RBRVS costing: the inaccurate wolf in expensive sheep's clothing

Resource-Based Relative Value Scale (RBRVS) costing has been promoted as an accurate cost allocation methodology and has gained popularity in recent years as a way to support many aspects of medical practice management. In this article, we demonstrate that RBRVS (also known as relative value unit (RVU) costing), is simply an overly complex form of revenue-based cost assignment and is identical to ratio of cost to charges (RCC) and percent revenue cost assignment approaches. However, this equivalence can be easily obfuscated by routine numerical manipulations used in financial analysis for many aspects of practice management. Further we show that since RBRVS cost systems assume all procedures and hence providers earn the same profit margin, the reported costs derived from this analysis in complex medical settings are highly inaccurate. Reported costs are highly inaccurate because the equal profit margin assumption is inappropriate in most, if not all, medical settings. Furthermore, the equal profit margin assumption is in direct contradiction to the conceptual design of the RVU system where value is increased according to complexity and skill of a procedure. Finally, we demonstrate, no fundamental improvement is achieved in the accuracy of reported costs through the adoption of the more complicated component RBRVS approach. With medical costs at the forefront of the national agenda it is important that costs reported to the Centers for Medicare & Medicaid Services (CMS) and subsequently used in setting RVUs are accurate.