By Don Rodden and Jill Briggs, AuntMinnie.com contributing writers

June 1, 2016 -- Most physician practices are multimillion dollar businesses, but some are leaving millions of dollars on the table because they don't adequately monitor their relative value units (RVUs). As a physician or practice manager, understanding and using RVUs has evolved and elevated in importance into an essential tool in leading your practice financially.

So why do RVUs matter?

  • Almost all payors base their reimbursement on a systematic multiple of RVU values.
  • RVUs can be used to measure physician productivity.
  • There are no other credible ways to measure your practice's performance.
  • You can make more money if you understand and monitor RVUs.

Medical practices leave hundreds of millions of dollars uncollected annually. Yes, hundreds of millions. The losses come in multiple forms: A few of these include procedures performed but not billed, denied claims not appealed (or worse, not managed), and not ensuring that your payors are complying with their contracts.

Don Rodden
Don Rodden, principal at HealthPro Medical Billing.

Measuring anything requires a standard metric. Without RVUs, you don't have a standard metric for many types of measurements.

The U.S. Centers for Medicare and Medicaid Services (CMS) utilizes a system called the Resource-Based Relative Value Scale (RBRVS), which establishes a standard unit of measure for each individual Medicare procedure performed. The commercial insurance payor industry largely follows Medicare's methodology, as do almost all other governmental payors.

The RBRVS process provides baseline values for establishing the "relative worth" of each procedure that a practice performs. The values are reviewed periodically, and industry stakeholders are given the opportunity to provide input and feedback to any adjustments under consideration.

Let's examine what an individual RVU looks like to better understand the practical added value RVUs can bring to the management of your practice. In order to understand their value, we have to understand how RVUs work.

What is a relative value unit?

RVUs are a basic unit of measure created by the CMS; new values are published annually in the Federal Register. The fundamental purpose of RVUs is to establish a baseline value or appraisal for each medical procedure that physicians perform, independent of how much is charged or how much someone pays for each procedure.

Jill Briggs
Jill Briggs, director of claims analysis, account management, and patient account services.

For the purposes of this discussion, we will only look at RVUs representing what the physician performs (professional component) and not the additional RVUs represented by what a hospital or other facility performs (technical component).

Each procedure's total RVU is composed of three specific elements:

  • Physician work RVU. This component represents the amount of time, complexity, skill, expertise, and training required by the physician for the given procedure. CMS maintains a schedule to periodically evaluate and revalue the work RVU every five years. This allows adjustments to be made (increases or decreases) to account for new technology, the time spent performing the procedure, and changes in training requirements. The higher the complexity of the procedure, the higher the RVU value assigned to that procedure.
  • Practice expense RVU. The practice expense component of an RVU allocates the overhead costs of a practice, including rent, nonphysician personnel, administrative expenses, and supplies and equipment.
  • Malpractice RVU. The malpractice component is generally the smallest component of the total RVU. This serves as a measure of the risk and professional liability that the physician carries for the procedure.

How are RVUs used?

For reimbursement purposes, a fixed dollar amount called a conversion factor (CF) is multiplied by the number of RVUs assigned to a specific procedure.

Medicare establishes a conversion factor each year, and for 2016, Medicare's CF is $35.8279 per RVU. Therefore, if a procedure has an RVU of 1, Medicare will approve $35.83 for payment. If the RVU is 2, Medicare will approve two times $35.8279, or $71.66.

Other governmental and commercial payors each have their own payment rates, but most payors use a consistent conversion factor applied to the applicable RVUs. For the purposes of this discussion, we will assume a Medicare reimbursement of $35.83 and an average commercial payor reimbursement of $50.

Let's look at a few specific radiology procedures and see how the RVU process functions and how the CF is applied to each RVU.

The following table lists a few procedures and their RVU assignments for comparison.

RVU components for select procedures
CPT code Procedure Physician work unit Practice expense unit Malpractice unit Total
71020 Chest 2 View 0.22 0.08 0.01 0.31
74177 CT Abdomen/Pelvis With Contrast 1.82 0.68 0.10 2.60
70552 MRI Brain With Contrast 1.78 0.66 0.10 2.54
76856 Ultrasound Pelvic - Complete 0.69 0.25 0.04 0.98

As shown, the methodology of RVUs allows procedures to be weighted to account for their complexity and the expenses associated with the procedure. This immediately creates a more valid metric than a simple count of how many procedures were performed.

Based on Medicare's conversion factor of $35.8279 per RVU and using a hypothetical $50 per RVU (~140% of Medicare) as an average reimbursement by all of a practice's commercial payors, here is how a radiologist would be reimbursed for these procedures.

