RVUs and DRGs: Do They Fairly Reimburse Physicians and Hospitals and Incentivize Improved Care?

In 1989, Congress enacted the Omnibus Budget Reconciliation Act, which authorized the Health Care Financing Administration to adopt the use of relative value units (RVUs) as the basis for Medicare and Medicaid reimbursement to physicians. Each RVU is related to the complexity of the services by a defined current procedural terminology (CPT) code, and each has 3 components: (1) physician work RVUs account for the time spent, the cognitive and technical skills needed, and the overall difficulty involved in providing a service or performing a procedure; (2) practice expense RVUs account for nonphysician clinical staff time, medical supplies, and equipment used to maintain and run the facility where the medical encounter occurs; and (3) professional liability RVUs account for the cost of malpractice insurance. Congress assigns a dollar value to an RVU as part of its annual budget process. The geographic differences in costs across the United States are equalized...