By Eric Rosenberg, WCI Contributor
Relative Value Units (RVUs) are an important aspect of physician compensation in many hospitals and medical practices around the United States. When paying with work relative value units, doctors earn more for taking on more complex patients and procedures. If you’re considering a job offer that has RVU-based compensation or want to learn more about relative value units for the future, here’s a guide to the pros and cons of RVU-based physician compensation.
What Is Relative Value Unit (RVU) Based Compensation?
With RVU compensation, doctors are paid more for more complex procedures and services and earn a premium for working with patients requiring complicated medical care. Conversely, quick appointments with easy patients would lead to lower physician pay. You may also see the acronym wRVU, short for “work relative value units.”
RVU-based compensation relies on a combination of somewhat complex factors. Simplified, it is a system used by government programs and private insurance companies to determine how much to pay physicians for services rendered.
RVUs don’t initially translate directly into physician compensation. RVUs are a unit of measurement where doctors earn a specific number of RVUs per every service rendered. The number of RVUs earned is based on the number of RVUs defined for the procedure and patient and adjusted for geography.
Once a final RVU tally is made, it’s multiplied by a conversion factor (CF) to come up with the final compensation.
More information here:
How Is RVU Calculated?
RVUs are paid in three tranches: work RVUs, practice expense RVUs, and malpractice RVUs. Work RVUs make up about half the total compensation for a procedure, practice expense makes up about 45%, and malpractice makes up roughly 5%. Practice expense is intended to cover the costs of labor and other operating expenses for the practice, including medical supplies, rent, and equipment. Malpractice RVUs compensate for the costs of professional liability insurance, aka malpractice insurance.
Each medical procedure is assigned a code in the Resource-Based Relative Value Scale (RBRVS) system used to calculate RVU compensation.
How Are RVUs Reimbursed or Paid to the Physician?
Once you add up your total RVUs for a period, you can multiply that by the approved conversion factor for the year. Here’s a recent list of RVU values for 2016-2021:
This can be used as a value per RVU for all medical care outside of anesthesia, which has its own RVU payment scale. Remember that geography is a factor in total RVUs earned, so you would earn more for a procedure in a high-cost area than in a low-cost area despite the same payment per RVU.
According to a recent physician salary report by Medscape, the average primary care physician earned $260,000 in 2021. That’s equivalent to 8,022.2 RVUs in a year or 668.5 RVUs per month. Specialists earned $368,000 on average in 2021, equivalent to 11,354.5 RVUs per year.
How Long Until You Get Paid?
The time it takes to get paid varies by the payer. Medicare, Medicaid, and private insurers each have their own payment schedules and procedures to navigate. To give you an estimate for payment times, it takes about 30 days for Medicare to process a claim. However, some medical providers report being paid as soon as 14 days when submitting and getting paid electronically.
According to a 2019 payment industry report, approximately 70% of medical claim payments are made electronically using an electronic funds transfer (EFT) in the Automated Clearing House (ACH) system. With electronic payments, you should get paid as soon as the next day once a payment is approved.
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Pros and Cons of RVU-Based Compensation for Physicians
Here are some of the advantages and disadvantages of being paid on an RVU-based system.
- Awards individual physicians for taking on more work, complex patients, and challenging procedures.
- Opportunities to improve practice income by optimizing patient mix and choosing which types of insurance to accept.
- Offers a clear measure of productivity and compensation with an industry-wide standard.
- Can encourage a highly competitive work environment where doctors compete against each other to bill the most RVUs.
- May discourage practices from taking on lower-paying Medicare and Medicaid patients.
- Often leads to challenging administrative needs as practices grow and include more physicians.
- Introduces complexity which often favors employers over physicians, especially financially unsophisticated ones
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RVU vs. Salary Compensation Models
Some medical organizations prefer a fixed salary compensation model. This can be beneficial to doctors and patients in certain ways, but it can have its own downsides as well.
RVU vs. salary compensation models are kind of like comparing commission and non-commission service providers in other industries. In a salary model, doctors don’t have the same pressure and incentive to work faster and treat as many patients as possible. However, that can also lead to limited earning abilities.
If you want to earn the maximum possible, an RVU system may be better. However, it’s less predictable, and it can lead to a more stressful working life.
RVU vs. wRVU
What is wRVU? wRVU is a subset of how total RVUs are calculated. wRVU is short for working RVU. This is the portion of compensation that relates directly to physician work performed. It makes up about half of total RVUs.
Bottom Line on RVUs
RVU compensation relies on complicated calculations, but the basic idea is simple to understand. When you know the basics of RVU compensation, you’re in a better position to make an educated decision about how you want to be paid, how to work with employers, and how to manage your medical practice in the future.
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