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RVU costing

Written By: Jason Shafrin - May• 13•06

RVU costing sets physicians’ fees by employing various accounting procedures to determine the relative worth of each service they provide. An article by Mark Berlin in Healthcare Financial Management (1997) details how the RVU costing system works.

First let us examine the four types of cost accounting group practices traditionally use.

  1. Job Order Costing. This method accumulates costs per job. This measure works best when tasks are distinct. When there is overlap in each job, determining the true cost of a procedure may be difficult.
  2. Process costing. This method accumulates costs based on a process or department for a given period. If it is impractical to track specific tasks that a department does, this method may be useful. However, if there are large shifts in demand for a particular department’s services, this method may be inaccurate.
  3. Activity-based costing. This method accumulate the costs of activities involved in the production of a procedure or service by accurately assigning overhead costs on a cause-and-effect basis. Of the three named so far, activity based costing is the most accurate, however, it involves significantly more detailed data requirements.
  4. RVU costing. This method uses relative weights to accumulate costs, accounts for relative differences in the consumption of resources across various procedures or services.

The article continues to explain that: “An important assumption in the RVU costing method is that a common unit value can be calculated that can be multiplied by the relative value of a procedure or service. The result is a cost of performing a procedure scaled to a common unit. The Medicare resource-based relative value scale (RBRVS) costing method is used to approximate the cost of physician services.”

Here is how to implement the RVU system:

  1. The first step to step up an RVU system is to have an exhaustive list of all current procedural terminology (CPT) used in a practice.
  2. We assign a relative value for each CPT. The value is divided into three categories: a) work, b) practice expense and c) malpractice. Work is the physician salary costs, practice expenses are direct inputs (non-labor) and overhead costs, and malpractice measures the relative liability and insurance costs.
  3. Next we multiply each cost by its geographic practice cost index (GPCI).
  4. Finally, we calculate the total number of RVUs and the total costs incurred by a practice in a period. Thus, we can find the cost per RVU for the firm.
  5. To determine the cost of a procedure, we multiply the number of RVUs for the procedure times the cost of an RVU.
CPT: 63201 RVU GPCI Adj RVU Cost
Work 33.84 1.007 34.08 $934.86
Practice 31.22 1.093 34.12 $2,201.10
Malpractice 34.12 1.159 39.55 $826.99
Total 99.18 107.75 $3,962.96
Costs Total RVU Cost/RVU
Work $753,124 27452.23 $27.43
Practice $2,158,967 33470.26 $64.50
Malpractice $87,500 4184.06 $20.91
Total Costs $2,999,591 65106.55 $46.07

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One Comment

  1. […] All physician services are reported to CMS according to the Healthcare Common Procedure Coding System (HCPCS), which contains codes for about 6,700 distinct services. Payment rates are based on RVUs. […]