In the healthcare sector, the medical billing, insurance companies or patients submit claims to assist in the process of reimbursement. This reimbursement is dependent on RVUs which is an abbreviation used for relative value units. It is also critical to Medicaid, Medicare and commercial health insurance reimbursements.
In this bill, the physicians or hospitals add all the details of the treatment and services adhering to the criteria such as HCPCS/CPT codes. The hospitals are then responsible to pay the doctors according to RVU meaning once the reimbursement has been made either from the insurance company or from the patient. How to define RVU meaning? It defines the process by which the doctors are compensated fairly without the chance of any reimbursement failure.
RVU meaning in healthcare and medical billing
In the medical healthcare billing process, RVU refers to the acronym for Relative Value Units. These are the specific types of units that are assigned to Medicare to figure out the cost of the provided service. Due to these standard units, it becomes easy for hospitals to compensate the doctors according to the service provided on the basis of their productivity.
The reason behind RVU inclusion
With RVU, a doctor’s productivity is determined. With these standard units, the compensation is calculated based on the services provided and makes it easy for the organizations to pay the doctors. In addition, it also helps in comprehending the volume of work a doctor has provided to the patients in the name of medical care.
Essentially, RVU standards vary from doctor to doctor based on their practice or specialization. Let’s say, the relative value units for surgeons and doctors remain high who perform complicated procedures and challenging surgeries such as Open-Heart Surgeries or Coronary Artery Bypass Grafting (CABG). This makes the compensation of the surgeon relatively high due to the complexity of the CABG case. This translates to the meaning that the relative value unit does not base on how many procedures a surgeon or healthcare provider has performed but on the intensity of the procedure and the successful procedure. This makes sense when a dentist gets relatively low RVU when compared to a surgeon performing CABG.
How to determine RVU in medical billing?
Through relative unit value, one cannot determine the monetary value of the physicians’ work. They are actually used to signify the relevant amount that should be compensated for the physicians’ service, utilized resources, and the expertise required for the particular service. The amount for physicians in actual dollars will only be determined when the conversion factors (CF) are applied to the total relevant value units accrued.
These units are modified each year by Congress, so the value of the units can vary from one year to another. To determine the accurate units for relevant values, these components should be kept in mind;
- Physician’s work; Physicians’ work determines the RVUs to the amount of intensity, skills, resources, and training a procedure demands to perform. The RVU accounts for 53% of the total unit value.
- Practice expenses; This component determines the cost involved in the service such as equipment, rent, consulting service, supplies, resources, and staff salaries.
- Malpractice expenses; The expense is based on the liability spending on behalf of the healthcare provider. This component of RVU represents a total of 3% and is counted separately.
When every component is determined, each of them will then be multiplied by a factor called the Geographic Practice Cost Index GPCI in order to verify the cost of business living across the jurisdiction. Here’s the formula – Add all these three elements and multiply the sum by CF. The product you get from the calculation will be the number of reimbursements in dollars that HMOs and Medicare pay.
How to calculate RVUs?
Chief Medical Officer for SCP, Dr. Phil Parker said in an interview that to measure the productivity of the physicians on the bases of RVUs, there are three ways to do it; RVUs per hour, per visit, and the cost of provider according to the RVUs.
RVUs per visit
The number of hours a physician spends on a patient cannot be specified. Therefore, the relative value units will differ according to the service in terms of the condition of a patient before and after a procedure. This means that a doctor will have a relatively large number of RVUs as he sees a larger number of patients in the given time frame than the ones who cater to fewer patients. But according to Dr. Phil, that’s not always the case.
“In the ED, a doctor who sees approximately two patients per hour is considered the norm,” he said. “However, he may only see one per hour if the patients he encounters are in critical condition. Based on the quality of his documentation, that provider could actually accumulate more RVUs than a physician who sees more patients.”
However, Dr. Phil mentions the significance of seeing more patients in order to build more RVUs instead of relying on patients with high acuity.
“It helps our hospitals more if we emphasize speed and efficiency,” he said. “Seeing higher acuity patients can generate more RVUs but seeing lower acuity patients is the most efficient way to generate RVUs.”
