0 (0s):
Hi, it's Dr. Weitz. Thank you so much for joining me for this episode of the private medical practice academy. Physician compensation is often based on views, but in reality, our views have no monetary value. So yeah, in order to understand productivity and revenue, you have to know what an RVU is, how it's determined and how do you figure out what it's worth. This is essential info, regardless of whether you're negotiating an employed physician contract, looking to start your own practice or expand your practice by adding additional providers, let's start with what's an RVU RVU stands for relative value units.

0 (45s):
They represent the basic component of the resource based relative value scale, otherwise known as R B R V S. This is the methodology used by the centers for Medicare and Medicaid services, otherwise known as CMS to determine physician payments. And if you've had a chance to look at the fee schedules for many of the commercial payers, you'll see that they are often based off of the RB RVs RVs used to find the value of a service or procedure relative to all services and procedures. It's based on the extent of physician work, the clinical and nonclinical resources needed, and the expertise required to deliver the service to the patient.

0 (1m 27s):
In theory, this seems like a reasonable way to determine payments, but before we get too far, I want to tell you a little bit about the history of fee schedules and where our views came from. The RP RVs. Was it implemented in 1992, before that physicians set their charges essentially to whatever they wanted. Medicare had the customary prevailing and reasonable charge system and private health insurers used a similar system called usual customary and reasonable to try and create price uniformity. As a side note, some private pairs still pay as a percentage of usual customary and reasonable charges.

0 (2m 13s):
So using the customary prevailing and reasonable charts system, Medicare defined customary charges as the median of the physicians charges for a given service, the prevailing charge was set at the 90th percentile of the customary charges for all same specialty physicians in a region. And then reasonable charges were defined as the lowest of payments received for a customary charge or the prevailing charge in the Medicare payment area. You can quickly see how using this system charges for the same service led to considerable variance in how physicians were compensated individual Medicare carriers with unique policies magnified this disparity.

0 (2m 57s):
And so as a result, some paid all providers, one prevailing charge for service, and then others paid each specialty physician, a different prevailing rate for that service. And then of course there was nothing that prevented physicians from raising their fees to try and game the system. CMS then attempted to control Medicare costs by reducing the prevailing charge from the 90th percentile to the 75th percentile. The problem here is that this left payments impervious to changes in clinical practice in technology. I'll give you one of the most commonly talked about examples, cataracts, despite the evolution of surgical techniques that had reduced operating time.

0 (3m 40s):
Physician payments in 1985, remained in the ballpark of $6,000. Long after the cost of cataract surgery had actually gone down by more than half compensation for procedures remained high after their costs decreased and compensation for office visits failed to keep pace with economic trends and lagged after increases in the complexity and cost to diagnose and manage patients. Now, I'm not talking about the current system, I'm talking about the way it was before 1992. So if you're thinking to yourself, wait, this doesn't sound any different than where we are today. You're right. The system was broken back then. And they tried to put in these checks and balances to make it better.

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The so-called solution. However, came with its own set of issues as it does every time someone goes in and tries to fix the healthcare system. But basically the goal of the RB RVs was to adequately compensate physicians by paying more for services that took more time, effort, expertise, staff, and specialized equipment. Now, if you're multitasking, I want you to stop and really listen to me when you're actually coding and billing for a service, you don't assign an RVU code. There is no such thing. You assign a CPT code and each and every CPT code has a dollar amount assigned to it.

0 (5m 2s):
By CMS. When your practice receives reimbursement from Medicare or a commercial payer, they pay you according to the CPT code. There is no direct payment for any service based on an RVU. This is extremely important because you need to be able to convert back and forth between CPT codes. And RBU's, it's nothing more than a formula. Check out my show notes for a link that's going to help you with this formula. Why is it so important to be able to do this? Because if you're an employed physician and you're trying to figure out how much revenue you generate for your employer, you need to understand the reimbursement based on your CPT codes that you bill.

0 (5m 44s):
If you have to reach a certain number of RVs to get your bonus, you need to know how to translate that into how many patients and which CPT codes. Now, if you're an employed physician, who's looking to start your own practice. You need to know how to project your potential revenue. And that's based on what CPT codes you bill and how many patients you think you're going to see. It has nothing to do with our views. And if you're in private practice and want to hire additional providers, you will need to figure out the new employed physicians productivity in order to determine what salary to offer. If I haven't convinced you yet, you need to be able to speak both CPT and RVU use.

0 (6m 25s):
So now let's get into it. Under the RB RVs payment for physician services is determined by total RV use geographic practice, cost indices, and a conversion factor. I'll explain all of this, not to worry CMS using code descriptors as vignettes assigned. RBU's a rank so that they basically put everything on a common scale. Theoretically, a service was six. Total RV use means that the resources consumed and delivering that service are six times greater than those consumed by a procedure. One RVU now not to confuse you further in RVU is not an RVU.

