CMS (Medicare) utilizes a system called the Resource-based Relative Value System (“RBRVS”), which establishes a standard unit of measure for each individual Medicare procedure performed. These standard units of measure are called Relative Value Units and as the name implies, creates a comparable value for each individual procedure a physician or other medical provider performs.
The commercial insurance payor industry in large follows Medicare’s methodology as do almost all other governmental payors.
- Physician Work Unit
- Practice Expense Unit
- Malpractice Unit
The Physician Work Unit represents the amount of time, complexity, skill, expertise and training required by the physician for the given procedure. The higher the complexity of the procedure, the higher the physician unit value that is assigned to that procedure.
The Practice Expense Unit allocates the overhead costs of a practice including rent, non-physician personnel, administrative expenses and supplies and equipment.
The Malpractice Unit is a measure of risk and professional liability the physician carries for the procedure.