What is a wRVU?
A wRVU, or “work relative value unit,” is a unit of measurement used in the healthcare industry to determine the relative value of a specific medical service or procedure. It is used by the Centers for Medicare and Medicaid Services (CMS) to calculate reimbursement rates for physicians and other healthcare providers. The value of a wRVU is determined by a number of factors, including the complexity of the procedure, the time and skill required to perform it, and the cost of the necessary equipment and supplies.
How Does wRVU Compensation Work?
In a wRVU compensation plan, a physician is compensated based on the number of RVUs generated. Some contracts may have a base salary (which is often determined by a minimum number of wRVUs) plus additional wRVU compensation, while others may be purely production based, paying out strictly upon the number of wRVUs reached in a given year.
There is no standard conversion rate for a wRVU to dollars, as the value of a wRVU can vary depending on the specific medical service or procedure being performed and the location in which it is being performed.
The Centers for Medicare and Medicaid Services (CMS) uses a formula to calculate the relative value units (RVUs) for each procedure, which is then multiplied by a dollar amount known as the conversion factor (CF) to determine the reimbursement amount for that procedure. The CF is adjusted annually by CMS based on the Medicare Economic Index (MEI) and other factors. Additionally, private insurance companies and Medicaid may have different conversion rates for wRVU to dollar.
How Are wRVUs Calculated?
Physicians interact with patients in many different ways, therefore wRVUs account for the relative complexity of each interaction and assign a value to it. Every CPT (current procedural terminology) code used for patient billing has its own wRVU, which is then combined with the hospital or practice specific expenses and insurance charges, to create the total RVU.
This RVU is then multiplied by the current Medicare conversion rate, which is standard regardless of CPT, and voila – your wRVU compensation. As of writing, the 2023 Medicare conversion factor is $33.06. This is a decrease of $1.55 from 2022.
Practically, wRVU compensation might look something like this:
You receive an offer with a base salary of $200,000, constructed around a wRVU minimum of 6,000 (this is often based upon a certain percentile of RVU production across all physicians within your speciality, perhaps 75th) multiplied by a conversion factor of $33.06. If you instead produce 7,000 wRVUs, you will then be compensated $33,060 in addition to your base salary. Realistically, an expected salary of $233,060 for 7,000 wRVUs produced is probably on the low side, so employers may inflate base salaries with the understanding that there is still an expectation to regularly meet wRVU production, in order to create competitive compensation plans.
Why Do Employers Use RVUs?
Providers do not just use the amount charged to a patient or insurance company to calculate reimbursement for physicians because the charges do not necessarily reflect the true cost of providing the service or the value of the service provided.
The charges are often inflated to account for factors such as overhead costs, bad debt, and other expenses that are not directly related to the provision of the service. Additionally, charges can vary widely among providers and even within the same facility, making it difficult to use charges as a basis for reimbursement.
Instead, the CMS uses the RVU formula discussed for each procedure, which takes into account the relative work effort, practice expenses, and malpractice expenses associated with performing the procedure. This formula is used to create a standardized measure of the value of a procedure, which can be used to determine reimbursement rates that are more closely tied to the actual cost of providing the service.
By using wRVUs, employers are able to create a certain amount of transparency, in that physician compensation is standardized. In theory, 2 physicians performing the same procedure should be compensated the same.
It also creates a certain level of demand for production among physicians. Without such a production based model, physicians may be less likely to seek out new patients or perform certain procedures or evaluations.
Is a wRVU Compensation Model Good for Physicians?
The main benefit for a doctor being compensated under a wRVU production based model is that they are compensated based on the code submitted, not the bill collected. This allows a doctor to carry out the necessary work without worrying about insurance payouts and patient billing. They are more free to focus on patient care rather than administrative duties. It can also mean higher payouts if you are willing to carry out the necessary volume.
There are, however, a number of downsides to this model. You will not be compensated for everything that you do. As wRVUs are specifically tied to billable procedures and evaluations, things like patient phone calls, administrative duties, mentoring and teaching, and any other ancillary job functions may not be accounted for in your compensation plan.
Production based models can also create quite a bit of internal and external competition. You may find yourself competing with fellow providers for certain patients or procedures in order to hit wRVU requirements. This may cause unusual referral patterns or increase competition around new patients.
Additionally, physicians may feel the effects of burnout faster with a focus on volume rather than quality. They can become easily detached from patient care itself and be forced to focus on hitting a number.
Finally, wRVUs can easily be altered via various modifiers that the physician likely has no control over. An example of a modifier that may lessen the overall wRVU is performing more than one procedure at one time. In most cases, the physician will earn 100% of the wRVU for the first, higher billing procedure, and then a reduced rate or none of the wRVU for the second. Despite having to spend the time and energy on both procedures, the physician is not compensated fully for it. So if an ENT performs a scope exam and an ear cleaning in a single patient visit, they are unlikely to be compensated for the full RVU amount of each procedure.
Can I Negotiate My wRVU Compensation?
It is possible for a physician to negotiate the wRVUs that are applied for them in their contract, but it depends on the specific terms of their contract and the policies of the organization with which they are contracting.
In general, physicians who are in private practice or who are part of a smaller group may have more flexibility to negotiate their wRVUs, as they are not subject to the same constraints as larger organizations or those that contract with government programs such as Medicare.
However, for physicians who are employed by larger organizations or those that contract with government programs, the wRVUs may be determined by the organization or government program and may not be open to negotiation. Additionally, even for private practice physicians, the reimbursement rates for Medicare and Medicaid are determined by the government and not open for negotiation.
It is important for physicians to understand the terms of their contract and the policies of the organization with which they are contracting before attempting to negotiate wRVUs.
In a private practice setting, physicians may be able to negotiate their wRVUs with insurance companies. For example, a physician may be able to negotiate higher wRVUs for a procedure that they have a high level of expertise in, or that they perform frequently. Additionally, a physician may be able to negotiate higher wRVUs for procedures that require more resources or have higher costs associated with them.
In a hospital setting, physicians may be able to negotiate wRVUs with the hospital administration. For example, a physician may be able to negotiate higher wRVUs for procedures that they perform frequently, or that require specialized equipment or facilities. A physician may also be able to negotiate higher wRVUs for procedures that have higher costs associated with them, such as procedures that require additional staff or specialized equipment.
It is also important to note that negotiation of wRVUs is not a common occurrence, and many physicians may not have the opportunity or ability to negotiate wRVUs, especially when just starting out of residency or fellowship training.
Production Based vs Value Based Model
Production based models and value based models are two different approaches to physician compensation.
What we have mostly discussed are production based models, which compensate physicians based on the volume of procedures or services that they perform. This approach is commonly used in fee-for-service arrangements, where the physician is paid for each individual service provided. Under this model, the physician’s income is directly tied to the number of procedures or services performed, regardless of the value that those services provide to the patient.
Value based models, on the other hand, compensate physicians based on the quality and outcomes of care provided to patients. This approach is focused on improving patient health outcomes and reducing costs, rather than just increasing the volume of services provided. Under this model, the physician’s compensation may be tied to metrics such as patient satisfaction, clinical quality, and cost-effectiveness.
While production based models have been the traditional approach to physician compensation, there has been a shift towards value based models in recent years as the healthcare system seeks to improve the quality of care and reduce costs. However, the adoption of value based models has been slow, and many physicians and organizations continue to use production based models for compensation. Regardless of your personal preference, it is helpful to be armed with a solid understanding of how wRVUs work and how they may impact your practice.