Radiologist reimbursement for select procedures
CPT code Procedure Total RVU Medicare reimbursement @ $35.8279/RVU Commercial payors @ $50/RVU
71020 Chest 2 View 0.31 $11.11 $15.50
74177 CT Abdomen/Pelvis With Contrast 2.60 $93.15 $130
70552 MRI Brain With Contrast 2.54 $91 $127
76856 Ultrasound Pelvic - Complete 0.98 $35.11 $49

Now, let's take these data points and explore how using RVUs can benefit you in your practice analysis.

Analyzing RVUs as well as CPT units

One useful way to apply RVUs is to distinguish the difficulty of a procedure. When analyzing data, in addition to analyzing CPT code volumes, it is helpful to analyze RVUs. This allows a practice to understand the magnitude of work being produced, in contrast to just the raw count of procedures performed. As the difficulty or inherent cost of a procedure rises, so does the reimbursement associated with it.

Example: Facility A performs only plain films. For simplicity, let's assume it performs only Chest 2 View as described in the previous tables. Facility B performs only CT Abdomen/Pelvis procedures. Let's assume each performs 100 procedures. Which has the greatest reimbursement potential?

Units for facilities A and B
Location CPTs RVUs
Facility A (plain films) 100 31
Facility B (CTs) 100 260

Because we know that almost all payors reimburse on an RVU multiple, we can see how much more important it is in our practice analyses to focus on RVUs. For example, in our two hypothetical practices, at our $50/RVU average commercial contract, facility A would receive $1,550 ($50 x 31 RVUs) for its 100 CPT units, and facility B would receive $13,000 ($50 x 260 RVUs). If we only focused on comparative CPT units when analyzing our data, we would miss significant trends in underlying metrics that reflect the true value of the work performed.

Measuring payor performance with RVUs

Having established the value-added characteristics of using RVUs to analyze volume trends, let's look at how we can monitor our payors' performance.

We begin by dividing each payors' receipts for a given period by the total RVUs performed on the underlying procedures for that payor. This provides a specific dollar per RVU quotient, which we can use to measure the individual payor's reimbursement and confirm that it is paying according to its contract.

As an example, let's expand our volume in facility B to include 300 procedures, all of which are CT Abdomen/Pelvis With Contrast, divided equally between three payors.

Dollars per RVU for 3 payors
Payor CPTs RVUs Gross charges Receipts $/RVU
Payor A 100 260 $26,000 $13,000 $50
Payor B 100 260 $26,000 $15,600 $60
Payor C 100 260 $26,000 $8,840 $34

Providing a benchmark for contract performance

If payor A's contract provides for $61 per RVU (~170% of Medicare), we can see it is underpaying, since our analysis reveals we are only yielding $50 per RVU from payor A's procedures. Underpayments are one of the many ways that physician groups leave money on the table -- and often in substantial accumulative amounts.

Negotiating leverage in payor contracting

In our example above, we presumed volumes were the same for all payors. But in normal practices there is a broad array of payors. Like any volume activity in business, the more volume a payor provides, the larger the discount it expects to receive.

But if payor C in our example actually represented a small percentage of your practice volume, say less than 2%, should it be able to pay you only $34 per RVU while payor A, which hypothetically represents 11% of your practice, is paying you $50 per RVU?

This is a microcosm of the power in being able to analyze payor performance using RVUs. You can use the information to your advantage in payor contract discussions.

If we do a deep dive, RVUs can also be used to measure the following:

  • Physician productivity. One can measure entire RVU production, since payors pay by this, or isolate physician work RVUs, which, in theory, more accurately depict the actual production of each individual radiologist.
  • Denied claims. Applying RVU values to the analysis of denied claims provides more accurate and comparative data to measure and manage denied claims by payor, modality, or denial type.
  • Referring physician patterns. Your highest CPT volume referring physician may only represent a small fraction of your highest RVU volume referring physician.

These are just a few examples. Understanding the power of RVUs in reporting and practice management is more than necessary; it's critical to effectively manage, retain, and/or recover the millions of dollars of revenue stream under your stewardship.

Don Rodden is a principal at HealthPro Medical Billing, a leading revenue cycle management (RCM) and radiology coding company. Don is a past president of the Healthcare Billing and Management Association (HBMA) and is currently vice chair of its Government Relations Committee. He has been a consultant to physicians and medical practices for over 30 years.

Jill Briggs is the director of claims analysis, account management, and patient account services at HealthPro Medical Billing. She has been actively engaged in the healthcare industry for more than 15 years and is a member of the American Pathology Foundation (APF). In her role at HealthPro, she oversees several elements of the RCM process including quality assurance, payor reimbursement, reporting, analysis, denied claims, accounts receivable resolution, and patient inquiries.

© HealthPro Medical Billing, May 2016

 

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