinic setting or similar places of service. Non-facility fees cover services generally provided in a physician office or other freestanding setting (e.g., an independent diagnostic testing facility).

  • Why are RVUs important to understand?

    Medical practices and healthcare organizations that understand how the relative values of medical services translate into fee schedule payment amounts can better forecast and preemptively address annual changes that will impact their bottom line.

    RVU amounts factor heavily into reimbursement, and changes in RVU assignments affect practices differently, depending on the mix of services and volume of procedures they furnish.

    For example, CMS estimates that individual-code RVU changes in the 2020 MPFS will result in a 1% increase for independent labs, with no change in overall pay for pathology practices. But the price rate impact for your lab could be substantial, despite the slight increase to the CF. (Remember, too, that the MPFS doesn’t account for clinical lab services, which Medicare pays on the Clinical Laboratory Fee Schedule).

    Review the following table to see codes with MPFS payment changes of at least 10% increase or decrease in 2020.

    2020 Path/Lab Fee Changes

    Code Brief Description 2020 2019 Change
    36522 Photopheresis $1,970.49 $2,206.31 -11%
    88141 Interpretation, cervical/vaginal (C/V) cytopathology $26.35 $32.44 -19%
    G0141 Interpretation, screening automated C/V cytopathology $26.35 $32.44 -19%
    G0124 Interpretation, screening thin-layer CN cytopathology $26.35 $32.44 -19%
    P3001 Interpretation screening CN cytopathology $26.35 $32.44 -19%
    88185 Flow cytometry technical, additional marker $22.38 $24.87 -10%
    G0416-TC Prostate biopsy exam $162.40 S200.74 -19%
    88319-TC Special stains Group III $85.53 $71.00 20%
    88346-TC Immunofluorescent antibody stain, initial $90.95 $74.24 23%
    88350-TC Immunofluorescent antibody stain, additional $63.88 S48.65 31%
    88348-TC Electron microscopy $314.34 $286.15 10%
    88362-IC Nerve teasing prep $114.40 $97.31 18%
    88381-TC Microdissection, manual $156.99 S130.10 21%
    88388-TC Tissue prep for molecular study $12.63 $11.17 13%

    You’ll notice in the above table that many of the payment increases involve the technical component (TC) of pathology procedures. The TC pay change in turn impacts the global fee. For instance, the 23% pay boost to 88346-TC results in a global fee boost of 13%, while the G0416-TC 19% pay decrease results in a global fee 10% loss.

    On a broader scale, CMS finalized RUC-recommended increases to physician work RVU values for office and outpatient E/M visit codes, effective Jan. 2021, as seen in the following table:

    CPT® Code 2019 Work RVUs 2021 Work RVUs
    New Patient Office Visit
    99201 0.48 N/A
    99202 0.93 0.93
    99203 1.42 1.60
    99204 2.43 2.60
    99205 3.17 3.50
    Established Patient Office Visit
    99211 0.18 0.18
    99212 0.48 0.70
    99213 0.97 1.30
    99214 1.50 1.92
    99215 2.11 2.80
    Prolonged Services Add-On (Extended Visits)
    99XXX NA 0.61

    While this comes as great news, medical practices won’t know the impact of higher work RVUs on payments until the 2021 MPFS is published. Remember—budget neutrality means that rate increases in one area require rate decreases in other areas to offset Medicare spending.

    CMS will need to make across-the-board reductions in 2021 to balance the E/M changes, and that will likely involve a reduction in the national CF.

    The impact on medical practices will depend on the mix of E/M services they bill. Practices that frequently code higher level established patient visits will probably benefit, as those codes saw the highest rescaling. Specialties and practices that don’t typically perform E/M services can anticipate revenue loss.

    A change of this magnitude requires planning. Providers and practice managers with a solid grasp of RVUs will be equipped to safeguard their profit margin.

  • Do medical coders need to understand RVUs?

    Medical coders who understand relative value units have another indicator to help them ensure they select proper codes, and accurate medical coding is paramount to accurate RVU-based reimbursement.

