What Are Relative Value Units (RVUs)?

Relative value units (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.

RVUs do not directly define physician compensation in dollar amounts. Rather, RVUs define the value of a service or procedure relative to all services and procedures. This measure of value is based on the extent of physician work, clinical and nonclinical resources, and expertise required to deliver the healthcare service to patients. RVUs play a critical role in determining physician compensation.

Under the RBRVS, physician payment for services is determined by:

1. Total RVUs

2. Geographic Practice Cost Indices (GPCIs)

3. Conversion Factor (CF)

Note: Other factors, such as the use of modifiers, may affect final reimbursement.

What Is the Role of RVUs in a Physician Fee Schedule?

The use of RVUs to place a value on medical services reformed healthcare payment systems. Originally created as a unit of the RBRVS for CMS, RVUs became the foundation of the Medicare Physician Fee Schedule (MPFS), as well as the basis of most commercial fee schedules.

Prior to the implementation of the RBRVS in 1992, physicians set charge rates for the medical care they provided to patients. Price uniformity came by way of Medicare’s Customary, Prevailing, and Reasonable (CPR) charge system (similar to the Usual, Customary, and Reasonable, or UCR, system used by private health insurers).

In the CPR system, Medicare defined customary charges as the median of physician’s charges for a given service and initially set the prevailing charge at the 90th percentile of the customary charges of all same-specialty physicians in a region. Medicare defined the reasonable charge as the lowest of payments received for a customary charge, or the prevailing charge, in the Medicare payment area.

Problems With CPR/UCR

Charges for the same service under the CPR system led to considerable variance in physician compensation. Individual Medicare carriers with unique policies magnified compensation disparity, with some carriers paying all providers one prevailing charge for a service, while others paid each specialty physician a different prevailing rate for that service.

Also, nothing within CPR regulations prevented physicians from raising their fees. To control Medicare costs, CMS reduced the prevailing charge from the 90th to the 75th percentile. This development, though, which linked increases in prevailing charges to increases in the Medicare economic index (MEl), left payments impervious to changes in clinical practice and technology.

To illustrate the resulting problem, CPR critics cite cataract surgery, which is among the oldest procedures in medical history, as well as one of the most common. Despite the evolution of surgical techniques that had reduced operating time, physician payments in 1985 remained in the ballpark of $6,000 — and consumed 4 percent of Medicare's budget — long after the cost of cataract surgery had been halved.

In addition to compensation for procedures remaining high after their costs decreased, compensation for office visits failed to keep pace with economic trends and lagged after increases in the complexity and cost to diagnose and manage patients.

Similarly, physician payments plateaued across geographic areas. Although innovations in technology and clinical practice made its way to rural areas, compensation for rural physicians overlooked advancements and held to the prevailing charges of the 1970s.

Enter the RBRVS

In 1992, Medicare revolutionized the way it paid for physician services. Instead of basing payments on physician charges, the federal government, with help from the American Medical Association (AMA), established a standardized physician fee schedule based on RVUs.

Now in place for decades, the RBRVS schema is not without its critics. Among concerns, some industry experts say that compensating physicians based on effort rather than outcome could drive the overuse of high-RVU procedures. Criticism aside, though, the RBRVS proved to be a giant leap toward supporting a fair and equitable basis for physician compensation.

Understanding RVUs

Not all physician services represented by a CPT^® code or HCPCS Level II code are created equal. Some services require a considerable investment of physician time and effort, clinical staff, and specialized equipment. Other services require very little time and resources.

To implement a fee schedule built on the principle that payments for medical procedures and services should reflect the costs of providing them, CMS adopted the RBRVS, which calculates fees for each service and procedure based on a single measure — the RVUs. Using code descriptors as vignettes, medical codes were assessed and assigned RVUs that ranked the resources used to provide the services on a common scale.

In other words, the RVUs assigned to a procedure or service compares its value relative to other procedures or services. If a service has 6 total RVUs, that means the resources consumed in delivering that service are 6 times greater than those consumed by a procedure with 1 RVU.

