Relative Value Units in Medical Billing

In medical billing, claims are submitted to generate reimbursement and that reimbursement depends on relative value units. There are several factors that affect the amount that will actually be reimbursed. Each provider determines how much it will charge for services provided, but that is not necessarily the amount that will get paid.

When a provider and payer have a contract, reimbursement is based on the obligation that is contractually defined. Without a contract, reimbursement depends on different factors.

Understand relative value units

You may wonder how CPT codes correspond to a dollar value and why. The system used by Medicare and many HMOs is called the Resource Based Relative Value Scale (RBRVS). Every CPT code has been assigned something called a relative value unit, or RVU, that determines the cost of a service.

How to determine the RVU

The RVU is determined by first adding up three components:

  • The work required by the physician: This component takes into consideration the amount of time, skill, training, and intensity that was necessary to perform the procedure. Each CPT code is reviewed at least every five years to determine whether this value should remain the same.

  • The cost of doing business or maintaining a practice: This includes rent, equipment, supplies, and staff.

  • The malpractice expense or liability expenses borne by the provider: Malpractice/liability expenses vary among providers. Certain specialties such as obstetrics tend to involve higher malpractice premiums than a primary care physician is likely to face.

These three RVU factors are then multiplied by a geographical adjustment that creates the compensation level for the service in that exact location. The geographically adjusted RVUs are then multiplied by a conversion factor that converts the RVU into a dollar amount, which determines the price that Medicare or the HMO pays. Using this formula, any entity can calculate the price it’ll reimburse for any given procedure.

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