    Relative value units have also proven statistically valid as key performance indicators, serving a vital role in budgeting, expense allocation, cost benchmarking, and productivity measurements. But RVU data is only as reliable as an organization’s medical coding.

  • Why should medical coders monitor code utilization by RVU?

    Medical coders should remain aware of the RVUs associated with their reported procedure codes to ensure their claims align with state and national norms. Because recovery audit contractors (RACs) and private payers keep tabs on code utilization by RVUs, your practice could be audited if costs for providing your services prove higher than your peers.

    In addition to watching the RVUs assigned to your commonly reported CPT® and HCPCS code, be sure to stay on top of stats for your specialty and geographic region. You’ll find this information in the Comparative Billing Reports administered by CMS .

  • What is work RVU vs total RVU?

    Work RVUs define the relative value in number of units of the physician work involved with performing a service or procedure. Unlike total RVUs for a CPT® or HCPCS Level II code, work RVUs do not account for physician expense or malpractice insurance. Work RVUs represent only 50.866% of a service or procedure’s total RVUs.

  • How can auditing work RVUs help medical practices avoid compliance risks?

    Medical auditors, or coders who oversee internal auditing, should periodically conduct audits targeting each provider’s work RVUs to identify and rectify habitual upcoding errors that can result in costly compliance liabilities.

    Every service and procedure code with a work RVU has been assigned an estimate of time required to perform the service or procedure. These time statistics, initially developed by the Harvard RUC time study, are used to determine whether a provider’s reported procedure codes are reasonable and believable—or whether they amount to a ‘medically impossible day’.

    To calculate a provider’s assessed hours, tally the number of minutes associated with each procedure reported by the provider, multiply this number by the frequency per year, and then divide that figure by 60.

    For example, the estimated time for CPT® code 99203 is 30 minutes, while the estimated time for 99205 is 60 minutes. So, if your provider sees 10 new patients a day coded with 99203, that equates to 1,200 hours per year based on a five-day workweek and 48 weeks a year. But if the visits are upcoded to a 99205, the assessed time comes in at 2,400 hours per year—which exceeds the HHS Office of the Inspector General’s determination of fair market value (FMV) and poses an audit risk.

  • How do RVUs eliminate inconsistencies in billing and payments?

    Medical billers who understand RVUs are prepared to identify and address inconsistencies between billing and payments received. As each new year gets underway, it’s important to update your billing systems to reflect the latest payment values to ensure your organization receives the most accurate reimbursement.

  • How are RVUs used in medical practice management?

    RVUs offer critical data to achieve practice growth. Physicians and practice managers who know how to use RVU data can track work, patient population, productivity, cost accounting, gross charges, net collections, and areas of revenue loss—all of which illuminate actions needed to hone practice efficiency and optimize financial gains.

    RVUs allow practice managers to assess the effects of patient cancellations and which no shows are most damaging to their bottom line. RVU analysis can identify which services have higher than average cost-to-revenue ratios. They can also reveal whether the complexity of the practice’s patient population requires the organization to expand into higher-RVU services and perhaps hire nonphysician practitioners or specialized physicians. Conversely, RVUs can identify underperforming physicians that may be eroding the practice’s profits.

    RVUs help to determine physician salaries, as well as deciding whether to take an acquisition offer from a hospital system. As most large systems use RVUs to set physician compensation and productivity bonuses, practices need to know their current productivity to ascertain if the healthcare system’s RVU expectations are realistic.

    Incidentally, hospital systems considering an acquisition will use total RVUs as a metric to gauge your practice’s monetary value in terms of the volume and level of patient care you provide.

  • How can RVUs help medical practices establish a budget?

    RVUs determine reimbursement, and reimbursement determines an organization’s profit margin. If the cost to provide a service to patients is higher than what Medicare or commercial insurances pay, the practice will incur revenue loss each time they perform that service. Cost per RVU, then, is vital to establishing a healthy budget.

