Measuring Physician Productivity through RVUs

Using RVUs for Productivity and More

Relative Value Units (RVUs) are a valuable resource for medical organizations.  Most payer contracts still incorporate them in some way but more practices should use them for management purposes.  Here, Linda Ringquist discusses using RVUs for measuring physician productivity.

Another measure, one that is a relatively new player in the healthcare game, is Relative Value Units, or, RVUs. This deals somewhat with the aforementioned concerns about relativity when it comes to the complex care requirements of one physician to another, or even, one patient to another within a single practice.

RVUs attempt to suss out the relative level of difficulty in performing certain tasks, or, the amount of work involved in relation to other tasks common to most physicians. Medicare and other third-party payors use the The Resource-Based Relative Value Scale to determine RVUs. Considerations when selecting the scale of RVUs are typically:

  • the amount of time spent on the task or service
  • how much skill and/or effort is required
  • the amount of mental effort/clinical judgment involved
  • the amount of psychological stress on a physician regarding iatrogenic risk

Factoring in the presence and stress of iatrogenic risk is important- we know that many providers in recent years have been made to feel that they must practice medicine with the intent to avoid lawsuits, rather than improve the health and wellbeing of patients. Because the risk of malpractice is present even in the best of times and the most routine procedures, it is worth reiterating the importance of solid and supportive clinical documentation. The RVUs assigned, then, are relative not to the payors, but to the physicians themselves – and takes into consideration the unique concerns affiliated with practicing medicine, rather than the subtleties of paying for it.

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Using RVUs to Measure More Than Productivity

RVUs can be broken down into three components: 1. Work, 2. Expense & 3. Malpractice.  This means we can do some interesting things beyond productivity if your system happens to have the components broken out and this is where most healthcare groups are leaving a lot of management potential on the table.  Listing all of the potential applications for management reporting based on RVU components is beyond the scope of this post, but I do want to point out a very useful for one for medical groups right now – Procedural Cost Accounting.

Procedural Cost Accounting Using RVUs

Right now the trend is towards value-based purchasing of healthcare services and organizations taking on more risk.  I don’t have to tell you that it is very important to know your actual costs when negotiating risk agreements.  At the same time I don’t have to tell you that calculating your actual cost to perform a given service is extremely difficult.  In fact, “extremely difficult” doesn’t really capture it.  It’s closer to “impossible”.

This is where the RVU components come in.  Through a process that I will gloss over here, your tax dollars pay for updating of all three components to the RVU.  That includes the practice expense component.  By using the practice expense component of the RVU we can get a reasonable (but by no means perfect) idea of the cost to actually perform a service and that gives us some valuable ammunition when planning our contract strategies and other strategies that require the knowledge of what the approximate cost of a service is.

Using Procedural Cost Accounting to Calculate the Cost of Healthcare Services

Here is a simplified approach you can follow to get an approximate cost for each service you render.

  1. Total the complete costs to operate your group.  (building, staff, everything)
  2. Run a report to calculate the total Practice Expense RVUs for the same period of time. (preferably a year)
  3. Divide Total Costs by Total Practice Expense RVUs to get your Cost per Practice Expense RVU.  (remember we dealing just with the Practice Expense component of the RVU here)
  4. Now go back and multiply your Cost per Practice Expense RVU by the specific Practice Expense RVU for each CPT code and voila!  You have a approximate cost for each service.

I learned this trick back in the first days when capitation getting big.  It is by no means perfect, but I can tell you that the method produces very useful info for approximating the individual cost of a service and, most importantly, it is at least a thousand times easier than any other method I have seen for trying ascertain the cost of a given service.

Get your spreadsheet out and give it try.  This is just one application of many interesting possibilities using the components of the RVU system.

– James

PS – By request here is a short description of what is included in the Practice Expense component of the RVU.

Practice Expense RVU – This component addresses the costs of maintaining a practice including rent, equipment, supplies and nonphysician staff costs.  The practice expense RVU is now calculated using a “bottom up” methodology where the direct costs of providing a service are calculated (staff time, supplies and equipment time) and indirect costs are allocated.  Indirect costs are those that cannot be directly attributed the provision of a service, such as having a waiting room or a billing service.  Direct costs are those that can be assigned to a specific service; a direct cost would be the actual supplies, equipment and staff time used for a given CPT code. Frequently, a CPT code will be assigned a practice expense RVU for a facility setting, such as a hospital, and a different practice expense RVU for a nonfacility setting, such as a freestanding center.  Generally, freestanding radiation oncology centers receive more practice expense compensation than hospital-based centers, since the practice expense of owning and operating equipment and providing staff resources are significantly more than the practice expenses covered by the physician in a hospital setting. As an aside, the hospital is paid under Hospital Outpatient Prospective Payment System (HOPPS or OPPS) for the radiation oncology equipment and services. Hospital-based physicians are paid under the Medicare Physician Fee Schedule (MPFS) in the same manner as freestanding-based physicians.