Relative Value Unit (RVU) compensation plans are increasingly more common in physician contracts. RVU incentives are a productivity-based compensation model intended to encourage physician productivity by increasing the reimbursement rate for the most productive physicians. While RVU compensation may seem desirable, there are many nuances of RVU incentive payments that need to be considered and understood before agreeing to an RVU reimbursement model.
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. They were developed to standardize charges for services throughout different service areas, medical specialties, hospital systems, and payors. In general, more complicated procedures and services are worth more RVUs under the CMS Physician Fee Schedule.
Relative Value Units (RVU) don’t directly determine a provider’s level of reimbursement. Rather, RVUs define the value of one service or procedure compared to others. This value is measured by considering the extent of physician work (including both direct patient care and administrative duties), clinical and nonclinical resources used to provide services (such as equipment, supplies, and facilities), and the level of education/training needed for physicians to perform a given task. RVUs are supposed to allow payors to directly compare the fair market value of one service or procedure to another between different medical practices. For example, a procedure valued at 10 RVUs is supposed to involve approximately twice the work and resources involved in a procedure valued at 5 RVUs. Once the RVU value of a procedure or service is determined, the medical providers’ reimbursement rate is determined by multiplying the RVU value by a monetary “conversion factor” to calculate the cash compensation for those medical services.
There are three types of RVUs used to calculate payments made to medical providers.
Work RVUs (or “wRVUs”) measure the provider’s work when performing a procedure or service. Variables factored into physician work RVUs include technical skills, physical effort, mental effort, level of decisionmaking, patient risk, and time required to perform the service or procedure. Work RVUs total about 50% of RVUs for a given service.
Practice expense RVUs measure the overhead cost of labor and expenses in a medical practice. These include medical and office supplies, staff salaries, overhead expenses such as rent, utility bills, medical equipment, and consumables plus other miscellaneous overhead costs. Practice expense RVUs amount to about 45% of the total RVU rate.
Malpractice RVUs reimburse for the estimated of professional liability insurance associated with a given CPT code. Malpractice insurance related RVUs are about 5% of the total RVU rate.
It is important to make sure that you are using wRVU values when evaluating compensation models. Keep in mind that WORK RVUs are only 50% of TOTAL RVUs for a given procedure or visit.
To determine how much a provider will be paid for providing a given service, the total RVU value of the service must be multiplied by the Medicare monetary “conversion factor.” CMS changes the amount of its dollar conversion factor payment schedule each year. The annual conversion factor for 2023 is $33.06, a decrease of $1.55 from the 2022 conversion factor of $34.61 and a decrease of $1.84 from the 2021 conversion factor of $34.89.
To calculate the compensation for a Level 4 new outpatient visit with an assigned RVU value of 2.60, you would multiply the RVUs by the conversion factor of $33.09 to see that the visit would generate $86.03. The same visit in 2021 would have generated 90.71. While a decrease of $4.68 may not seem like a big difference, multiplying $4.68 by 10 patients/day x 5 days/week is $234 less each week that you are being paid to evaluate patients with the same complexity.
RVU rates can be increased by treating more patients, by performing more procedures, by treating patients with higher medical acuity, and by providing more complex care.
If you increase the average number of patients you see per hour from 2 to 3, your RVUs will increase by about 50%.
Just as the number of RVUs increases with the number of patient encounters, RVUs will increase with the number of procedures performed. Adding a few patients to a daily surgical schedule may result in the surgeon receiving substantial RVU increases.
Because more serious medical issues require more technical skills and decisionmaking, higher acuity patients have a larger RVU value than lower acuity patients. However, providers tend to spend more time caring for higher acuity patients, so the number of patients that can be evaluated in a given time period will likely decrease and that decrease in volume may offset the increased RVUs earned by caring for high acuity patients.
CMS places a much higher value on complex care. For example, repair of a simple 2.4 cm leg laceration is valued at 1.30 RVU while repair of a 2.7 cm laceration requiring revision of the edges and debridement is valued at 7.51 RVUs. This difference in RVU values could amount to hundreds of dollars in income for a single procedure. In this example, using the 2021 conversion factor of $34.89, the value of the procedure increases from $45.36 to $262.05. To maximize RVU compensation incentives, it would be helpful to learn which procedures in each of the medical specialties generate the highest wRVU values.
There are several types of physician compensation models. For example, employers may offer a yearly salary guarantee based upon a given number of hours worked per year. Employers may also offer a straight hourly compensation plan where physicians are paid based on the number of hours they work each week or each month. A productivity compensation plan implementing RVUs has several theoretical benefits over other types of reimbursement methodology.
Several compensation survey companies publish data regarding average annual physician RVU generation. I found data from two surveys that are summarized below.