    Because relative value units measure the overall consumption of resources to deliver a medical service, they provide the foundation for cost analysis. To determine the cost per RVU for your practice, the formula is:

    Cost per RVU = Sum of total expenses / Sum of total RVUs

    So, for example, if your practice’s annual overhead costs amount to $750,000 and your annual total RVUs add up to 22,058, then your cost per RVU is $34. A service assigned 8 total RVUs costs your practice approximately $272 to provide.

    The Medicare conversion factor for 2020 is $36.0896 per RVU, which means Medicare allows $288.71 for 8 RVUs. But Medicare only pay 80% to the provider, which, in this case, comes to $230.97. Every time you report this service to Medicare, then, your practice loses $41.30.

    This knowledge can help you understand what portion of the patient copay you need to break even. It should also inform your budgeting decisions, as well as your contract negotiations with payers.

  • How do RVUs factor into payer contract negotiations?

    Cost per RVU is the foundation of RVU cost analyses, and physicians and practice managers negotiating payer contracts should perform cost analysis prior to negotiations, reviewing their most commonly performed services and procedures to ensure payer-assigned RVUs cover their overhead expenses.

    Before entering negotiations, run your numbers and come to the table aware of your financial needs, able to answer questions like:

    • Do our contracted rates cover our costs?
    • When does more volume profit us?
    • When does more volume equal loss?

    When more volume equals loss with a given payer, and you’re unable to negotiate for higher RVUs, consider walking away, telling the payer it’s no longer feasible to see their patients. While no one wants to turn away patients, you’ll make better profits with a lighter patient load.

    For outlying procedures with higher cost-to-revenue ratios, negotiate on a code by code basis.

  • What should I consider before signing an RVU-based physician employment agreement?

    Physician employment agreements may structure compensation as salary only, salary plus RVU-based bonuses, or RVUs only. In the latter arrangement, a physician earns a dollar amount for each RVU performed. When subject to an RVU-based compensation formula, knowledge of your RVU production is imperative and can become leverage when negotiating your employment agreement.

    Ask your employer about their RVUs expectations and the average RVUs generated by your colleagues. Consider negotiating for a bonus for excess RVU production. If the proposed agreement already contains an RVU-based bonus, consider negotiating for a lower bonus threshold or a higher dollar per RVU incentive pay.

    Also, remain aware of the RVUs assigned to services you provide. Does the employment agreement specify office visits and procedures for which you will be responsible? If so, you’ll want to ensure a fair distribution of high- and low-RVU services. If you’re expected to perform tasks where RVUs do not apply (i.e., training and administration), consider negotiating a stipend to compensate for your time.

    You’ll also want to know if the dollar per RVU rate is flat or if it varies by payer. For help tracking your RVUs, AAPC’s RVU Calculator will give you quick access to the most current values assigned to both CPT® and HCPCS Level II codes.

  • How do global fees reflect work RVUs?

    The fee for major surgeries, such as knee replacement, encompasses the estimated physician resources used during the global period. The global period refers to the amount of time that encompasses the day of the surgery and post-surgical physician follow up.

    For a CPT® code 27447 Total knee arthroplasty, the global period is 90 days. The physician work RVUs for the surgery include the time and effort in performing the procedure, as well as expected post-operative follow-up office visits.

    The practice expense RVUs for this service account for the practice’s expenses for clinical staff, equipment, and supplies during the 90-day global period. It does not include the costs incurred by the facility.

  • How does Medicare reimburse for procedures when surgical assistants and co-surgeons are involved?

    Medicare allows payment for assistants at surgery and/or co-surgeons for some procedures but not all procedures. The National Physician Fee Schedule Relative Value File clarifies billing requirements with the indicators listed below.

    Medicare will pay an assistant surgeon 16% of the allowable amount if allowed. The primary physician will receive 100% of the allowable amount.

    • “0” = Payment restriction for assistants at surgery applies to this procedure unless supporting documentation is submitted to establish medical necessity.
    • “1” = Statutory payment restriction for assistants at surgery applies to this procedure. Assistant at surgery may not be paid.
    • “2” = Payment restriction for assistants at surgery does not apply to this procedure. Assistant at surgery may be paid.
    • “9” = Concept does not apply.

    Medicare will pay each co-surgeon 62.5% of the allowable amount if allowed (Modifier 62).

