Using the Relative Value Units (RVU) method

Relative Value Units allocation method is the most commonly chosen methodology to calculate cost at the cost item level. RVU allocations allow you to comparatively evaluate cost items in a department so that you can allocate cost according to the resources that you use (labor, supply, capital, etc.).

RVUs are assigned to cost items for each cost pool within a department. This allows codes to receive only the related expenses, such as labor for time charges and supply expense for implant items. The RVU basis should reflect the department structure and data available.

You should update RVUs, as needed. For example, when minutes are used for procedures, you should check in once a year with the department managers to verify whether or not anything has changed. Have they made processes changes that have made some procedures quicker, or is there no longer a need to have an RN present for certain procedures? Have any procedures been added? Setting up an annual review of RVUs is best practice to assure that you are allocating costs properly.

TIP: The most basic rule of RVU costing is that any item that does not consume resources in a particular cost pool should receive an RVU value of 0 (zero) so that no cost is assigned for that cost pool to that cost item.

The following table lists the types of RVUs available:

Type	Description
Variable Labor	The RVU for variable labor is often time required for the activity. You can express this in minutes or hours, as long as it is consistent within the department. The cost data becomes more flexible, and you can perform additional analysis if the RVU reflects estimated time by resource group (For example, RN, Tech).
Supply Expense	The RVU for variable supplies can be the acquisition cost for all chargeable items and an estimate of non-chargeable costs for the other codes in a department (For example, Room and Board). As noted earlier in this document, chargeable and non-chargeable items will ideally not be in the same GL account. If that tenet holds true, use separate cost pools for each category.
Depreciation	Allocating depreciation provides both opportunities and challenges. Areas such as the OR often have major equipment that is specific to a procedure, such as a YAG laser. However, the depreciation is typically in an account along with all equipment, both patient care and non-patient care (For example, office furniture). Invoke the following strategies to provide a more accurate assignment of cost: Costing reclass – You can shift patient care equipment depreciation into pseudo-accounts set up for costing. This allows you to isolate and assign the expense to the appropriate cost items. This requires access to the asset cost information in the Fixed Asset System. Spread general equipment by one of the following methods: Allocating evenly across all cost items Allocating to procedure or room charges only Allocating only to set up or initial time charge (assuming that is the charge structure, such as in an OR)
Other Cost Pools	RVUs for other types of cost pools should reflect the cost structure of those pools. For example, if Purchased Services is a cost pool, the RVU could be the actual cost per unit (or average cost) for the purchased service (lithotripsy, nuclear scans, neuro monitoring, and so on).
Alternative RVU Structures	For some departments, developing detailed RVUs is not feasible. The Clinical Lab is an example where the level of detail required to calculate the RVU for each test can be greater than the benefit. You can use a scale method (1-20 scale of resource utilization) to assign costs. This approach is easier to maintain and can be just as accurate if the department has a knowledgeable manager who can assign the scale for each cost pool.