practice management

An RVU Primer: How Does Your Pediatric Practice Set Pricing?

Let’s return to school: specifically, mathematics. Was it applied calculus or differential? Do you remember how well you did? Regardless of how you scored in your final, you might have left the class relieved that you never had to graph a chart again -- until you discovered RVUs, RBRVS, and fee schedules, and you realized that numbers remain a crucial link to not only your patients’ health, but the health of your practice as a business. To understand how your practice is getting paid, you need to know how these government pricing models work. Luckily, it’s way easier than calculus.

An independent practice is a small business, and businesses deserve the same amount of care as the people who run them and the clients (patients) who use them. If memories of freshman year math class make your head spin, you might have a similar feeling when considering resource-based relative value scales, or RBRVS, and relative value units, or RVUs. These terms can be broken down into manageable ideas, and are invaluable for learning how your practice gets its income, and how to increase it.

A Word on Fee Schedules, Medicare, and Patient Costs

Wait -- doesn’t your fee schedule mandate what you get paid, regardless of what you charge? To some extent, yes. However, when you underbill for a service, you leave money on the table. Insurance companies pay up to, but not over, the agreed amount for a service. When you fail to charge appropriately for your services, only the insurance company benefits.

What about RBRVS? Aren’t these models based on the fees that Medicare pays for each service, and therefore irrelevant to pediatric care? While it’s true that RBRVS are a government payment model designed for Medicare, these models are used by insurance companies to create their payments and contracts. When you understand how insurance companies base their pricing as well as the other factors used to offer payment, you get a better understanding of how to bill for the maximum amount allowed by the payor and gain the highest potential revenue. 

Pediatric offices are known for their kindness. To prevent shifting costs to families for services routinely denied by insurance companies, a physician may often underbill. However, this only serves to hurt the practice in the long term. Learning how your practice is paid can help you understand how to bill, how to price your services, and still accommodate your patients without compromising your practice’s income.

RBRVS/RVUs: First Look

RBRVS is short for Resource-Based Relative Value Scale. This system is used by the CMS via the U.S. government and insurance companies to determine how much a clinician should be paid for the service rendered. The scale is designed to assign the price to a procedure, based on the practice’s geographical location and the “relative value” of the procedure. This value, known as the relative value unit or RVU, is determined by a committee of the American Medical Association, who meet three times a year to determine value for new CPT codes.

The value assigned to a CPT code depends on three important factors. First, the amount of work required to complete the service -- this includes the specificity of the physician’s education, and the complexity of the procedure. Second, the CPT code is evaluated for the cost to the practice, right down to the cost of cotton swabs and exam table paper. Thirdly, the CPT code is assigned a small amount of value for the cost of malpractice insurance. For the sake of example, let’s use a CPT of 99213 from actual RVUs from 2005. The RVU for 99213 in 2005 was 1.37.

Now it’s time for some specific but easy math. To determine the price for your practice, the RVU is adjusted by location, known as the GPCI adjustment, to accommodate for the economic differences throughout the country. This value is multiplied by the Medicare conversion factor which is reevaluated annually. So, for a clinician in New Jersey billing CPT 99213 in 2005, the equation was as follows:

 

RVU of 99213 (adjusted for GPCI) x Conversion Factor = Medicare payment
1.57 (adjusted for location from RVU of 1.37) x $37.90 = $59.50

 

Remember: the Medicare payment amount is not what you will receive, first of all because your payor is not Medicare, and secondly because outside contract negotiations, insurance companies do not advertise when payments rise or fall. The most important factor in pricing for services correctly is to price at least 175% above what Medicare pays.

The annual data for the Conversation Factor and adjustment for locations are regulated by the AMA and CMS. Most clinicians charge between 200% and 400% of the rates charged by Medicare to ensure that they are paid a part of this billed amount; in comparison, many hospitals overbill by 600%, and even by 1200%. Pediatric Management Consultant Chip Hart recommends that smaller independent practices bill at least 175% of Medicare rates to ensure they are getting the maximum revenue for each service.

Tools and Tips

If you’ve worked in a hospital or practice before, you’re familiar with how clinicians are paid. Now that you know the background of how prices are calculated, consider: are you setting your practice’s prices in a way that will ensure the best income for your practice? What tools are there for you to incorporate this knowledge into your budget, and into your insurance contract negotiations?

First, there’s the annual CPT code data that licensed physicians are entitled to, distributed by the AMA. Here’s a link to the data for 2019. Next, check your GPCI adjustment rate based on your locality. Determine the Medicare conversion factor for the current year.

Now that you have your tools and the knowledge to put them to use, let’s put fears of RVUs and RBRVS to rest, because now your work is done. Chip Hart offers a free, legal calculator to determine your rates for the CPT codes you use every day. It may seem like a lot to collect all of this information, but once you do, you have power over the negotiating table, because you know exactly how much insurance should be paying, how much they did pay, and the exact amount to bill to help potential income meet realized income.

 

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Allie Squires

Allie Squires is PCC's Marketing Content Writer and a transplant from upstate New York. She holds a master's in Professional Writing from NYU.