    • “0” = Co-surgeons not permitted for this procedure.
    • “1” = Co-surgeons could be paid, though supporting documentation is required to establish the medical necessity of two surgeons for the procedure.
    • “2” = Co-surgeons are permitted, and documentation is not required if the two-specialty requirement is met.
    • “9” = Concept does not apply.
  • What are bilateral services indicators?

    In the National Physician Fee Schedule Relative Value File, Medicare uses 4 bilateral service indicators (0, 1, 2, 3, and 9) to clarify coding requirements and reimbursement for procedures performed bilaterally in the same surgical session.

  • How does reimbursement vary based on bilateral services indicators?

    “0” = 150% payment adjustment for bilateral procedures does not apply. If procedure is reported with modifier -50 or with modifiers RT and LT, the payment for the two sides is the lower of:

    • Total actual charge for both sides
    • 100% of the fee schedule amount for a single code.

      Example: The fee schedule amount for code XXXXX is $125. The physician reports code XXXXX-LT with an actual charge of $100 and XXXXX-RT with an actual charge of $100. Payment should be based on the fee schedule amount ($125) since it’s lower than the total charges for the left and right sides ($200).

    “1” = 150% payment adjustment for bilateral procedures applies. If the code is billed with the bilateral modifier or is reported twice on the same day by any other means (e.g., with RT and LT modifiers, or with a 2 in the units field), the payment for these codes is the lower of:

    • the total actual charge for both sides
    • 150% of the fee schedule amount for a single code. (If the code is reported as a bilateral procedure and is reported with other procedure codes on the same day, apply the bilateral adjustment before applying any multiple procedure rules.)

    “2” = 150% payment adjustment does not apply. RVUs are already based on the procedure being performed as a bilateral procedure.

    If the procedure is reported with modifier -50 or is reported twice on the same day by any other means (e.g., with RT and LT modifiers or with a 2 in the units field), the payment for both sides is the lower of:

    • Total actual charge by the physician for both sides
    • 100% of the fee schedule for a single code.

      Example: The fee schedule amount for code YYYYY is $125. The physician reports code YYYYY-LT with an actual charge of $100 and YYYYY-RT with an actual charge of $100. Payment should be based on the fee schedule amount ($125) since it is lower than the total actual charges for the left and right sides ($200).

    “3” = The usual payment adjustment for bilateral procedures does not apply. If the procedure is reported with modifier -50 or is reported for both sides on the same day by any other means (e.g., with RT and LT modifiers or with a 2 in the units field), the payment for each side or organ or site of a paired organ is the lower of:

    • Actual charge for each side
    • 100% of the fee schedule amount for each side. (If the procedure is reported as a bilateral procedure and with other procedure codes on the same day, determine the fee schedule amount for a bilateral procedure before applying any multiple procedure rules.)

    Services in this category are generally radiology procedures or other diagnostic tests which are not subject to the special payment rules for other bilateral surgeries.

    “9” = Concept does not apply.

  • What are technical component and professional component RVUs?

    Many diagnostic services comprise a professional component (PC) and a technical component (TC). The professional component of a diagnostic service is provided by the physician and covers supervision, interpretation, and written reports. The technical component of a service accounts for the provision of equipment, supplies, personnel, and costs related to the performing the exam.

    The PC and TC may be furnished independently, by different providers, or as a global service. When a CPT® or HCPCS code has separately billable PC and TC components, the payment for the global service equals the sum of payment for both components.

    To claim only the professional component of a service (when the physician supervises and interprets a diagnostic test), append modifier 26 to the CPT® code. To claim only the technical component of a service, append modifier TC to the CPT® code.

  • What is a geographic practice cost index (GPCI)?

    The GPCI adjusts RVUs associated with CPT® and many HCPCS Level II codes to account for differentials in medical costs and wages for the various physician fee schedule areas.

  • How does the work GPCI differ from PE and MP GPCIs?

    The work GPCI reflects only one quarter of the relative wage differences for each locality compared to the national average, whereas the law requires that PE and MP GPCIs reflect the full relative cost differences.

