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What Is a Relative Value Unit? (+ How It Impacts Medicare Billing)

Relative Value Units are part of the Medicare billing process

At Holistic Billing Services, we know that trying to make sense of the medical billing cycle can be confusing and intimidating. There are so many acronyms to learn and putting the pieces of the massive puzzle can feel impossible like Relative Value Unit (RVU); we’re here to help break down the process and explain some of the acronyms involved. In particular, the Centers for Medicare and Medicaid Services (CMS) has an intricate methodology to determine physician payment.

Their methodology, the Resource-Based Relative Value Scale (RBRVS), is also used by some private payer entities, so understanding how the RBRVS and its basic unit, the Relative Value Unit (RVU), impacts your holistic practice’s revenue cycle and the Medicare billing process is helpful to know a component of your practice’s finances.

From one perspective, anything to do with your financial bottom line is important to understand—therefore understanure changes.

What Is a Relative Value Unit?

A relative value unit (RVU) defines the value of a service or procedure in relation to all other services or procedures. This measure is based on the extent of physician work, clinical and non-clinical resources, and expertise required to deliver the healthcare service to patients. It’s important to note that RVUs don’t directly represent the payout for a physician’s services, but are a relevant factor in helping CMS determine that figure.

Why Are RVUs Important to Understand?

From one perspective, anything to do with your financial bottom line is important to understand—therefore understanding what relative value units do and their role in Medicare billing is helpful for evaluating your revenue cycle and anticipating future changes.

CMS operates under the rule of budget neutrality—that means that if one area’s rate goes up, a rate in a different area goes down. Since RVUs and their physician fee schedule are updated every year and liable to have some changes, it’s helpful to recognize the role that RVUs play in these changes so that your holistic practice can anticipate them.

Relative value units impact your revenue cycle

What Is the Role of RVUs in a Physician Fee Schedule?

The Medicare physician fee schedule (MPFS) outlines more than 10,000 physician services, their associated relative value units, miscellaneous payment policy information or contexts, and more. The pricing amounts included in the MPFS are adjusted regarding the geographic region and other factors that are taken into account.

As a whole, under the resource-based relative value system (RBRVS), physician payments are determined by the following factors:

  • RVUs
  • Geographic Practice Cost Indices (GPCIs)
  • Conversion Factor (CF)

An RVU is comprised of three components: work, practice expense, and malpractice. The work RVU reflects the general time and intensity associated with the service or procedure; the practice expense component reflects the cost of owning and operating a practice, such as renting space, practice equipment, and more; the malpractice RVU reflects the cost of malpractice insurance.

CMS adjusts the cost of each relative value unit in relation to the geographic practice cost index, which essentially factors in the cost of living depending on the location of the practice.

Finally, the conversion factor is updated by CMS every year and translates RVUs into dollar amounts.

The final equation for all of this results in the following:

Payment = (Work RVU + Practice Expense RVU + Malpractice RVU) x Conversion Factor

Overall, relative value units play a critical role in the equation that CMS and commercial fee systems utilize to establish the Medicare physician fee schedule.

How Do RVUs Impact Medicare Billing?

If your holistic practice is providing quality care and treatments to patients covered by Medicare, then it’s vital to gain a foundational understanding of how relative value units impact Medicare billing and thus a part of your finances:

Facilities and Non-Facilities Fees Differ

Payment rates for facilities differ from those for non-facilities; facility fees cover hospitals and in-patient services or procedures whereas non-facility fees cover physician offices or other independent settings.

Be sure to utilize the CMS Physician Fee Schedule search feature to learn more about the differences in fees.

RVUs and Audits

Relative value units are helpful for Medicare and other private payer systems to gauge an estimate for how much your services cost based on your geographic location and the other aforementioned factors. As such, there’s a state and national norm for what your services cost—and if you’re found to be charging exponentially higher than your competitors, then it could raise a red flag. In this case, you might be audited to see what’s going on.

Inaccurate Medical Coding and Billing Has Consequences

Since every service you provide to patients covered by Medicare has a correlating relative value unit and associated code, it’s vital that you submit accurately coded claims to Medicare for your services. Inaccurate billing can lead to an increased chance of audits and throws a wrench in your revenue cycle!

Partner with Holistic Billing Services to Handle Medicare Billing and Streamline Your Revenue Cycle!

Medicare billing and coding can be frustrating and overwhelming to deal with, especially if your internal resources are already stretched thin. That’s why partnering with a medical billing firm is proven to significantly optimize your revenue cycle and ensure that your practice is always up-to-date on current regulations and fee schedules.

At Holistic Billing Services, we deal exclusively with holistic healthcare practices that deliver acupuncture, massage therapy, and chiropractic treatments to communities around the country. Whether you have questions on private insurance billing or Medicare billing to enhance your revenue cycle management, feel free to contact our team today and let us know how we can help your holistic practice.

What are Relative Value Units (RVUs) and why are they important for my holistic practice?

RVUs measure the value of medical services based on the work, resources, and expertise required. Understanding RVUs is crucial for holistic practices to navigate Medicare billing, assess their revenue cycle, and anticipate changes in physician payment schedules.

How does the Resource-Based Relative Value Scale (RBRVS) impact physician payments?

The RBRVS determines physician payments by evaluating the relative value of services through RVUs, which are adjusted for geographic locations and translated into payment amounts via the conversion factor. This system helps set the Medicare physician fee schedule, influencing your practice’s finances.

Can you explain the components of an RVU and how they contribute to physician payments?

An RVU consists of three components: work (time and intensity of services), practice expense (cost of operating a practice), and malpractice (insurance costs). These components are combined and multiplied by the conversion factor to calculate physician payments, factoring in geographic cost differences.

What factors should I consider ensuring my holistic practice's billing aligns with Medicare requirements?

Practices should be aware of facility and non-facility fees, use the CMS Physician Fee Schedule search feature for accurate billing, and ensure claims are correctly coded to avoid audits and penalties. Understanding these elements can help avoid billing inaccuracies and optimize revenue.

How can partnering with Holistic Billing Services benefit my practice in terms of Medicare billing and revenue cycle management?

Partnering with a specialized medical billing firm like Holistic Billing Services can streamline your Medicare billing process, ensure compliance with current regulations, and optimize your revenue cycle, especially for practices offering acupuncture, massage therapy, and chiropractic treatments.

Latest post

March 8, 2022
 - by Antonio Arias, MBA, CHBME
Relative Value Units are part of the Medicare billing process
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