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More physician compensation is being tied to productivity. Here's how to calculate productivity ratios at your practice using RVUs.
Depending on the article or study you have seen, somewhere around two-thirds of physicians are finding their compensation, either directly or indirectly, tied to productivity in one form or another and for most, the use of work relative value units (RVUs) is dominating the methodology.
This creates a great opportunity for physicians to participate in the profitability and performance of an organization while also sharing some of the risk. In general, this should be good news but because the use of work RVUs to measure productivity is so misunderstood, it often turns out to be a bad thing and here is why: RVUs alone do not measure productivity. No more than time measures productivity for an hourly worker. If he works more hours than the scheduled shift but does not contribute any benefit, would we really define this as being more productive? Of course not. And if a physician reports more work RVUs without any additional revenue, do each of those convert to more productivity? Again, of course not.
It is important to note that, for the purpose of this article, we are looking at productivity from a financial perspective and not just from the angle of work effort, and we are using RUVs as a proxy for actual expenses, since calculating exact costs at the physician level is very difficult for many practices. And because we are interested in total productivity for that physician, we are looking at total RVUs not just the work RVU value. This is an important distinction; if we were developing a compensation plan, we would only look at work RVUs, but in this larger view, financial productivity contributes significantly to physician performance..
To create a functional and usable work RVU-based physician productivity model, we need to call in the bucket brigade. We need to report two critical metrics: revenue and RVUs. Let's say we have a 10-physician practice. All else being equal, such as time-in-grade, experience, patient characteristics, payer mix, etc., we would expect that each provider would report around 10 percent of the practice's revenue and around 10 percent of the expenses, or in this case, RVU values. If this were the case, each provider would have a productivity ratio of 1. It works like this; for each provider, you take their revenue as a percent of the total revenue and divide it by their RVUs (or expense) to get a percent of the total RVUs. Let's say that, for provider No. 1, she reports $750,000 in revenue out of a total $5 million in revenue for the practice. She has, then, accounted for 15 percent of the total revenue. Subsequently, she is responsible for 12,500 total RVUs out of 125,000 reported for the practice, or 10 percent of the total. In this case, her contribution as a percent of the total exceeds her consumption as a percent of the total, and if you divide the revenue percent by the consumption percent, you get a productivity ratio of 1.5.
% provider revenue / % provider RVU = productivity ratio
For another provider, let's say that his ratio of practice revenue is 8.5 percent and his ratio of practice RVUs is as expected at 10 percent. Here, then, his productivity ratio would be 0.85, or lower than the ratio of 1 that we would have both expected and liked. If you want, you can monetize the value of productivity. In this case, we might determine that for each tenth of a percent of productivity, the dollar value is equal to $20,000. So moving a provider from a ratio of 0.85 to 1 adds $30,000 to the bottom line.
In any case, I look at the providers with higher productivity, identify the drivers behind their success, and as best as I can, apply those drivers to the lower productivity providers. Remember, every point counts.