    Wage and employment data pulled from the Bureau of Labor Statistics Occupational Employment Statistics is used to calculate physician work GPCIs, as well as the employee wage component and purchased services component of the PE GPCI.

  • What physician expenses does the PE GPCI adjust for?

    PE GPCIs measure the relative cost difference of goods and services comprising physician expenses for the various MPFS localities (compared to national averages for these costs).

    Contrary to physician work GPCIs, based on a single index, calculations for PE GPCIs account for 4 component indices:

    • Employee wages
    • Purchased services
    • Office rent
    • Equipment, supplies, miscellaneous expenses

    The employee wage index component of the PE GPCI measures geographic variation in the cost of skilled and unskilled labor employed by a physician practice. It does not, however, account for geographic variations in the cost of services purchased from third-party vendors (e.g., information technology consultants, building service managers, law firms, accounting firms).

    The purchased services index component of the PE GPCI measures geographic variation in the cost of contracted services that physician practices purchase, and the office rent index component of the PE GPCI measures relative geographic variation in the cost of physician office space.

    The national market for medical equipment and supplies precludes geographic cost variations (i.e., the price for surgical tape is the same in Washington state and Washington D.C.). Therefore, the equipment, supplies and other miscellaneous expense cost index component of the PE GPCI is assigned a value of 1.000 for each MPFS locality.

  • How are MP GPCIs determined?

    MP GPCIs measure the relative cost differences among MPFS localities for the purchase of professional liability insurance (PLI). The MP GPCIs are calculated based on insurer rate filings of premium data for $1 million/$3 million mature claims-made policies (policies for claims made rather than losses occurring during the policy term).

  • What are misvalued codes?

    Potentially misvalued codes are CPT® or HCPCS Level II codes that represent services or procedures believed to be valuated inaccurately. Original RVU assignments may have been misvalued, but most often the original RVU assignments no longer apply because resources consumed to provide them have changed over time.

    New codes typically have high RVUs because the technical skills, psychological stress, and time required to furnish them is relatively high. As physicians become more familiar and efficient with these procedures, the factors calculated into work RVUs decline. Services can also become overvalued when the costs of equipment and supplies decline. Similarly, they can become undervalued when practice expenses rise.

    For these reasons, the Social Security Act mandates that CMS review relative value units established under the MPFS at least every 5 years to identify potentially misvalued codes and make the necessary RVU adjustments.

    The review process includes examining potentially misvalued services in the following categories:

    • Codes experiencing fast growth
    • Codes experiencing substantial changes in PE
    • Codes describing new technologies or services after the relative values were initially established
    • Codes frequently billed in conjunction with furnishing a single service
    • Codes with low relative values, particularly those billed multiple times for a single treatment
    • Codes that have not been subject to review since implementation of the fee schedule
    • Codes that account for a large portion of spending under the MPFS
    • Codes for services that have experienced a substantial change in the hospital length of stay or procedure time
    • Codes with a change in the typical site of service since the code was last valued
    • Codes with a significant difference in payment for sites of service
    • Codes with anomalies in relative values within a family of codes
    • Codes for services furnished at the same time as other services
    • Codes with high intra-service work per unit of time
    • Codes with high PE RVUs
    • Codes with high cost for supplies

    Physicians and specialty physician associations can submit potentially misvalued codes through the public nomination process established in the CY 2012 MPFS final rule. CMS will review recommendations on a code-by-code basis and in conjunction with analyses of claims data to inform decision-making.

  • How does Medicare reimburse physicians?

    Medicare reimbursement is the payments physicians and hospitals receive through the Centers for Medicare & Medicaid Services for care rendered to Medicare beneficiaries. CMS divides Medicare coverage into 4 parts, each with distinct claims reimbursement structures. Parts A and B cover inpatient and outpatient services. Part C includes Medicare Advantage plans, and Part D covers prescription drugs.

    Payment rates for services are set by Medicare, and reimbursement is typically less than the amount billed and less than commercial reimbursement. Participating providers sign a contract with Medicare, agreeing to accept reimbursement rates as payment-in-full for all Medicare-covered services and all Medicare patients. These physicians bill Medicare directly.

