Relative Value Units (RVUs) are calculated by combining three separate components: physician work, practice expense, and malpractice insurance cost. Each component is assigned a numeric value for every billable medical service, adjusted for geographic location, then multiplied by a dollar conversion factor to produce a final payment amount. The 2025 Medicare conversion factor is $32.35 per RVU.
The Three Components of Every RVU
Every medical service in the Medicare Physician Fee Schedule is broken into three resource categories, each with its own RVU value.
- Work RVUs (wRVUs) reflect the physician’s time, technical skill, mental effort, decision-making complexity, physical effort, and stress related to patient risk. This is the largest component for most services and the number most commonly used to measure physician productivity.
- Practice expense RVUs (PE RVUs) cover the overhead costs of delivering care: clinical and administrative staff wages, office rent, supplies, and equipment.
- Malpractice RVUs (MP RVUs) represent the relative cost of professional liability insurance for that type of service. A high-risk surgical procedure carries a higher malpractice RVU than a routine office visit.
These three values are set at a national level for each CPT code. A standard office visit, for example, has the same base work RVU whether it happens in rural Kansas or downtown Manhattan. The geographic differences come in the next step.
How Geography Changes the Numbers
The national RVU values are adjusted for local cost differences using Geographic Practice Cost Indices (GPCIs). There are three separate GPCIs, one for each RVU component, and they work differently from each other.
The work GPCI reflects how physician labor costs vary by region. Since there’s no broader market for physician services outside of medical practice, CMS uses an indirect approach: it measures median hourly earnings for seven non-physician professional categories (engineers, computer scientists, nurses, pharmacists, and others) from Bureau of Labor Statistics data, then uses those wages as a proxy for local physician labor costs.
The practice expense GPCI adjusts for staff wages, office rent, and similar overhead. Staff wage adjustments are based on BLS data for registered nurses, licensed practical nurses, health technicians, and administrative workers. Office rent adjustments use median two-bedroom apartment rents from the Department of Housing and Urban Development. Supplies and equipment are not adjusted geographically because they’re assumed to be purchased in a national market where prices are roughly uniform.
The malpractice GPCI is built from actual malpractice premium data for 25 physician specialties, collected from state insurance commissioners and private insurers. CMS weights these premiums by specialty mix and insurer market share for each payment area.
A GPCI of 1.0 means costs in that area match the national average. Areas above 1.0 (like San Francisco or New York City) are more expensive; areas below 1.0 are less expensive.
The Full Payment Formula
Once you have the three RVU components and the three GPCIs, the formula looks like this:
Payment = [(Work RVU × Work GPCI) + (PE RVU × PE GPCI) + (MP RVU × MP GPCI)] × Conversion Factor
The conversion factor translates the final RVU total into a dollar amount. For 2025, that number is $32.35, down from $33.29 in 2024. So if a service totals 3.0 geographically adjusted RVUs, the Medicare payment would be roughly $97.05.
Facility vs. Non-Facility Rates
The practice expense component changes depending on where the service is performed. When a physician sees a patient in their own office, the practice expense RVU is higher because the physician’s practice absorbs all the overhead costs: rent, staff, equipment, supplies. When the same service happens in a hospital, the hospital covers those costs separately, so the practice expense RVU assigned to the physician drops.
This creates two separate payment rates for many CPT codes. The place-of-service code on the claim determines which rate applies. Services provided to hospital inpatients or outpatients are paid at the facility rate regardless of where the face-to-face encounter actually took place.
How RVU Values Get Set and Updated
The AMA’s Specialty Society RVS Update Committee (known as the RUC) is the primary body that recommends RVU values to CMS. Each year, RUC advisors from medical specialties review proposed changes to CPT codes. When a new or revised code affects their specialty, the relevant society surveys its members to collect data on face-to-face time, stress level, knowledge base, and technical skill required for that service.
Advisors present these survey findings to the full RUC, which then approves, rejects, or modifies the proposed values. CMS reviews the RUC’s recommendations and publishes final RVU values in the annual Physician Fee Schedule rule, though CMS isn’t required to accept every recommendation.
Beyond annual updates, CMS conducts a comprehensive five-year review of all RVU values, again relying heavily on specialty society survey data.
Why the Conversion Factor Keeps Dropping
Medicare’s physician fee schedule operates under a budget neutrality requirement created by the Omnibus Budget Reconciliation Act of 1989. When changes to the fee schedule would increase total spending by more than $20 million, CMS must offset that increase with cuts elsewhere. The most common mechanism is reducing the conversion factor, which lowers payment for all services across the board.
This creates a seesaw effect. When new services are added to the fee schedule, or when existing services receive higher RVU values, the conversion factor typically falls to compensate. Over time, this dynamic has been significant: RVUs per Medicare beneficiary increased by 64.8% over one study period, and the conversion factor declined correspondingly. In practical terms, individual services can become “worth more” in RVUs while the dollar value of each RVU shrinks.
Work RVUs and Physician Compensation
In physician employment contracts, compensation is frequently tied to work RVUs rather than total RVUs. This isolates the physician’s personal contribution (time, skill, effort) from the practice overhead and malpractice components that the employer typically handles. Employers set a dollars-per-wRVU rate, and physicians earn based on the volume and complexity of services they provide. These rates vary widely by specialty and region, and they don’t necessarily match the Medicare conversion factor since private payers negotiate their own rates.
Looking Up RVU Values
CMS maintains a free online Physician Fee Schedule Look-Up Tool that provides RVU data for more than 10,000 services. You can search by a single CPT code, a range of codes, or a list of codes, and filter by a specific Medicare Administrative Contractor or locality to see geographically adjusted values. The tool displays work, practice expense, and malpractice RVUs along with national and local payment amounts. For the most authoritative payment files, CMS directs users to contact their regional Medicare Administrative Contractor directly.