New McDermottPlus Tool Replicates Practice Expense RVU Calculation - McDermott+Consulting

New McDermottPlus Tool Replicates Practice Expense RVU Calculation

Medicare payment to physicians under the Medicare Physician Fee Schedule (MPFS) is based on relative value units (RVUs) representing physician work, practice expense and malpractice insurance. These RVUs are multiplied by a conversion factor and geographic adjustment factors to determine the payment rate.

Practice expenses account for a substantial portion of the overall payments made under the MPFS. For example, payments for practice expenses constituted 45 percent of total MPFS payments in 2016.

McDermottPlus analyzed payments made in 2016 under the MPFS. Using utilization data on allowed services from the Utilization Crosswalk file (CY2018-PFS-FR-Utilization-Crosswalk-2016-2018) and national unadjusted payment amounts, McDermottPlus estimated overall payment amounts for work, practice expense and malpractice, and calculated the percent of payments attributable to each.

Practice expense inputs for equipment, supplies and clinical labor (called “direct” practice expense inputs) are used as the first step in a multi-step calculation to generate  practice expense RVUs (PERVUs). Direct practice expense inputs do not translate directly to practice expense reimbursement. Instead, the Centers for Medicare & Medicaid Services (CMS) employs a multi-step, complex calculation with numerous inputs to convert practice expense costs to reimbursements.

McDermottPlus has developed a tool that calculates PERVUs tracking the method described by CMS under the MPFS. This tool allows McDermottPlus to replicate and verify PERVUs published by CMS to assist with the development of comments in response to Proposed and Final MPFS Rulemaking, and to simulate the impact of alternate inputs on PERVUs. The tool can be customized to analyze PERVUs at a specific billing code level, and can incorporate changes to the following levers:

  • Direct practice expense inputs
    • Clinical labor (rates and time dedicated to furnishing a procedure for each non-physician clinician involved with furnishing a service)
    • Equipment (following the Medicare model that translates purchase price and useful life into a per-minute cost that is multiplied by the time in use for a particular procedure)
    • Supplies (consumables used to furnish a procedure)
  • Indirect practice expenses
    • Based upon assumptions about utilization by specialty
    • Corresponding Indirect Practice Cost Indices and Direct/Indirect Costs
  • Policy changes, such as the recent change to the PERVU calculation for some office-based services

We have demonstrated the value of this tool in various projects, including the following:

  • Explaining year-to-year fluctuations in payment rates under the MPFS
  • Identifying errors in or revisions to inputs for calculating the PERVU to advocate for corrections/revisions
  • Identifying billing codes that may be vulnerable to substantial reductions if critical practice expense inputs were reassessed considering how much of the payment rate is driven by one or more single line item expenses (upcoming +Insights will highlight the codes that appear to be the most vulnerable)
  • Estimating PERVUs that would derive from various recommendations to update RVUs


For more information on the PERVU Calculator, please contact Paul Radensky at +1 202 204 1450, Christine Song at +1 202 204 1453, or Eric Zimmerman at +1 202 204 1457.


[1] CPT only copyright 2012 American Medical Association. All rights reserved. CPT is a registered trademark of the American Medical Association

[2] CMS recently implemented a policy to use an average of the three most recent years of available Medicare claims data to determine the specialty mix assigned to each code. Prior to implementing this policy, CMS used the most recent year of available claims data to determine the specialty mix. This change in policy was intended to minimize the impact of year-to-year fluctuations in specialty mix.