Evidence based insights into physician compensation, RVUs, contracts, investing, leadership, and the economics of healthcare.
Life and Business in Medicine.
What Is This About?
In the previous blog, we discussed what RVUs are and how they influence physician compensation. But that raises an important question:
Why were RVUs created in the first place?
To answer that question, we must go back several decades. Before the current RVU system existed, physicians were generally paid according to what was called the "usual, customary, and reasonable" charge system. At first glance, that may sound fair. Physicians would bill for their services, and payment would be based on what was considered reasonable within a particular market. The problem was that there was no consistent national standard. As a result, two physicians could provide the exact same service to two similar patients and receive very different payments.
For example, one physician could argue that graduating from a prestigious residency program or medical school justified charging more than another physician providing the same service. Another physician could argue that thirty years of experience entitled them to higher reimbursement than a newly trained colleague.
Some differences may have been justified. Experience, training and reputation certainly matter. However, from the perspective of Medicare and insurance companies, the system created tremendous variability.
Patients with similar medical conditions could generate very different healthcare costs depending on where they were treated and by whom. As healthcare spending continued to increase, policymakers began searching for a more standardized approach. At the same time, another major change was occurring. Technology was transforming medicine.
Many procedures that once required significant physician time were becoming faster and more efficient. One of the classic examples is cataract surgery. Decades ago, cataract surgery could take several hours to perform. Advances in surgical techniques, equipment, and technology dramatically reduced the amount of time required for the procedure. Today, an ophthalmologist can often perform multiple cataract surgeries in the time it once took to complete a single operation. This created a difficult question.
If a procedure now takes significantly less time and effort than it did twenty years ago, should physicians continue to be paid the same amount? Or should reimbursement be adjusted to reflect the reduced work involved?
Why Should Medical Professionals Care?
The federal government believed that physician payments needed to be tied more closely to the actual resources required to provide care. That included physician time, technical skill, mental effort, clinical judgment, and practice expenses. As healthcare costs continued to rise throughout the 1980s, Congress sought a way to create a more objective and standardized payment system.
The result was a landmark piece of legislation known as the Omnibus Budget Reconciliation Act of 1989. This legislation fundamentally changed the way Medicare paid physicians. Rather than relying primarily on historical charges and local billing customs, Medicare adopted a resource-based system that attempted to assign value according to the work involved in providing medical services.
That system became known as the Resource-Based Relative Value Scale, or RBRVS. And the unit used to measure those values became what we now call RVUs.
A few years later, in January of 1992, Medicare officially implemented the Medicare Physician Fee Schedule. For the first time, medical services across the country were assigned standardized values.
Office visits, surgeries, imaging studies, procedures, consultations, and countless other services were given RVU values intended to reflect the resources required to perform them.
The goal was straightforward:
To create a payment system that was more consistent, more predictable, and more equitable. Whether that goal was ultimately achieved remains a matter of debate.
Many physicians argue that certain specialties have benefited more than others. Others believe the system has become increasingly complex and disconnected from the reality of modern medical practice.
In our next episode, we'll discuss the committee that helps determine RVU values, the Relative Value Scale Update Committee, better known as the RUC, and why many consider it one of the most influential groups in American healthcare.
The Bottom Line
Regardless of where you stand on the issue about RVU and compensation, one fact is undeniable. More than three decades after their creation, RVUs continue to influence nearly every aspect of physician compensation in the United States.
Understanding how those values are determined is essential for anyone who wants to understand the business of medicine.
Key Takeaways
✓ Doctors used to be paid based on local, inconsistent pricing, so the same service could cost very different amounts depending on who did it and where.
✓ As costs rose and procedures got faster (like cataract surgery), Congress created a new system in 1989 to pay doctors based on the actual work involved.
✓ That system, launched in 1992, became the RVU model we still use today, though it's still debated whether it's fair to every specialty.
“You can't negotiate what you don't understand, and in medicine the numbers were written by someone else long before you walked into the room”.
MD&D Quote of the Day
What’s Next?
Next: Who decides how many RVUs a procedure or encounter is worth?
In the next episode, Dr. Casanova explains how physician work is valued, and the role of an influential committee called, RUC.
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Bruno Casanova, MD
Founder & Host
Medicine, Dollars & Decisions
Life and Business in Medicine.