Practice expense RVU (peRVU)

Every CPT code billed under the Medicare Physician Fee Schedule carries three distinct RVU components. The practice expense RVU captures the non-physician overhead cost of delivering a service. It splits into two layers: direct practice expense (supplies consumed, clinical staff labor, and procedure-specific equipment depreciation tied to a specific code) and indirect practice expense (shared overhead such as rent, non-clinical staff salaries, utilities, and general insurance, distributed across all services a practice furnishes). CMS derives indirect peRVUs through a multi-step allocation formula that weights each code's direct PE RVU, clinical labor inputs, and physician work RVU. For a standard established-patient office visit (CPT 99213), the 2026 final peRVU after phase-in is 1.46, reflecting a blend of its modest direct cost inputs and a proportional share of indirect overhead.

Setting of service fundamentally changes the peRVU assigned to a code. When a procedure is furnished in a nonfacility setting (the physician's own office or freestanding clinic), the physician practice absorbs all direct costs, so the nonfacility peRVU is higher. When the same procedure occurs in a facility setting (hospital outpatient department or ambulatory surgery center), the facility bills separately for overhead and supplies, so the physician's peRVU drops—sometimes sharply. This facility-vs.-nonfacility differential is a structural feature of how CMS prices Medicare services, not a billing discretion.

For orthopedic practices, the peRVU carries outsized relevance because many high-volume codes—arthroscopy, fracture care, joint injections—are performed in both settings. The 2026 rule also introduced a PE methodology adjustment targeting roughly 50 codes whose nonfacility indirect PE RVU fell below a minimum threshold set relative to CPT 99213's indirect-PE-to-work-RVU ratio; that adjustment is being phased in over four years, meaning peRVUs for affected codes will continue shifting annually through the phase-in window.

Misidentifying the place of service when submitting a claim directly changes which peRVU CMS applies, and the payment difference between facility and nonfacility rates on a surgical code can exceed several hundred dollars per case. An orthopedic practice that routinely performs minor procedures in its office but bills them under a facility POS code will systematically underpay itself; the reverse—billing nonfacility rates for hospital-based work—triggers overpayment liability and audit exposure. Additionally, the 2026 efficiency adjustment disproportionately reduced work RVUs for surgical procedures, compounding practice expense changes that cut facility-based orthopedic payments further; understanding peRVU trends is therefore essential for accurate annual revenue forecasting and contract negotiation with commercial payers who often index their rates to the Medicare fee schedule.