How Much Is One RVU Worth For Medicare Patients? A Detailed Explanation.

UPDATE for 2014:  According to CMS document MM8533, the 2014 RVU conversion factor for one RVU is $35.8228.   

How much is one RVU worth? RVU stands for relative value unit.   Go here for a detailed explanation of RVU.   You can also search the CMS website for the exact dollar value of all CPT® codes.  You  can even search by your geographical locality.  Medicare uses RVUs to value all billable CPT® encounters your physician provides for you.  I have written exhaustively in the past about RVU and how the whole process is open to manipulation.  RVUs are used by many practices to define expectations, productivity and  bonus structures for individual and group practices.  Every CPT® code your doctor submits for payment has calculable total, work,  practice expense and malpractice RVU values. The formula is complex (discussed below) and the input variables are defined by a committee of several dozen experts across multiple fields of specialty practices each trying to gather their share of the fixed SGR pot of money. 

Congress enacted legislation in the 1990s mandating physician spending be limited by a series of assumptions that have proven grossly irresponsible.    An explanation of these assumptions can be found in this CMS PDF file.    Here are the first four paragraphs of that file explaining our current Congressional mandates in detail.   

Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2013 

Section 1848(d)(1)(E) of the Social Security Act (the Act) requires the Secretary to make available to the Medicare Payment Advisory Commission (MedPAC) and the public, by March 1, an estimate of the Sustainable Growth Rate (SGR) and conversion factor applicable to Medicare payments for physicians’ services for the following year and the data underlying these estimates. We are providing the estimates and information applicable to physician fee schedule payments in calendar year (CY) 2013. It is important to note that the SGR and conversion factor shown here are estimated − the actual values used to compute physician payments for CY 2013 will be based on later data and are scheduled to be published by November 1, 2012 in the Federal Register as part of the physician fee schedule final rule for CY 2013. 

Medicare Sustainable Growth Rate 

Section 1848(f) of the Act, as amended by section 4503 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33), enacted on August 5, 1997, replaced the Medicare Volume Performance Standard (MVPS) with a Sustainable Growth Rate (SGR) provision. Section 1848(f)(2) of the Act specifies the formula for establishing yearly SGR targets for physicians' services under Medicare. The use of SGR targets is intended to control the growth in aggregate Medicare expenditures for physicians' services. 

The SGR targets are not direct limits on expenditures. Payments for services are not withheld if the SGR target is exceeded by actual expenditures. Rather, the fee schedule update, as specified in section 1848(d)(4) of the Act, is adjusted to reflect the comparison of actual expenditures to target expenditures. If expenditures exceed the target, the update is reduced. If expenditures are less than the target, the update is increased. Under the statute, the update for a year is determined by comparing cumulative actual expenditures to cumulative target expenditures (referred to as “allowed expenditures” in the statute) from April 1, 1996 through the end of the year preceding the year at issue. For instance, the CY 2013 update reflects a comparison of cumulative actual to cumulative target expenditures from April 1, 1996 through December 31, 2012. Target expenditures for each year are equal to target expenditures from the previous year increased by the SGR (which is a percentage figure computed by combining four factors specified below). 

The statute specifies a formula to calculate the SGR based on our estimate of the change in each of four factors. The four factors for calculating the SGR are as follows: 
(1) The estimated percentage change in fees for physicians’ services. 
(2) The estimated percentage change in the average number of Medicare fee-for-service beneficiaries. (3) The estimated 10-year average annual percentage change in real gross domestic product (GDP) per capita. 
(4) The estimated percentage change in expenditures due to changes in law or regulations.


These assumptions are then reviewed for actual vs expected expenses and a conversion factor is used to adjust spending upward or downward.    This process is detailed in the pdf link above.  This conversion factor  is part of the complicated RVU formula (see below) that determines the value of all  individual CPT® code payment rates submitted by physicians to their Medicare carrier.

What is the dollar value for one RVU?  For all intents and purposes, the value of one RVU is defined by a Congressionally determined value of the conversion factor.   In 2012, Congress set the conversion factor at $34.0376.  That means one RVU was worth $34.0376 because the RVU formula says so.  Here is a chart of how the conversion factor has changed from 1992-2012

What happens in 2013 if Congress fails to address the SGR debacle?   An expected 27.5% across the board cut will decimate physician Medicare payments  How does failure of Congress to reverse these devastating cuts get applied to every physician in America? Every single CPT® code is assigned an RVU value.  And that RVU value is defined by Congress  through the conversion factor.  That means in 2013, if Congress fails to act, one RVU will only be worth $24.8441 instead of the current $34.0376.

UPDATE January, 2013:  Congress has avoided the Fiscal Cliff and recommended kicking this SGR can down the road, again.  These cuts have been delayed, for now.  When will a final solution be implemented?  Nobody knows.

What do the total RVU formulas look like?
2012 Non-Facility Pricing Amount =
[(Work RVU * Work GPCI) +
(Transitioned Non-Facility PE RVU * PE GPCI) +
(MP RVU * MP GPCI)] * Conversion Factor (CF) 
2012 Facility Pricing Amount =
[(Work RVU * Work GPCI) +
(Transitioned Facility PE RVU * PE GPCI) +
The conversion factor for CY 2012 is $34.0376.
Source of formula

Notice the conversion factor is built into the formula for determining a dollar value for the total RVUs for every possible CPT® code your physician submits for payment.  That means if Congress cuts the conversion factor by failing to provide another SGR patch, they are cutting the dollar value of all CPT® codes.

In summary, Congress has mandated that physicians not spend too much money.  Physicians are spending too much money based on their bad math so physicians must have their payments cut.  Physicians get their payments cut by allowing Congress the right to slash the defined dollar value of one RVU by whatever amount they see fit to make physicians stop spending too much money.  They do this by setting the dollar value of the conversion factor.  Since every physician's CPT code is assigned an RVU value based on a complicated formula and since that formula has the conversion factor so conveniently placed in it by Congress, our politicians have the ability to slash all  Medicare payments to all physicians by simply doing nothing but going  home to use up their 23 1/2 weeks of vacation they get every year.

What's wrong with this picture?  Everything.  Here is another good PDF file on the upcoming 2013 SGR assumptions and how it will affect physician payment.  Every physician  owes it to their patients to understand what all this means to them and for them.  Without radical change in how Medicare is funded and paid for, this sinking ship cannot be saved.  Medicare is the single biggest threat to America's national security.  And yet nothing changes.  Year after year.   There are simply too many votes at stake on both sides to fix this untouchable problem.   Read Storms on the Horizon to understand just how difficult the problem is.  That there is shock therapy reading.  Yes folks, it really is about the debt.  There is no way to avoid what's coming without  first admitting that day is coming.  Make sure to review all of my other resources on important hospitalist topics and other practice management issues.

As an aside, you may be wondering if all this is applied to private insurance?  I have no idea how every different insurance company decides what they are willing to pay for all the different CPT® codes.  Perhaps some readers could shed some light on that aspect.  


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