One of the many polarizing aspects of healthcare reimbursement has long been RVUs (relative value units). We’ve all heard the term thrown around in those quarterly productivity reports or budget meetings. Without going into too much of a digression, RVUs can simply be summed up as a measure of how productive a healthcare worker is, and serve as a basis for getting paid.
The big news for RVUs in 2021 is that many E/M codes–these are the five-digit numbers that we assign to patient visits to get paid by the insurance company–are now assigned to higher RVUs under Medicare. In lay-doctor’s terms, it means that you are going to get credited for doing more work for the work that you already do.
More RVUs generally equals more pay.
This is important, because many large medical groups and hospitals pay their employees by the number of RVUs that are generated. If you, the doctor, don’t meet the RVU requirements you can get a pay cut. If you do more work you hopefully will get a raise. The problem is that despite an RVU increase for 2021, your employer isn’t likely going to give you a raise.
In fact if your hospital is giving you a raise in 2021 because of the increased productivity in Medicare codes, I want to hear from you. You are the outlier.
The healthcare payment system is complicated
We know that the healthcare system is too complicated. So complicated that many people push for a single payor system as a solution to simplify the system. That would certainly eliminate some existing issues, but we simply don’t know enough about the workings, politics, and finances to make an objective assessment of our situation.
Let’s take a step back and look at the system in a simplified model.
Medicare basically has a framework that assigns a numerical RVU value to any healthcare service or procedure we provide. Generally the higher the RVU, the more skill or difficulty was required for the service. A dollar value is set to an RVU to establish a basis for reimbursement. Think of this like a currency exchange. One RVU could be worth $32. The conversion factor is actually adjusted annually to account for budgeting and other factors. The final reimbursement formula includes this conversion factor that is slightly adjusted based on cost of living (geographical factor) depending on where you practice. A hip replacement might/will cost more in New York City than in Omaha.
Within the RVU system, there are work RVUs and technical RVUs. Work RVUs essentially define the productivity of the physician (read: provider) while technical (practice expense) RVUs account for the cost of ancillary equipment or staffing required for you to perform the service. In a crudely simplified model for this article, you could lump in facility reimbursements with the technical component too.
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So in this model, if a hospital-employed orthopedic surgeon does a hip replacement on a Medicare patient, the hospital gets reimbursed a certain amount based on the surgeon’s work, the technical costs of the procedure, along with some geographical value.
How does the hospital pay the surgeon? The conversion factor for an RVU in 2021 is like $32. Let’s say the surgeon generates 10,000 RVU’s a year. Does she get paid ($32 * 10,000 =) $320,000?
The surgeon might actually get paid $500,000 or more, but where does this extra money come from? This is the part that most doctors don’t realize. That technical component to the procedure may generate a multiple more than what the physician component alone would. This would contribute to the pot that a hospital could use to pay all of its staff and expenses. There are also also intrinsic money-generating call contracts, trauma designations, and federal monies that a hospital might receive simply by having an orthopedic department on staff. This pooled money is allocated to compensate employed workers to a level that a hospital might consider to be fair.
How does this play into increased RVUs and why doctors aren’t getting paid more?
There is likely a logistical side to this, and a strictly business side to this discussion.
Logistically, the term that no doctor wants to hear is budget neutrality. There is only so much money in the pot, and there is a mandate that there can’t be an increase in expenditures in the system by more than $20 million.
You’re robbing Peter to pay Paul.
With the case of increasing RVUs for the E/M services, there is actually a decrease in the conversion factor ($36 to like $32.41 in 2021) for RVUs. Crazy right?
So despite what we see in increased RVUs, there might not actually be more to share!
The Business side of medicine is ugly
The business side of medicine is not readily transparent. We can also have differing opinions with any variable that comes to play. What is not obvious (but somewhat predictable given historic data) is the payor mix in a given health system. Medicare is typically the major insurer for many specialties but it is not the only one.
Some commercial insurers reimburse at a greater rate than Medicare while others, less. Knowing the exact reimbursement schedule for a given procedure for a given insurer ought to be mandatory, but quite common for a hospital or medical practice not to have any of these data on hand. If they do, it might not be verifiable.
What this means is that an employer’s budget might not actually be accurately determined even if the RVU changes are known. The prior year’s budget may have been grossly incorrect due to pandemic related costs, decreased patient volumes, and a number of outside variables.
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No employed physician wants to hear that their hospital won’t give them a raise even though on paper their productivity will likely increase. But no administrator also wants to tell her shareholders or investors that the hospital’s operating income is not adequate to sustain operations, and one factor is that they are paying their doctors more.
Don’t hold your breath for a raise
The healthcare system has many illogical components. This is one of them. You’re not likely to get a raise if your employer compensates you on RVU productivity. If you don’t like what you see, then this is even more reason to get your finances in order and be willing to find ways to improve your situation.
What are your thoughts on the increased RVUs in 2021?