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Compensation based on Relative Value Units?

October 15, 2013

Question:


Jennifer,

I just received a proposed employment contract and compensation is based on relative value units.  What does that mean?  How do I assess what I will be making?

Please explain!  Thanks.
Dr. K

Answer:

Dr. K, good question!  It is not uncommon to see an employer (usually an institution) propose compensation based on relative value units.  Before addressing generally, here is brief background on RVUs -

Background - Since the Omnibus Budget Reconciliation Act of 1989, Relative Value Units have been used as the measure by which Medicare  determines reimbursement for services. As you may be familiar with,  CPT codes were created to classify and capture services rendered by practitioners, and each CPT code (service) is given three different relative value units (prices) to determine what should be paid for that CPT code.  For each CPT code for the following areas: (1) physician work (including the physician's time, mental effort, technical skill, judgment, stress and an amortization of the physician's education); (2) practice expense; and (3) malpractice expense.  Taken together, the three elements represent 100% of what Medicare pays out. 

Determining Physician Fee Schedule - Once a practitioner identifies a CPT code, the relative value unit for physician work is identified and multiplied by a unique geographic practice cost index, and thereafter multiplied by the Medicare conversion factor (which changes annually) to obtain a final price.

So, what does this mean for you, your contract and bottom line?  Well, not much practically - understanding what RVUs are v. understanding the metrics being established for you by a prospective employer are often not the same.  I recommend having a candid conversation with your potential employer regarding productivity, expectations and how your compensation markers will be established, reviewed and adjusted over time.  I also recommend working with your attorney (here would be me) to make sure how you will get paid and those markers are transparent.  Do not take the word of your potential employer that the RVUs specified are "within reach" and you will "of course reach your bonus".  Make sure you translate RVUs to patients seen and expectations set.  Do not wait until review time, understand before you sign. 

Interested in looking at Medicare's physician fee schedule (which is relevant even if you do not accept Medicare since almost all fees are based on these figures)?  Click here.

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