WHAT ARE RVU’S AND DRG’S? How do doctors get paid? Part 1: RVU’S
So you think Medicare pays hospitals and doctors those big fees they charge? Really? If you do, you haven’t been paying attention to the “Explanation of Benefits” (EOB’s) you receive from Medicare and your supplemental insurance. Those are the complicated statements you receive that have charges from doctor’s you’ve never heard of or facilities where you think you’ve never been. If you look closely, though, you’ll see the final payment from Medicare to these physicians is only a fraction of their charge. It’s outrageous.
Yes, I know some of their charges are outrageous, but those numbers are a mirage, a smokescreen, “fake news”—whatever you want to call it. Medicare is only going to pay the doctor the amount that was long-before determined to be the fee for that procedure. That’s what RVU’s are for.
This is a complicated and boring subject, but it’s importance to physicians cannot be over-emphasized. The economic viability of their business and their livelihood depend upon it. Every single procedure a doctor performs has a relative value. Based on numerous factors listed below**, a committee of representatives from the AMA and the Center for Medicare and Medicaid Services (CMS) has determined the value of the services doctors perform. The value is expressed numerically in what’s called Relative Value Units, RVU’s. The entire system is called The Resource-Based Relative Value System, RBRVS.
RVU’S are a calculated number indicating the complexity and difficultly of a procedure. The higher the number the more complicated the procedure. The time it takes, the skill required to do it, the training involved in learning the procedure, and the “intensity” with which it is performed are all factored in to determining the relative value (RVU) of a medical procedure. So you’d think it would be fair, wouldn’t you. Think again.
Medical professionals perform thousands of different procedures. The entire list of procedures is printed in a manual called Current Procedural Terminology, or the CPT code book. Each procedure has an identifying number, or CPT code, used for billing for services. For example, a visit to your primary care doctor will be “coded” 99212, 99213, 99214, or 99215. The correct code is based on how much time the doctor spent with the patient and the complexity and diagnostic difficulty of the visit. Each of these CPT codes is also assigned an RVU, relative value unit, which Medicare uses to pay the doctor. Doctors rarely know what the RVU’S are because it’s not really information he/she needs. The physician’s real concern is choosing the correct CPT code because it tells Medicare exactly what service was provided. Medicare then calculates the amount paid to the doctor for that service. Physicians often experience uncertainty when choosing a CPT code. An incorrect or omitted procedure code can significantly affect the doctor’s bottom line.
To calculate physician payment, Medicare then uses the “Conversion Factor.” The Conversion Factor is the dollar figure each RVU point is worth, and is the vehicle to determine the amount paid for a procedure. Every year, CMS sets the Conversion Factor and Congress either approves it or changes it. For example, the conversion factor for 2020 was 36.08, so every RVU, for every procedure the doctor performs, is worth $36.08. According to Google, in 2021, the conversion factor was reduced to $34.89, giving physicians a 3.3% reduction in reimbursement. The government giveth and the government taketh away.
The RVU is multiplied by the Conversion Factor, and the amount to be paid for the procedure has now been determined. The RVU’S for primary care office visits are as follows: 99213–1.29, 99214–1.99, 99215–2.97. Multiplying the RVU by the Conversion factor of $34.89, payments of $45.01, $69.43, and $101.18, respectively, would be the “approved amounts.”
The “approved amount” is what Medicare agrees to pay the doctor, but they agreed to pay only 80% of that amount. What? Only 80%? Why? Because they can do it, that’s why. But if the patient has a supplement, it will pay the other 20%. If not, the doctor takes a 20% reduction in his fee. That’s like a hammer at Home Depot that costs regular folks $10, but I’m only going to pay you $8.00 for it. I’ll see if I can get my brother to chip in the extra $2.00. Good luck.
Other examples of RVU’S are the partial removal of the liver, 39.0, the excision of the esophagus for cancer 44.2, and the mother of all operations, the Whipple procedure (removal of the pancreas) 52.8; the highest RVU of all. For an operation that takes 8-12 hours to perform and years to learn, Medicare pays the surgeon $2000.00–oh, I forgot, only 80%, or $1600.