Types of RVUs

To accurately capture the consumption of time, effort, and money involved in providing a service to patients, the RBRVS model uses three specific components, or types of RVUs, that, when totaled, determine payment. These RVU types measure the following:

• Work RVUs account for the provider’s work when performing a procedure or service. Variables factored into this value include technical skills, physical effort, mental effort and judgement, stress related to patient risk, and the amount of time required to perform the service or procedure.

• Practice expense (PE) RVUs reflect the cost of clinical and nonclinical labor and expenses of the practice. These include medical supplies, office supplies, clinical and administrative staff, and pro rata costs of building space, utilities, medical equipment, and office equipment.

• Malpractice (MP) RVUs reflect the cost of professional liability insurance based on an estimate of the relative risk associated with each CPT^® code.

With recommendations from the AMA’s Specialty Society Relative Value Scale Update Committee (RUC), CMS updates physician work, practice expense, and professional liability insurance relative values annually to address changes in medicine, technology, and economy. Each year, RUC also examines new, revised, and potentially misvalued codes to determine a relative value by comparing the physician work to existing codes. Statutory mandate requires CMS to review all components of the RBRVS every five years at a minimum.

Note: While Medicare has specific payer systems and rules, many non-Medicare payers, including private health plans, use the RBRVS as the basis for determining payments.

Nonfacility and Facility RVUs

Because the expense of providing a service may differ depending on where the service is performed, place of service (POS) factors into reimbursement. For the dozens of official places of service, each with a unique POS code, CMS makes a distinction and organizes all places of service into two categories:

• Nonfacility, such as the physician’s office (POS code 11)

• Facility, such as an inpatient hospital (POS code 21), ambulatory surgery center (POS code 24), or skilled nursing facility (POS code 31)

Regardless of POS, work and MP RVUs for a CPT^® or HCPCS Level II code remain unchanged. POS comes into play and impacts reimbursement when CMS and other payers determine that practice expenses for a service or procedure are less when delivered at a facility (compared to a nonfacility).

When a physician provides certain services in a facility, the facility — rather than the physician practice — covers overhead costs (i.e., clinical personnel, equipment, supplies). In these instances, CMS and commercial payers assign two different PE RVUs to the CPT^® or HCPCS Level II code — a nonfacility PE RVU and a facility PE RVU. Physician reimbursement, then, depends on the POS code, which tells payers where the service was performed.

For example, CPT^® code 36217 Selective catheter placement, arterial system; initial third order or more selective thoracic or brachiocephalic branch, within a vascular family is assigned 6.29 work RVUs and 1.46 MP RVUs in the January 2024 MPFS relative value file. These values remain the same whether the procedure is performed in a nonfacility or facility.

PE RVUs for this code, though, vary depending on the place of service. The January 2024 MPFS relative value file lists 45.72 PE RVUs when the 36217 service is performed in a nonfacility. When this procedure is performed in a facility, PE RVUs drop to 2.03 because overhead costs are not incurred by the physician.

To calculate the total RVUs for a CPT^® or HCPCS Level II code, add the work RVUs, MP RVUs, and either the facility or nonfacility PE RVUs (as applicable to your POS).

You can find POS details in the Medicare Claims Processing Manual, Chapter 26, Section 10.5.

Geographic Practice Cost Indices

Practice expenses, such as salaries for nonclinical staff, electricity costs, and office space, can vary widely depending on location.

With the goal of achieving fair and equitable physician compensation, CMS incorporates a geographic practice cost index (GPCI) into the RBRVS to neutralize regional economies.

For every Medicare-defined payment area, three distinct GPCI adjustments (work GPCI, PE GPCI, MP GPCI) are applied to the three types of RVUs used to calculate payment. These adjustments are updated at least every three years by CMS and account for differences in the cost of furnishing physician services across regions of the U.S.