0 (7m 9s):
There are actually three types of our views that go into the calculation of the total cool RVU first there's the work RVU, which is exciting exactly what it sounds like. It's meant to factor in technical skills, physical effort, mental effort, and judgment stress-related to patient risk and the amount of time that's required to perform the service or procedure work our views account for about 50% of the total RVU for any given CPT code. Then there's the practice expense RVU. This is basically to reflect the cost of clinical and nonclinical labor and the expenses of running the practice.

0 (7m 54s):
So this would include medical supplies, office supplies, clinical and administrative staff, the prorata costs for building space, utilities, medical equipment, and office equipment, practice expense, our views account for about 46% of the total RVU. Again for any given code. The third component is the malpractice, our view, which needless to say reflects the cost of professional liability insurance based on an estimate of the relative risk associated with each CPT code. This accounts for about 4% of the total RVU, CMS updates, physician work, practice expense, and professional liability insurance, our views annually, and an attempt to address the changes in medicine technology and the economy.

0 (8m 47s):
And while the system is meant to define how CMS pays for services, it's been adopted by many, if not most of the private payers, I want to point out to you that for the employed physician, the only real RVU measure productivity is the work RVU. And to that end, you need to know that where the service is performed has no impact on the work RVU or the malpractice. Our view, if a contract is based on the number of work RVU is you produce, then you are not impacted by the overhead for the practice. On the other hand, if we're talking about total RVs, you need to understand that the place of service significantly factors into reimbursement.

0 (9m 32s):
Why? Because the expense of providing a service can vary significantly based on where it's being performed. This is a key point. So let me have your full attention. CMS makes a distinction and organizes all places of service into two categories. The first is the non facility. This usually refers to the physician's office. Then there's the facility. That's the other group of facility can refer to an inpatient hospital, an ambulatory surgery center, or a skilled nursing facility. The thing you need to understand about outpatient clinics that belong to a hospital, they can actually be considered a facility.

0 (10m 18s):
Okay. And that has an impact both for you as well as potentially for your patient and what kind of bill they get. If you go to the CMS physician fee schedule lookup, you'll notice that for each CPT code, there's one amount of payment. If it's done in your office, I E the non facility and another for the facility, when you provide certain services in a facility, the facility, rather than the physician practice covers the overhead. In this case, CMS assigned to different practice expense RV use to that CPT code, a non facility, practice expense RVU, and a facility practice expense RVU.

0 (11m 5s):
So when you bill, you use a place of service code to indicate where the service was performed and this in turn determines physician reimbursement. This is the reason that depending on the CPT code, you're paid more for services that are performed in a non facility setting. Then in the facility setting, essentially you're being compensated because if you perform the service in your office, you're the one incurring the overhead. One thing that's super important for you to know is that not all commercial payers automatically include a site of service differential in their contracts. So unless you specifically ask, you may not get paid the non facility rate.

0 (11m 49s):
And then of course there are other things that affect overhead, right? We all know that there are huge differences in what it costs to run your practice, depending on where you live, recognizing this CMS incorporated a geographic practice cost index to each type of RVU in an attempt to neutralize regional economies and make physician compensation more equitable. This is why you need to be sure to be looking up the correct location when you use the Medicare lookup schedule. If you don't use the right location, you're going to either be over or underestimating how much reimbursement you're due. So now that you understand that our views are this absolutely contorted system for trying to define how much work and cost are involved in providing a service.

0 (12m 34s):
You're probably wondering how this actually translates into a dollar amount. And RVU has to be multiplied by a dollar conversion factor in order for it to be a payment, Medicare calculates an annual conversion factor based on the previous year's conversion factor and adjusted to maintain budget neutrality. Historically the conversion factor has trended upwards every year. Now, the converters, it didn't factor converts the value expression, our views to dollars. And you can see the conversion factor on the CMS physician lookup schedule. So the final Medicare payment for each CPT code is simply the sum of the three geographically weighted RVU types multiplied by the Medicare conversion factor.

0 (13m 26s):
You can find the complete formula for this in my show notes for this podcast episode in the end, paying different meals for each CPT code is really meant to create a fair and equitable fee schedule to making sure that physicians are all paid the quote unquote, same amount, regardless of the situation in which they practice, meaning their own office versus a facility and where you're located geographically to bring this home, you look up how much you're going to get paid by Medicare by CPT code. The CPT code defines the service and is what has the dollar amount assigned to it?

0 (14m 8s):
It's the end product of all of the RVU and geographical index mechanations multiplied by the conversion factor. So in case I'm not clear enough in order to calculate how much revenue you're generating from Medicare, you simply need to know the CPT codes you generate, and the number of patients who are seeing it in order to come up with your total revenue, you would need to know your payer mix as well. And your practices contracts as a function of Medicare so that you can come up with what your total revenue would actually be. But that's a story for another time. Thanks for joining me. Be sure to sign up for my newsletter below, and I'll be sending you on how to start your practice best run your practice, grow the practice, and then ultimately be able to leverage your medical practice into multiple other businesses.

0 (15m 3s):
I hope to see you soon.