Understanding wRVUs: A Guide for Physicians

Understanding wRVU’s Helped Me Earn $147,000

Every week, when I meet and coach physicians, the topic of compensation inevitably comes up. This is understandable, considering how hard we all work! For most, this revolves around some sort of compensation model with wRVUs at its core. I believe it's time to delve into this topic a bit more in this week's blog post for our community.

The RVU compensation model is the most common model for physicians across the U. S. My employee contract was tied to a wRVU + productivity bonus model. Over 10 years ago, when I converted to a long-term independent contractor through an employment lite model, my compensation became solely tied to wRVUs. On a side note, during the conversion a decade ago, I negotiated my wRVU compensation value as a non-employee to the appropriate fair market value. This resulted in me earning $147,000 more per year while doing the exact same work. No exaggeration here, the sad truth was that was hugely underpaid for 10 years and didn’t even know it!  And 10 year value of converting to this model was $2 million dollars!

There is an entire back story to this and to get the full narrative, you should read my book about it.

Here is the summary graphic of the financial effect on my conversion to Employment Lite:

The pure wRVU compensation model has worked out extremely well for me because I am a highly productive physician who specializes in surgical obstetrics and performs lots of procedures. I love it!

In the end, there are pros and cons to salary-based versus wRVU-based compensation contracts. The choice between the two is likely more behavioral than financial—it depends on how driven you are by the productivity incentive. Personally, I enjoy working hard and prefer to be compensated for it.

Unlike Private Practice

In private practice, you typically follow a compensation model that is more of a pure profit and loss (P&L) structure. In this model, your compensation is directly tied to the amount of money you generate through your practice, minus your expenses. While there are a few variations on this, that's the general idea. The marketplace has made this model become more and more difficult to function independently.

As a traditional employee, you are typically paid a salary plus a wRVU bonus structure, or you may be completely on a wRVU productivity model. There are often quality metrics and other incentives included in the bonus structure. The great thing is that you have no responsibility for any overhead costs, such as staffing, billing/collections, HR, management, contracting with third parties, and clinic space/equipment. It's kind of nice—you work, and you get paid at a fair market value wRVU. Additionally, you have a nice benefits package that includes malpractice insurance. There is a lot to like about this.

The hybrid of these two is the employment-lite structure that aligns you much like an employee with all the same overhead coverage. The difference is that your compensation structure can be individualized as a non-employee (i. e., negotiated), and you must cover all your own benefits, including malpractice insurance. Another common term used for this is independent contracting.

It looks like this:

What Are wRVUs?

As a physician navigating the complex landscape of compensation contracts, understanding work relative value units (wRVUs) is crucial. Whether you’re an independent contractor, part of an employment-lite agreement, or a tradition employee—wRVUs play a significant role in determining your earnings. Let’s dive into what wRVUs are, how they work, and their impact on your compensation.

1. Defining wRVUs:

   • wRVUs are a metric used to measure the work you do.

   • The acronym stands for work relative value units.

   • For every patient encounter or procedure you perform, you’ll receive a certain amount of wRVUs.

2. How They Work:

   • Each CPT code (Current Procedural Terminology) used in billing corresponds to a specific wRVU.

   • These wRVUs are pre-determined based on the complexity of the procedure or patient visit.

   • The more wRVUs you accumulate, the more money you’ll earn.

3. Components of RVUs:

   1. Facility Work RVUs:

      • Definition: Facility work RVUs represent the relative value units assigned to a specific medical service when performed in a facility setting (such as a hospital, ambulatory surgical center, or nursing home).

      • Why Lower?: The facility work RVU is typically lower because it accounts for the fact that the medical practice doesn’t bear the same expenses (overhead, staff, equipment, and supplies) as when the service is performed in an outpatient department.

      • Examples: Procedures done in a hospital operating room or an ambulatory surgery center fall under the facility work RVU category.

   2. Non-Facility Work RVUs:

      • Definition: Non-facility work RVUs represent the relative value units assigned to the same medical service when performed in a non-facility setting (such as a physician’s office).

      • Higher Overhead: In the non-facility setting, the physician practice bears higher overhead and practice costs for performing the same service.

      • Examples: Office visits, consultations, and other services provided directly in the physician’s office fall under the non-facility work RVU category.

   3. Both Facility & Non-Facility wRVUs are determined by considering three components:

      • Work of the physician: Reflects the time and clinical skills required.

      • Practice expenses: Accounts for overhead expenses needed to perform the work.

      • Professional liability insurance: Includes monthly malpractice premiums

Cutting through all of this, you are mostly likely compensated based on non-facility wRVU’s

Calculating RVUs

1. The Calculation Process:

   • Each CPT code’s wRVU is added to the other two RVU components (practice expenses and liability insurance).

