RVUs Remain a Relevant System to Determine Physician Compensation

August 13, 2014
Frank Cohen

The Resource-Based Relative Value Scale, the generator of RVUs, is still viable despite the changing nature of physician compensation.

Prior to 1988, when Harvard submitted Phase 1 of the Resource-Based Relative Value Scale (RBRVS) Final Report to what is now CMS and Congress established restrictions on the amount a non-participating physician could charge to Medicare beneficiaries, doctors were complaining about how the maximum allowable actual charge (MAAC) was unfair and did not consider the growing costs they were experiencing in their practices. Now, many wish the MAAC was back and the RBRVS was remembered by writings on the cave wall. But alas, against all odds (and much criticism), RBRVS survived and 22 years later is the standard not just for Medicare fees but for nearly every other aspect of measuring practice and physician performance, cost, and productivity.

January 1992 established a new model for paying physicians under Medicare; one tied to what was supposed to be a relational database, which it was not then, but is now. The idea was to find a way to tie time, effort, and actual expenses to the fees Medicare would pay to physicians for services provided to beneficiaries. Since then, RBRVS has gone through a litany of changes to get to our current state of confusion. In fact, over the past decade or so, swimming through a sea of criticism and controversy, RBRVS has emerged as the stalwart of medical practice analytics. We use it for creating and maintaining fee schedules. We use it for conducting lean cost accounting analyses. We use it to measure productivity (although usually improperly) and as an adjunct in creating physician compensation models. I use RBRVS in both measuring risk and defending physicians who have been accused of abuse, based solely on the volume of relative value units (RVUs) they report in a given period of time. RBRVS is both a sword and a shield and even though it has its flaws, within a closed system, it is truly an amazing database.

So, what about now? The Affordable Care Act has pushed RBRVS aside with regard to the level of criticism and controversy it has created, but is the RBRVS still viable in an industry that could very well be moving to a single payer system? I say "YES" (capitalized to simulate a shout). Three years after the reform law hit the scene, I still use RBRVS and the associated RVU components on a daily basis. Fee schedules still need to be established and maintained, and measuring cost as a unit per RVU is still a good way to proceed. Tying physician compensation to productivity - albeit based more on value of care than volume of care - is becoming more popular than ever and work RVUs, good or bad, are still leading the pack as the most preferred methodology.

What does this mean to you? Well, if you are a provider, it means a lot. Remember, RBRVS has a very broad stroke and its application goes way beyond just the Medicare Fee Schedule. Let's say that you are signing a contract that pays 120 percent of Medicare. What does that mean - 120 percent of the Medicare fee amount? Or, 120 percent of the conversion factor? It matters. And what version of RBRVS? That matters, too. Because the values change from year to year, the payer is likely to stick with the year that pays the least. How about cost accounting? Because healthcare is a dynamical system, looking at raw values does not tell the whole story. For example, looking at just revenues or just expenses in isolation is meaningless without associating them to some point of reference. Here is another example where RVUs shine: Calculating cost per RVU or revenue per RVU helps to balance the changes and give us a more granular perspective of dynamism that drives those changes.

The fact is, like it or not, RBRVS has established a foothold that, at least in my opinion, is not likely to weaken in the near future, single payer or not. So it would behoove each and every one of us to become more familiar with the RBRVS and its associated components.

Frank Cohenis director of analytics and business intelligence for DoctorsManagement. He is a healthcare consultant who specializes in data mining, applied statistics, practice analytics, decision support, and process improvement. Cohen is also a member of the National Society of Certified Healthcare Business Consultants. E-mail him here.