There are more than 100 Medicare localities, and the degree of fee variance can be inferred from the following sample of GPCI adjustments from the MPFS files for the first quarter of 2024:

When the corresponding GPCI adjustments of a locality are applied to the three RVU types, total RVUs for a procedure can vary significantly.

For example, for the first quarter of 2024, Medicare assigns 22.89 total RVUs for both facility and nonfacility sites to CPT^® code 24341 Repair, tendon or muscle, upper arm or elbow, each tendon or muscle, primary or secondary (excludes rotator cuff). After GPCI adjustments, though, the total RVUs for 24341 performed in Arkansas fall below the national total and are instead reimbursed based on 20.3813 total RVUs, as the calculation below shows.

To determine the GPCI-adjusted total RVUs for a procedure or service in a specific area, apply the formula:
(work RVUs x work GPCI) + (PE RVUs x PE GPCI) + (MP RVUs x MP GPCI)

For 24341 in Arkansas, the calculation looks like this:

(9.49 x 1.000) + (11.55 x 0.860) + (1.85 x 0.518) = 20.3813

MPFS Conversion Factor

An RVU must be multiplied by a dollar conversion factor (CF) to become a payment schedule. Medicare calculates an annual CF based on the previous year’s CF and adjusts to maintain budget neutrality. The table below shows the CF for the first quarter of recent years.

Conversion Factor (CF)

In simplest terms, the CF converts the value expressed in RVUs to dollars. It represents a constant monetary amount, meaning the annual CF is universally applied to all services and procedures on the MPFS for a given payment year.

Medicare Physician Fee Schedule Payment Rates Formula

Here’s the basic formula used to determine physician compensation from Medicare for codes on the MPFS:
[(work RVU x work GPCI) + (PE RVU x PE GPCI) + (MP RVU x MP GPCI)] x CF = payment amount

In the previous section, the GPCI-adjusted total RVUs for CPT^® code 24341 in Arkansas were calculated to be 20.3813. When multiplied by the CF of 32.7442, this translates to $681.51 in reimbursement.

Again, the sum of the three geographically weighted RVU types multiplied by the Medicare CF determines the Medicare payment. Note that other factors may affect payment, as well, such as modifiers and other services reported for the same date.

Global Surgical Packages

Medicare uses the concept of a global surgical package to help determine payment for codes on the MPFS. The package includes all the necessary services normally provided by a surgeon before, during, and after a procedure. For instance, the global surgical package for a code with a 90-day global period includes certain necessary, routinely furnished services one day before the surgery, the day of the surgery, and 90 days following the surgery.

The global surgical package concept is related to RVUs because Medicare assigns the procedure code RVUs based on the number of services typically performed during the global period, and the provider receives a single payment encompassing all care associated with the procedure during the global period.

Global Package RVU Distribution

Sometimes a provider will perform only part of the global package. The total RVUs for procedures with a 10-day or 90-day global period are divided into preoperative, intraoperative, and postoperative (post-discharge) care.

In the January 2024 MPFS, RVUs for codes with a 10-day global period are divided so that the preoperative component gets 10 percent, the intraoperative component gets 80 percent, and the postoperative component gets 10 percent. For a code with a 90-day global, the division is 10 percent for preoperative, 71 percent for intraoperative, and 19 percent for postoperative.

Providers use modifiers 56 Preoperative management only, 54 Surgical care only, and 55 Postoperative management only to indicate their portion of the global surgical package.

RVUs and Multiple Procedures

When a provider performs multiple procedures during the same surgical session, payment may be adjusted for some services. Many CPT^® code books and code lookup tools will show when payment adjustments apply based on MPFS indicators in the multiple procedure column.

For instance, the standard payment adjustment means that the procedure with the highest number of RVUs is reimbursed at 100 percent, with additional same-session procedures reimbursed at 50 percent. This is just one possible example, with other rules applying for endoscopic procedures, certain imaging services, certain therapy services, and bilateral services. The bottom line is that RVUs are only one factor in determining payment for codes priced in the MPFS.

Last reviewed on Dec. 18, 2023, by the AAPC Thought Leadership Team