Relative Value Units of Value as a Management Tool
Relative value units (RVUs) have steadily become the mechanism that determines procedure code payment levels. Third party insurers, including Medicare, have used RVUs to decrease fees over the past 10 years. However, practice managers can use RVUs to make improvements in expense control, contract negotiation, fee setting, physician productivity and compensation, and benchmarking, thereby increasing practice profitability.
This article will focus on a practice’s expense control and fee setting, but first, a brief review of RVUs.
What Are RVUs?
RVUs are part of the Medicare Resource Based Relative Value System. Medicare first used this system in 1992 to establish its fee schedule. Each Current Procedural Terminology (CPT) code is based on a relative value that consists of three components: physician work effort, practice expense, and malpractice insurance expense. All of the components are multiplied by geographic practice cost indicators to develop a final value. Once a final RVU figure is developed, it is multiplied by conversion factor to establish the fee. The Medicare conversion factor for 2003 is $36.7856. The [Link to the table showing the calculation for code 63030] table shows the calculation for code 63030.
It should be noted that RVUs change over time. For example, office visit code 99213 initially was established at 1.0 RVUs and is now at 1.40, a positive change from a practice’s standpoint. However, there has been a decrease in value for surgical codes. The change of values over time is one of the weaknesses of the RVU system. However, because this system is being used by an increasing number of payers, it is good business practice to learn to use RVUs to advantage.
RVUs as a Management Tool
Charges vary dramatically by neurosurgical practice within a city, let alone across a state or country. A practice’s charges frequently are established without a direct correlation to cost or physical effort. Cash payments by practice vary by payer mix and the great differences in payment rates for each payer. Thus, the strength of RVUs as a management tool lies in the nationally based numbers.
To utilize RVUs as a management tool, it is necessary to calculate how many RVUs have been performed over a period of time (a year, for example). First, the volume is needed by physician for each CPT code. This information usually can be obtained from the practice’s management system. Next, all the CPT RVU values need to be obtained from Medicare. Fortunately, Medicare provides the values already formatted in a Microsoft Excel worksheet available at www.cms.gov. The sum of RVUs for each physician will equal the RVU total for the practice.
This total is key to determining additional information. Total practice expenses can be divided by total RVUs to develop the cost per RVU. Then the cost per RVU can be compared with costs of previous years, showing whether or not the cost is stable, increasing or decreasing, and why.
This simple “apple to apple” measurement is one of the most effective ways to determine management control of expenses. This cost per RVU analysis is a much superior tool to the “normal” tools used in the healthcare industry, such as comparing overhead expenses to cash, or expenses to office visit and surgical volume charges. The latter tools do not take into account the changes in payment rates from year to year or the complexity of services provided.
With cost per RVU in hand, cost for each procedure easily can be developed by multiplying the cost per RVU by the number of RVUs for each procedure. Then it is a simple matter to multiply the cost-per-procedure by a set factor to develop a price or a fee for all procedures.
Using cost is how most other industries set prices, rather than using a multiple of Medicare fees, which is a common methodology in healthcare. Note also that the cost per procedure is now the breakeven point. It can be further defined into fixed- or variable-cost detail. All of this information is useful for insurance contract negotiation.
RVUs as Benchmarking Data
Development of a national cost per RVU to use as a benchmark would be helpful information to neurosurgical practices. Unfortunately, there is no statically valid information on neurosurgical costs per RVUs at the present time.
Development of benchmark information for use by neurosurgical practices is one of the primary goals of NERVES, Neurosurgery Executives Resource Value & Education Society. In order to develop RVU benchmark information, all neurosurgical practices need to be included in the NERVES database.
A presentation on RVUs and their use as management tools will be held at the next NERVES meeting in Orlando, Fla. on April 29 and 30.
Nick Green, [email protected] or (248) 784-3730, is practice administrator at University NeuroSurgical Associates, P.C., in Southfield, Mich., and northeast regional director of NERVES, www.nervesadmin.com.