May 20, 2021

What Is a Relative Value Unit and How Is It Calculated?

Helen Farnen   |   Updated June 28   |  Reading time: 3 minutes


A relative value unit (RVU) is used by Medicare, Medicaid, and commercial health insurance companies to determine the amount of reimbursement due to providers. RVUs provide pricing uniformity for healthcare providers by quantifying and comparing the productivity of physicians.

Reimbursement has historically been based upon volume, with the higher numbers of services performed correlating with higher earnings. However, in recent years RVUs have come under scrutiny and now include other factors beyond volume, such as acuity and skills required to perform services. With more than 10,000 physician services correlated to corresponding to current procedural terminology (CPT) codes, reimbursement is also tied to the relative value for those services that require higher skill (receiving higher reimbursement) than those that require less skill. For example, a specialist procedure would be reimbursed for more than a wellness visit with a General Practitioner.

Understanding The Components of RVU Calculation

Physicians employed by a medical group, hospital, or other healthcare organization are commonly compensated using the RVU formula. Therefore, to understand reimbursement, it is critical to understand how the multi-factor formula is calculated. There are three components to calculate RVUs including: 

  1. Relative Value Units (RVU)
    Relative value units are determined by three sub-categories: 
  • Physician work RVU: The relative level of time, skill, training, and intensity to provide each given service. This is based upon individual CPT codes, which are re-analyzed at least every five years. 
  • Practice Expense RVU (PE): Expenses that go into running the practice, not including physician time. This may include items such as rent, equipment, supplies, and non-physician staff. 
  • Malpractice RVU (MP): Payment associated with the professional liability expenses.
  1. Geographic Practice Cost Indices (GPCI)
    Account for geographical differences in cost around the country. For example, the GPCI could be higher in a city than it would in a rural area. The Centers for Medicare & Medicaid Services (CMS) calculates an individual GPCI for each of the RVU components — physician work, practice expense, and malpractice. 
  1. Conversion Factor
    Converts the RVU into an actual dollar amount for reimbursement. RVUs are calculated differently depending on whether the service is facility or non-facility based. Non-facilities are generally independent physician practices. 

    According to CMS, the formula used to calculate total RVU is the following

    (Work RVU* x Work GPCI**) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI) = Total RVU

RVU Reimbursements in 2021

The Medicare Physician Fee Schedule Final Rule for 2021 was issued by CMS on December 1, 2020. The Final Rule went into effect on January 1, 2021, and implemented changes to streamline the reporting process for office and outpatient evaluation and management (E/M) services. 

The 2021 Final Rule improved RVUs for Elevation and Management (E/M) services by decreasing the 2021 conversion factor. Formerly $32.41, CMS decreased the 2020 conversion factor by $3.68 so that it is now $28.73 in 2021. CMS also implemented changes by expanding reimbursable telehealth services, vaccine administration, and increasing practice flexibilities. The Final Rule has also expanded access to opioid treatment to attack the growing opioid crisis.

What is the Future of RVU Reimbursement?

What effects will value-based payments have on physician reimbursements in the future? While there is a growing shift towards value-based incentives, it does not negate the need for other components of RVUs such as practice expenses or malpractice. According to the Relative Value Scale Update Committee (RUC), in the future, payers will likely see a hybrid reimbursement model that will include quality-based indicators as well as traditional RVU-based reimbursement. 

While this value-based model is more dynamic, it doesn’t make things any easier to understand. It’s critical for providers to calculate productivity ratios and reimbursement rates. To streamline the process, providers should implement accurate billing and revenue cycle software

RXNT’s cloud-based practice management software accurately tracks payments and creates efficiencies for your practice. Streamlined, automated software helps create more time, maximizes performance and efficiency, and ultimately improves the quality of patient care.

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