How Does RVU Physician Compensation Work?

What Is an RVU?

According to the AMA (American Medical Association), RVU’s, which stands for “Relative Value Units,” are a key component of the Medicare payment system used to reimburse physicians and other healthcare providers for their services. RVUs are used to measure the relative value of various medical services based on the resources required to perform them, including time, skill, effort, and overhead costs.

RVUs are composed of three main components:

1. Work RVUs: These reflect the relative time and intensity required by a physician to perform a specific service. Based on surveys of physician time and effort conducted by organizations such as the AMA.
2. Practice Expense RVUs: These account for overhead costs associated with providing a service, such as equipment, supplies and non-physician staff.
3. Malpractice RVUs: These reflect the cost of malpractice insurance associated with a specific service.

Work related Relative Value Units are the most prominent component, representing 52% of the total RVU value. Practice expenses and malpractice expenses are 44% and 4%, respectively.  Historically, healthcare providers converted RVUs into compensation totals using a conversion factor.  The CMS (Centers for Medicare and Medicaid Services) has continued using this approach, with certain modifications including adjustments based on geographical practice costs, ensuring fair reimbursement rates across different regions.

Why Is It Important for Physicians to Understand RVU Physician Compensation?

Physicians, especially those just getting started in their careers, should understand how the RVU system because their income many times depends on the accuracy of applying RVU’s.  Not only does the CMS use the RVU system to reimburse physicians for their services, hospitals and clinics many times use the RVU as the method for calculating a physician’s compensation.

We had a client who worked for a very large hospital group that insisted its physicians sign a convoluted compensation agreement.  The compensation structure was based on RVU’s.  When the CMS increased the conversion factor and started reimbursing the hospital larger amounts, the hospital did not change the amount of compensation that it paid our client.  Since the compensation rate was based on a set formula, the failure to increase our client’s compensation was a breach of contract by the hospital.  After the client engaged our services and we wrote a letter to the hospital’s general counsel, our client’s compensation was adjusted upwards, as the hospital should have done voluntarily.

History of the RVU

RVUs were introduced in the late 1980s and early 1990s as a measure of value in the CMS reimbursement formula for physician services. Prior to RVUs, CMS relied on the UCR, the “usual, customary, and reasonable” rate for physician payments. As a result, payment ranges for physicians varied significantly.

In response, Congress commissioned a study conducted by researchers at Harvard University and the AMA that sought to evaluate the relative contributions of physician work to the services they provide.  Published in 1988, this study laid the foundation for the RVU system.  In 1989, President Geroge H.W. Bush formally implemented the RVU system through the Omnibus Budget Reconciliation Act.  By 1992, Medicare had adopted the RBRVS (Resource-Based Relative Value Scale).

The RUC (Relative Value Scale Update Committee) was established in 1991 and functions as an advisory body to CMS, facilitating updating of RVU values every five years.  Historically, CMS has largely implemented the recommendations put forth by the RUC.

Medicare has utilized a conversion factor to derive total reimbursement, previously without considering the geographic adjustments discussed previously.  Medicare’s conversion factor is the number of dollars assigned to an RVU and is calculated by use of a complex formula.  The history of the conversion factor is intertwined with the evolution of Medicare payment policies.  Initially, when the RBRVS system was introduced in the late 1980s, the conversion factor was set to align total allowed charges under the new system with historical Medicare spending levels for physician services.

Over time, the conversion factor has been subject to adjustments and updates by policymakers to address various factors, including changes in healthcare costs, budgetary considerations, and legislative mandates.  These adjustments may be implemented through legislation, regulatory changes, or administrative actions by the CMS.  Conversion factor rates have historically ranged from $31 to $38, with a rate of $32.7442 in 2024.

Challenges and Criticisms of RVUs

The history of the RVU is very complex and the RVU system has evolved significantly over time to more accurately reflect changes in practices, technology, and healthcare delivery. Despite this, it has also faced several challenges and criticisms including:

• Accuracy and Representativeness: One major criticism is the reliance on surveys and subjective assessment to determine the relative value of medical services. Critics argue that surveys may not accurately capture the true complexity and value of certain procedures, leading to potential for discrepancies in reimbursement rates.
• Specialty Bias: Due to the structure of the RVU system, some specialties may feel that their services are undervalued compared to others. For instance, procedures that require specialized training and expertise may be undervalued in comparison to more common services. As the saying goes, “You can’t put a price tag on experience.”
• Incentives for Volume over Quality: Critics argue that the RVU system incentivizes physicians and providers to focus on quantity rather than quality of care because reimbursement is tied to the number of services provided. The concern is quantity > quality, at the expense of patient care.
• Lack of Transparency: The process of determining RVU values is often criticized for its lack of transparency, especially the role that the RUC plays. The composition of the RUC is criticized for lacking sufficient transparency, leading to questions of fairness and objectivity.
• Impact on Access to Care: The RVU system may have negative consequences on the access to care, specifically in underserved areas or for services that are not well-reimbursed. The financial limitations that the RVU system may create for physicians could exacerbate existing healthcare disparities.

The history of the RVU system is filled with evolution and adaptations aimed at reflecting relevant changes in the healthcare system. Addressing these challenges will require similar ongoing evaluation and refinement to move toward fairness, equity among physicians and providers, and patient-centered care.

Contact an Expert in Physician Compensation

As a physician, RVUs determine the reimbursement rates for your services and directly reflect the time, effort, and resources required for each medical procedure you perform. If you have questions regarding RVUs and their impact on your practice, we are glad to provide answers.