According to an e-mail survey of 92,000 physicians by SullivanCotter and the AMGA published in Becker’s Hospital Review in 2017, and summarized on Statista.com, the average annual RVUs generated by US physicians in 2016 is as follows (note how procedure-heavy specialties are at the top of the list):
This 2021 MGMA report lists the following annual RVU generation for hospital-based specialties:
This 146 page document from the Veteran’s Administration contains the 2020 RVU values for every single CPT code available. Keep in mind that RVU values change every year, so the listed values may not be exact. However, this table will give you a good estimate of approximate values for each procedure or visit.
Want another frame of reference for emergency medicine? I generated one of the highest RVU levels for our group in 2021. I average 120 hours of clinical time per month. Our hospital admit rate is about 22% overall (higher admit rates generally mean higher acuity visits). During overnight shifts, there are often several hours with low or no patient volumes. My total RVUs for 2021 were 5,046. I averaged 3.97 RVUs per visit.
Stop and think about what medical services you provide each day. Write down what you do for a week. Find the RVU values attributable to those services. Then multiply the “conversion factor” being offered by the RVUs you typically generate each day or week to get an approximate compensation value.
For example, if you are an emergency physician, suppose that on average you are able to evaluate and admit one Level 5 patient per hour plus one Level 3 patient per hour. The total RVUs per hour would be 5.22. Multiply that by the 2022 conversion factor rate of $34.61 and your compensation for this RVU model would total approximately $180/hour. If there were fewer patients per hour, your hourly pay would be less. If you were able to perform additional procedures while seeing the same number of patients, your hourly pay would be more.
Because provider compensation is based upon both CPT codes and E/M codes, failing to capture the complexity of a service or the severity of a patient visit will adversely affect physician payments.
If working in an environment where multiple providers are involved in performing clinical services to the same patient, apportioning RVUs may be difficult. For example, when surgery is performed on a patient, how will RVUs be divided between the surgeon and the assistant surgeon? In an emergency department setting, how will RVUs be divided between physicians and advanced practice providers who both contribute to the same medical service? If an APP initiates an evaluation on a patient, but the physician is required to intervene and perform a majority of the medical care, how will the physician’s time be valued? It is important to clarify such contingencies during contract negotiations and to include apportionment within the contract.
Logging all health care services provided is EXTREMELY important. Because RVU compensation is based upon clinical activity, if you are not credited with performing that clinical activity, you won’t be paid for that activity. For example, one of my clients was a surgeon who gave 120 days written notice that he was terminating his hospital contract. After receiving this notice, the hospital alleged that he had only performed 35 surgeries in the prior 5 months. In reality, he averaged more than 35 surgeries per month, plus more than 50 clinic visits per week. Nevertheless, because of allegedly low RVU production, the hospital deducted from his salary a substantial portion of “RVU advances” it had previously paid him. As a result, during some weeks he only took home $700 in salary. Keeping meticulous logs of patients/procedures will help you to address any discrepancies in RVU production.
Make sure that you are receiving credit for all procedures that you perform and all patients you see. Make regular audit requests to compare your clinical activity logs to the RVUS being credited to you. Also make sure your contract allows you to audit your employer’s books. Simple unbilled services such as EKG interpretations or pulse oximeter interpretations or downcoded charts can add up quickly.
Seek a contract in which the type of compensation is a base guarantee with additional compensation for meeting certain wRVU benchmarks. In other words, physician contracts that set base salaries as the median compensation under Sullivan Cotter and then add bonus compensation after a certain RVU level will provide more income security than a physician contract setting reimbursement strictly on RVU generation. Consider how strict RVU productivity might be affected if a schedule is only half-full.
Healthcare administrators may use the same productivity formula for all types of surgery without considering that certain types of necessary surgery tend to generate fewer RVUs despite a high productivity level.
One contract I recently reviewed stated that a physician would not receive credits for RVUs if “reimburssement is denied,” if the physician failed to “promptly and accurately complete all patient records so that [EMPLOYER] can bill for physician’s services,” or if physician’s coding was deemed “inaccurate.” In addition, the contract stated that all calculations on RVUs are made in the EMPLOYER’s sole discretion and that the EMPLOYER’s receipt of payment for a physician’s work was “inconsequential” as to whether the physician would receive credit for RVUs.
In other words, the employer wanted the physician to be responsible for the employer’s payment denials and wanted the ability to bill and receive payment for RVUs the physician generated before refusing payment to the physician for late charts or “inaccurate” coding. Don’t agree to such shady language.
If presented with an employment contract involving wRVU compensation, use the above formula to estimate the annual compensation you will receive. Find wRVU values for typical patient visits and procedure codes in your specialty, estimate number of those visits and procedures you would log in an average week, and multiply those values by the conversion factor being offered in your contract. Also consider asking the potential employer for prior years’ RVU numbers to help determine whether your compensation will be competitive.
Hospitals whose physician compensation arrangements are based solely upon wRVUs without consideration of base salaries will likely see attrition of their most valued medical staff to facilities with more balanced compensation arrangements.
Want to learn more about medical contracts? See the Medical Contracts section of this site.
Need help figuring out a medical contract offering RVU compensation models? Contact me. I can help.