  • How does risk adjustment coding impact reimbursement?

    Risk adjustment coding is integral to determining payment rates for Medicare beneficiaries based on the illness burden of each patient. It involves thorough documentation and accurate diagnoses coding—selecting the highest specificity of ICD-10-CM codes, along with comorbidities and complications—and then mapping these codes to Hierarchical Condition Categories (HCCs) with assigned risk scores.

    Risk adjustment scores, determined by HCC category weights and supported by clinical documentation, demonstrate the risk factors of a clinician’s patient population and help payers to predict future healthcare costs.

    For providers, risk adjustment coding ensures they receive optimal reimbursement for their services—reimbursement that accounts for the complete picture of the patient’s health. Having a coder on the team who understands risk adjustment coding is invaluable to practice revenue and invaluable to each provider’s QPP performance. The complex patient bonus for MIPS and APMs requires proficient HCC code mapping and selection.

    For healthcare systems, risk adjustment coding that begins within integrated physician practices means better inpatient reimbursement.

  • How is compensation determined for anesthesia services?

    Medicare uses a separate fee schedule methodology to set compensation for anesthesia services. The MPFS amounts for anesthesia are based on a uniform relative value guide, with appropriate adjustment of an anesthesia CF, to ensure that fee schedule amounts for anesthesia services remain consistent with services of comparable value.

    The uniform relative value guide used by CMS breaks down anesthesia services into base units, which are assigned to anesthesia CPT® codes. The payment allowance also factors in the time the patient was 'under anesthesia.'

    Time units consist of 15-minute increments and are therefore calculated by dividing the reported anesthesia time by 15. For example, 28 minutes of anesthesia time is 1.86 units (28 minutes /15 minutes).

    Both the base and time units are then multiplied by an anesthesia conversion factor (CF), released annually by CMS. The formula to calculate the allowed amount for anesthesia is:

    Base Units + Time (in units) x CF = Anesthesia Fee amount

    Because anesthesia services are not valued using RVUs, a separate methodology for locality adjustments is also necessary. This involves an adjustment to the national anesthesia CF (estimated at $22.2774 for CY 2020) for each payment locality.

    Payment for services that meet the definition of personally performed is based on base units and time.

    For physician-directed anesthesia services, the allowance for both the physician and the Certified Registered Nurse Anesthetist (CRNA) is 50% of the allowance for the anesthesia service when performed by either the physician or CRNA.

    Payment for services that are medically supervised is based on three base units per procedure with an additional unit of time if the physician was present at induction.

    Refer to the Medicare Claims Processing Manual 100-04, Chapter 12, Sections 50.B-50.D for the official definitions of personally performed and medically directed.

  • How does Medicare determine reimbursement for clinical lab services?

    Independent laboratories receive approximately 83% of their Medicare revenues from clinical laboratory services paid under the Clinical Laboratory Fee Schedule (CLFS), rather than the Medicare Physician Fee Schedule. Medicare Administrative Contractors pay for services based on their local geographic area, and the fees are based on charges from laboratories in that geographic area.

    Payment is the lesser of:

    • The amount billed
    • The local fee for a geographic area
    • A national limitation amount (NLA) for the Healthcare Common Procedure Coding System (HCPCS) code.

    For tests with NLAs established before Jan. 2001, the NLA is 74% of the median of all local FS amounts. For tests with NLAs established on or after January 1, 2001, the NLA is 100% of the median of the local fees. Fees may be updated for inflation based on the percentage change in the Consumer Price Index for All Urban Consumers, as authorized by legislation.

    While CMS uses market data to set prices for the Part B Clinical Laboratory Fee Schedule, the Protecting Access to Medicare Act of 2014 (PAMA) prohibits CMS from cutting the price of a lab test by more than 15% in 2020, 2021, and 2022. The PAMA does not outline a limit on price reductions following 2022.

  • What is the Outpatient Prospective Payment System (OPPS)?

