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Medicare pays physicians for services based on submission of a claim using one or more specific CPT codes. Each CPT code has a Relative Value Unit (RVU) assigned to it which, when multiplied by the conversion factor and a geographical adjustment, creates the compensation level for a particular service. American College of Radiation Oncology, Introduction to Relative Value Units and How Medicare Reimbursement is Calculated, available at

RVUs for each procedure are the sum of a three component relative value scale.

• “Physician Work.” Reflecting the physician’s time and intensity of effort, skill, training and medical judgment. CMS has established special work RVUs for anesthesia and radiology services.

• “Malpractice Insurance.” Reflecting the relative malpractice insurance cost associated with the service.

• “Practice Expense.” Reflecting the overhead cost associated with delivering the service.

Excerpt from Barry D. Alexander, Medicare Part B, Institute on Medicare & Medicaid Payment Issues (March 2009).