Payments for most physicians' services under Medicare Part B are determined according to a common scale for pricing physicians' services called the Resource Based Relative Value Scale (RBRVS). The RBRVS was created to provide a standard system of pricing physicians' services that weighted services according to the resources used in delivering the service. The RBRVS system established Relative Value Units (RVU) as the method for assessing the value of and paying for the services of health care providers within Medicare Part B.³⁷

Payments under the RBRVS are based on the principle that payments for various services should reflect their relative resource use. A formula is used to calculate the resources used in producing medical services. A Relative Value Scale unit represents a combination of a physician work component, a practice expense factor, and a malpractice expense relative value. The RVU physician work component accounts for 55 percent, on average, of a final RVU factor. The physician work values represent the time, technical skill, physical effort, mental effort, and judgment required; and the stress experienced by the physician performing the service because of potential risk to the patient. The RVU work, malpractice, and practice expense factors are multiplied by a geographic cost factor that varies according to the location of the billing physician. Finally, this value is multiplied by a conversion factor that determines the final dollar payment. Conversion factors are standard throughout the nation but are updated annually through the update factor discussed above.

For physician services furnished after January 1, 1992, payments were based on the RBRVS fee schedule. Between 1992 and 1998, many other professional providers were brought within the RBRVS payment system, while other services continued to be reimbursed according to historical charges. As a result, some services are paid according to the RBRVS, while others are paid and adjusted over time using other factors. Some professional service payments reflect physician RBRVS payments, but final payments are discounted relative to the final physician payment. For example, nurse practitioners are paid 85 percent of the physician payment (determined by the RBRVS) for a service provided to a patient.