An honest primary care physician codes his visits at level 3 or 4 (99213, 99214). Those were the levels I used 90% of the time. Rarely, did I use 99215 unless I spent an hour with the patient. Physicians I’ve been to lately routinely use 99215, the highest code level. But the visits didn’t last an hour nor did they include a comprehensive physical exam. I think that’s wrong, but reimbursement is so low, and overhead expenses are always increasing, they have to “up code” to stay in business.
Medicare physician reimbursement is based on RVU’s and the conversion factor, the determination of which physicians have little or no say. Both are set by committees with little practicing physician input. Yes, the AMA, AAFP, ACS, AAP, and ACP try to add leverage, but what doctors make from Medicare is determined by unelected bureaucrats at the CMS. RVU’S don’t often change unless someone has a strong lobbying influence. The conversion factor changes every year and is voted on by Congress. But when there’s an increase in one area, there’s always a decrease somewhere else to maintain “budget neutrality.” The Congress giveth, and the Congress taketh away.
To summarize: Any procedure a doctor performs has a CPT code. Every CPT code has a number value called an RVU, Relative Value Unit. When the doctor sees a patient, he submits a bill to Medicare which includes the diagnosis and CPT codes indicating what procedure he performed and for what reason. (95% of the time, for me, it was the office visit codes I mentioned above—99213, 4, 5. (If I also did an EKG, urinalysis, or removed wax from the patient’s ears, those CPT codes were added to the claim form, as well.) Medicare then multiplies the RVU for each of those CPT codes by the annual Conversion Factor, to determine the final amount received from Medicare. That amount is called the “approved charge.” Physicians receive 80% of that amount—unless the claim was denied, altogether, which was not uncommon. So when the check came from Medicare, included with it was a list of all the charges, the CPT codes I billed, and the amount they approved. The final figure on the statement was the amount they paid for a patient’s visit.
In the 1980’s and early ‘90’s, Medicare was continually lowering payments to physicians. Physicians were very upset, so in an effort to express to Americans the worth of physician services, the AMA sold a new payment model to doctors—The RBRVS system. Because they were promised it would lead to higher reimbursement, physicians agreed to it. In 1992, the system went into effect. As you probably know, exactly the opposite occurred. RVU’s were infrequently updated, and every year the Conversion factor was increased—by pennies! But Inflation and increased overhead costs negated any increases physicians might realize.
Now, almost thirty years later, physicians are mired in a system over which they have no control, designed to save the U.S. government money by paying less for medical services. Why are so many doctors leaving private practice and becoming employees of hospitals or multi-specialty groups? It can be blamed directly on declining physician reimbursement caused by the RBRVS. Conversion factors have not kept up with inflation so every year physician work has less value. For the same work and long hours, every physician is being paid less. And it will only get worse as is shown by the last 30 years. Many physicians “suffer” from burnout and the LOW MEDICARE REIMBURSEMENT DERANGEMENT SYNDROME. What other profession or job would allow their pay to be cut every year and not complain about it? None. Their union would fight for them and not capitulate like the AMA.
CMS is always proposing a tweak to the system, but the end affect is of earthquake proportion to the physician. The foundation is rattled and physicians take a reduction in pay, once again. That’s a big reason why nurse practitioners and physician assistants are so prevalent. Their RVU’s are much lower, and they save the system money. The ultimate result is quality of care and outcomes are affected negatively, and patients suffer the consequence. That publicly concerns CMS, but privately saving money is a more important matter.
** RVU’s are made up of three components:
1. Physician Work Component: “the time it takes to perform the service, the technical skill
and physical effort, the mental effort, and judgement and stress due to potential risk to
the patient.”
2. Practice Expense Component: a factor for “medical supplies, office supplies, office
staff, rent, utilities, medical and office equipment” directly or indirectly involved in
performing the procedure.
3. Professional Liability Component: a factor that “reflects the cost of professional liability
insurance based on the relative risk associated with the procedure.”
NEXT: DRG’S
References: https://www.aapc.com/practice-management/rvus
https://www.JAMA network.con/journal/article-abstract/2747688
National Health Policy Forum. The Basics: Relative Value Units 2015 Jan 12 www.nhpf.org
Introduction to Relative Value Units and How Medicare Reimbursement is Calculated.