RVUs per hour
As said, the time cannot be specified that a doctor would spend on a patient as it depends on the severity of the case. Patients with intense procedural requirements demand a high level of experience and skills from a regular patient. Eventually, the physician will lead a higher RVU at the end of the day.
“The number of RVUs credited relates directly to the CPT codes, and those relate to what’s on the chart,” Dr. Parker said. “That’s why it’s necessary to put in all relevant factors, including the patient’s history, results of the physical exam, any decision-making, what the doctor did, how the patient responded, the critical care involved, and the appropriate diagnosis. Be as accurate and detailed as possible.”
He also explained the practical importance of documenting critical care along with the hour duration spent over one patient.
“All those minutes add up, so be disciplined and document the time,” he said.
Cost per hour
“Hospitals want to control how much they have to pay a physician per hour,” Dr. Parker said. “A facility with extremely low volume will have to pay a provider more than one with a higher volume, to make up the difference.”
He added this example;
“Hospital A has physician coverage 24 hours a day and sees 48 patients per day (an average of 2.0 patients per hour) with a provider compensation of $200 per hour. Hospital B has the same amount of coverage but only sees 36 patients each day (an average of 1.5 patients per hour) with provider compensation of $180 per hour. While Hospital B pays less overall, the doctor gets paid more per patient and per amount of work.”
He also said that ED’s financial efficiency is derived from the cost per RVU of a provider. The greater profitability depends on the lower cost of RVU generated.
“Ideally, if reimbursement and provider costs were equal, the practice would pay for itself,” he said. “The more imbalanced reimbursement is to provider compensation, the more likely a program will require hospital subsidy.”
The formula for calculating RVU
Now when you know the ways to calculate the relative value units, their factors must be taken into account when calculating the RVUs when they are calculated according to hours or visits;
- The total amount of RVUs
- Geographic Practice Cost Indices (GPCIs) which normally is predetermined for RVU and its types;
- CF – conversion factors
According to the given requirements, the formula for calculating RVUs will be something like this;
Total RVU = (Work RVU * Work GPCI) + (Practice Expense RVU * Practice Expense GPCI) + (Malpractice RVU * Malpractice GPCI)
Once the RVU is calculated, the total value of the RVU taken from the formula is multiplied by the CF which determines the RVU in dollar value.
Pros and Cons of RVUs
In the past few years, there were several ways to calculate the productivity and compensation of a physician. One of the prominent ways is the volume-based metrics where the physicians were compensated according to the number of patients a doctor sees in an hour or the amount they generate or collect from the services provided.
Healthcare organizations that keep the doctor’s compensation as part of the RVU process, create opportunities and encourage physicians to earn more while sharing the risk of their finances.
Dr. Phil contributed in explaining this benefit as;
“For example, let’s say the hospital pays doctors $100 per hour, with 75 percent guaranteed and 25 percent tied to RVUs based on acuity, volume, and how hard the doctor works. The average doctor would make the $100 hourly rate while the above-average would exceed that target.”
Drawbacks of RVUs are often faced by the smaller hospitals where there is relatively less patient turnover and a wide fluctuation in visitation on a regular basis.
“If I only see 15 patients per shift as opposed to a provider who sees 25 or more during his shift, I would be at a disadvantage if my compensation was based, in part, on RVUs,” Dr. Parker said.
In these kinds of cases, Dr. Phil suggested smaller organizations go for a flat per-hour rate for physicians or reduce the attributes according to the percentage. For instance, percentage attributes should be reduced to 10 from 25.
Nailing the RVU productivity
Dr. Phil said, when it comes to mastering the RVU productivity, one must follow a specific formula;
- Setting up a coverage amount according to the volume and acuity of the patients,
- Competitive doctor’s compensation so the staff shortage is not faced, and
- Incentivize doctors who gather high RVUs.
He recommended to the group of hospitals and organizations that;
“Know how you are performing in RVU-related metrics, right-size your medical coverage, review charts for documentation opportunities, and drive up the volume by reducing LWOTs with efficiency.”
In order to efficiently calculate and determine the RVUs for the physicians and healthcare providers, hospitals have to ensure that physicians are able to deliver the required patient care. The more efficiently a physician sees patients, provides services and spends time, the greater number of RVUs he can generate and would be paid well. Hospitals should follow Dr. Phil’s guidelines to effectively run the RVU process.