CPT® codes have three components:

 Work RVU—this defines the physician work to perform the service.  Work RVUs are often used to measure physician productivity.  

 Practice expense RVU—this is a measure of the practice cost to perform the service, including rent, overhead, supplies, staffing, etc.

 Malpractice expense RVU—this is the cost of malpractice for that procedure

 Here’s the simple formula:

 (Work RVU) + (Practice Expense RVU) + (Malpractice Expense RVU) = Total RVUs   (and then)

Total RVUs * conversion factor = FEE

 But wait: there’s more! There is a geographic adjustor!

 Medicare adds in Geographic Practice Cost Indices, which adjusts each RVU based on the value of the GPCI assigned by Medicare.  Higher cost areas get paid more than lower cost areas.  That is, a physician in Manhattan is paid more than a physician in Vermont for the same CPT® code.

1.     (Work RVU * Work GPCI) + (Practice Expense RVU * Practice Expense GPCSI) + (Malpractice Expense RVU * Malpractice Expense GPCI) = Total RVUs

2.     Total RVUs * conversion factor = FEE

 In 2008, Medicare applied a budget neutrality factor to the Work RVU

 In 2009, Medicare applied a budget neutrality factor to the conversion factor

1.     (Work RVU * Work GPCI) + (Practice Expense RVU * Practice Expense GPCSI) + (Malpractice Expense RVU * Malpractice Expense GPCI) = Total RVUs

2.     Total RVUs * conversion factor * budget neutrality factor = FEE

 The conversion factor decreased, but fees increased.

 Do you have contract with third party insurance companies that base their payment on RVUs?

 Do they include GPCIs in their calculations?

 How about the budget neutrality factor?

 Whoever reviews and negotiates your contracts should know the answer to these questions and understand the implications and how the calculations work.