    The Outpatient Prospective Payment System is a Medicare reimbursement methodology used to determine fees for Part B outpatient and physician-based ambulatory services. CMS sets OPPS reimbursement rates using the Ambulatory Payment Classifications (APCs), a package of services with equivalent clinical factors and costs.

    Each APC is assigned a scaled relative payment weight based on the average costs for the services included in the package. This relative payment weight is then multiplied by a conversion factor to create a national unadjusted payment rate. CMS also offsets regional cost variations by adjusting OPPS rates according to the hospital wage index.

    Note: Not all hospital outpatient services belong to an APC (e.g., most clinic and emergency department visits, certain preventative services, some drugs, blood products, and diagnostic, surgical, and non-surgical therapeutic procedures).

    The Hospital Outpatient Prospective Payment System final rule also defines changes to the Ambulatory Surgical Center Payment Systems. With private-practice physicians increasingly migrating to ambulatory surgical centers (ASCs), the demand for Certified Outpatient Coders with OPPS knowledge opens career opportunities for medical coders.

  • What is the Inpatient Prospective Payment System (IPPS)?

    The Inpatient Prospective Payment System (IPPS) is a Medicare Part A reimbursement methodology for hospital-based services, including skilled nursing facility, nursing home, hospice, and home health care.

    Through the IPPS, hospitals receive a prospective payment per beneficiary discharge. CMS determines the rate based on Diagnosis Related Groups (DRGs), with each DRG payments factoring in patient age, sex, secondary diagnosis, and services received.

    Every DRG is assigned a payment weight according to the average resources used to treat Medicare beneficiaries with the primary diagnosis. DRG payment weights are then multiplied by the average price per case for all Medicare cases in a year. This amount includes a labor component adjusted for the region’s wage index and a non-labor component adjusted for the hospital’s urban or rural location.

    Like MACRA’s Quality Payment Program for Medicare Part B clinicians, hospitals may incur value-based incentive payments or penalties via the following IPPS programs:

    • Hospital Value-Based Purchasing: Value-based incentive payments or penalties are subject to hospital performance on clinical care, patient and caregiver experience of care coordination, patient safety, and efficiency and cost reduction.
    • Hospital-Acquired Condition Reduction Program: This program penalizes hospitals in the lowest-performing quartile for failing to reduce hospital-acquired conditions.
    • Hospital Readmissions Reduction Program: Hospitals with excessive 30-day readmission rates incur IPPS payments reductions up to 3%.

    Hospitals that treat a high percentage of low-income patients also receive supplemental Medicare reimbursement through known as the Disproportionate Share Hospital adjustment.

    Note: In addition to DGRs, reporting inpatient services and procedures involves the ICD-10-PCS code set. Medical coders working at inpatient facilities require training in inpatient medical coding.

  • What’s the difference between Medicare and Medicaid?

    Both Medicare and Medicaid are government healthcare programs, but Medicare is essentially an insurance program, while Medicaid is a federal and state-sponsored assistance program for low-income persons.

    Medicare coverage, funded primarily through payroll taxes and Social Security income deductions, is offered through the government to individuals who are 65 years or older, have qualifying disabilities, or suffer from end-stage renal disease or ALS. Similar to private insurance coverage, Medicare beneficiaries pay a portion of healthcare costs through deductibles and monthly premiums.

    As a federal and state-sponsored assistance program, Medicaid coverage varies by state. Typically, though, Medicaid provides assistance with healthcare costs to limited income individuals who are also:

    • 65 years or older
    • Pregnant
    • Under 19 years old
    • Parents or adults caring for a child
    • Living with a disability
    • Eligible immigrants

    While Medicare has largely transitioned to value-based reimbursement, Medicaid reimbursement models use fee-for-service, managed care, or a mix of both. Although each state establishes its Medicaid reimbursement rates, their payments must align with federal methodologies that consider:

    • Healthcare costs of providing services
    • Commercial payer rates
    • Medicare reimbursement of equivalent services

    Despite consideration of Medicare reimbursement for equivalent services, Medicaid fee-for-service rates remain considerably lower. But some states forgo the fee-for-service model and pay providers on a relative value scale or according to a state-determined market assessment.



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