   • Together, they become the total RVU.

   • Depending on who is paying you, the total RVU is then multiplied by the Medicare conversion factor, which is a standard dollar amount (currently $32.74 in 2024).

2. Why It Matters:

   • RVU compensation is the most popular payment model for physicians employed by hospital groups and health systems.

   • Many private practice physicians may not pay as much attention to wRVUs because they are working out of the old P&L system, but they are essential for employed physicians and independent contractors who are paid by wRVU’s

   • In many cases, a physician’s base salary requires meeting a certain minimum of wRVUs.

For most of you, your EHR auto-calculates your wRVU’s based on your CPT codes, but this can vary depending on the professional services and practice management system being used.

Pros and Cons of wRVUs

1. Pros:

   • wRVUs provide a neutralized way to quantify productivity, regardless of fee schedules or geographic adjustments.

   • Being paid for a specific “unit of work” can make physicians feel more like independent contractors.

   • RVUs reward volume of care, encouraging productivity.

2. Cons:

   • wRVUs focus on quantity over quality.

   • The pressure to accumulate more wRVUs may lead some physicians to prioritize quantity over patient care.

   • CMS is in control of wRVU values and are empowered to unilaterally set their value. Traditionally this has favored specialist and procedures, although this is gradually changing.

Dollar Value Per wRVU

Guess what? That's not the end of the process when converting your work into an actual dollar value. There is one more step involved.

You must now determine the fair market value dollar amount per wRVU, which is influenced by a variety of factors, including specialty. This can become quite complex. The dollar value per work relative value unit (wRVU) varies depending on your location and practice setting, with organizations like MGMA heavily influencing these values. Let's delve into why.:

1. Geographic Cost Differences:

   • Healthcare costs, including physician compensation, vary significantly across different regions and cities.

   • Factors such as cost of living, local demand, and regional healthcare market dynamics influence compensation rates.

2. Site of Service Differential:

   • The site of service (facility vs. non-facility) significantly impacts "practice expense" wRVU values--in the event you are billing on your own.

   • Facility work RVUs (when services are performed in hospitals or ambulatory centers) are often lower than non-facility work RVUs (when services are provided in physician offices).

   • This difference is known as the site of service differential.

   • As SimpliMD member Dr Randy L. noted after this post was published: " Be careful to not give the wrong idea here--because if an employed doctor does work in the hospital or clinic setting--it doesn't affect the wRVU's that they earn for their professional service--it only makes a difference if you are billing on your own". Thanks Randy!

   • Facilities bear some of the overhead costs, which affects the practice expense component of wRVUs—for example with opthamologists.

3. Local Market Competition:

   • In areas with a shortage of physicians, compensation tends to be higher to attract and retain talent.

   • Conversely, in regions with high physician density, compensation may be more competitive but not necessarily as lucrative.

4. Specialty and Demand:

   • Certain specialties, such as primary care, may have different wRVU values compared to specialized fields.

   • The demand for specific specialties also influences compensation.

5. Payer Mix and Reimbursement Rates:

   • The mix of private insurance, Medicare, and Medicaid patients affects reimbursement rates.

   • Payers negotiate different rates, impacting wRVU values.

6. Local Regulations and Policies:

   • State-specific regulations, scope of practice, and licensing requirements can influence compensation.

   • Some states have higher Medicaid reimbursement rates, affecting wRVUs.

How To Know If Your Compensation is Fair Market

Just so you're aware, it can be quite costly for a single doctor to access MGMA data, giving your employer some information advantage due to the asymmetry (because they have access to it)

The cheapest and best method to find out your marketplace value is Contract Diagnostics Compensation Rx. For less than $300 they will generate a very impressive report for you and then meet with you to review it. I highly recommend you to use this SimpliMD partner for their service—it is fantastic! Here is a sample report—for your reference. They take all the guess work out of the process!

Tie-In with Compensation Contracts

1. Employment Contracts:

   • Many physicians employed by large healthcare groups have compensation tied to wRVUs.

   • Base salaries often require meeting a minimum wRVU threshold.

2. Independent Contractors:

   • Even if you’re an independent contractor, understanding wRVUs is crucial.

   • Some long-term independent contracts, such as employment lite, may use wRVUs as a measure of productivity.

How It Works For Me

I have been able to use my status as an independent contractor to negotiate renewable 3 year PSA contracts, based on real-time MGMA data—in my case for $67/wRVU. This works out fantastic for me as a busy primary care doctor who easily generates >10,000 wRVU’s annually.

Perhaps you could benefit in the same way. Check out my landing page on Employment Lite and reach out for a business consultation. Don’t hesitate, do it now! I just helped an OB/GYN do this as a better alternative to traditional employment, he is extremely happy with it, and I would love to to help you!