Valuation in healthcare requires an intimate knowledge of the operations of clinical organizations. Part of this includes an understanding of how healthcare services are assigned “value” and ultimately how they are billed and paid for. The RBRVS (Resource Based Relative Value Scale) was created to determine reimbursement rates for physicians under the Medicare payment system, or the Physician Fee Schedule Database. Under this scale, certain Relative Value Units (RVUs) are assigned to services and procedures. A primary area where this is relevant is determining the number of work RVUs generated by physicians. This can form the basis of a compensation or business valuation negotiation depending on how physician productivity is factored-in.
RVUs – Relative Value Units
A relative value unit, or RVU, is a way to measure the value of a service or procedure based on the complexity and resources expended to produce the service or procedure. This is one of multiple inputs involved in deriving a fee or reimbursement for the service. Higher RVU values indicate greater cost and resources. There are three RVU components:
- Work RVU
- Malpractice RVU
- Practice Expense RVU
These three components form the total RVU value for a service and are adjusted geographically with a GPCI to account for regional variances. This is then applied to a conversion factor.
The work RVU or (wRVU) is measured based on the time and intensity required for the physician to render that service. For example, a complex neurosurgical procedure will likely require greater judgement, skill, and effort than a level 1 office visit. Tabulating a physician’s wRVUs relative to their peers or benchmark data is one way to judge relative productivity, and thus compensation. Understanding how the wRVU fits into the RVU and RBRVS scheme allows for greater operational understanding of provider production and more accurate modeling for the valuator, especially in a multi-year projection under the income approach.0