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october 2017


Is it Time to Update Your Fee Schedule?


The dynamics of health care markets, liability insurance rates and patient volumes are constantly changing. It is essential to regularly monitor your fee schedule and collect sufficient revenue to invest in your future.


A physician fee schedule is a list of the “usual and customary” fees a physician or group will charge insurance companies for services rendered to a patient and the equipment required to do so. In return, and regardless of the costs involved or amount charged, insurance companies will then pay physicians no more than the agreed-upon amount. If a physician or group charges less than the allowable, the insurance company will pay 100 percent of the charge; if a physician or group charges more than the allowable, the insurance company will only pay as much as the set maximum.


Insurance allowables are calculated according to the prevailing average cost of each service within a geographic region. Presumably, if a physician is paid in full, they are being paid the average cost. While simple in concept, allowables are not standardized across insurance companies and are subject to change. Additionally, insurance companies do not disclose their method of calculation, making it impossible for physicians to knowingly set a fee schedule high enough to collect maximum payment from each company. To mitigate potential changes payers implement throughout the year, physicians should make it a habit to check fee schedules quarterly or, at the very least, annually.


When a physician or group has contracted with multiple third-party payers, each with their own maximum allowables, a common method to insure against a loss of revenue is to create a single, standard fee schedule. This standard should contain the following features:


  • Simplicity. As we know, not all payers will pay the same amount for a medical procedure. So if a physician tries to bill each insurer and each patient exactly what they expect to collect, he/she could easily end up with more than 25 fee schedules—an all too consuming and burdensome task to maintain.
  • Revenue Enhancement. When setting a fee schedule, it is impossible for physicians to know each insurance company’s rates, which differ and change throughout the year for undisclosed reasons. A physician can request a copy of each insurance company’s fee schedule but, considering the number of insurers, this too will become cumbersome. Instead, physicians should start with the local Medicare fee schedule (with the appropriate conversation factor); these are publically available in the Federal Register. As the Medicare fee schedule is often (if not always) below the average commercial insurance allowalbles, to avoid underpayment from third party payers, it is a good rule-of-thumb to multiply Medicare rates by at least 1.5 to 2 times.
  • Comparability. If a practice continually changes its fee schedules, then comparing charge volumes across months and years becomes less meaningful. For example, does the fact that charges are up 10 percent this June versus last mean more patients are being seen or that the fee schedule has changed? There are other measures that are easily decoupled from charge volume, such as patient encounters, but charge volume is the fastest and easiest metric for most billing software and departments to produce.
  • Compliance. It is illegal for a medical practice that accepts Medicare to charge any other entity a lower fee than the Medicare charge. While physicians can always give discounts, the fee charged must not be lower than that paid to Medicare. By charging all plans and individuals the same amount, the risk of unintentionally running afoul of this rule is eliminated.


Given the competing factors outlined above, how does a physician or group develop the best fee schedule? Below are some of the principles physicians should consider:


  • Be consistent. Consistency when setting a fee schedule will allow you to understand the value of your accounts receivables at any given time. If you designate some codes at 300 percent of Medicare, some at 150 percent of Medicare and still others are legacy fees (random multipliers of Medicare), it becomes increasingly difficult to understand your accounts receivable. If a fee schedule is set in a consistent manner, then simple calculations will be able to provide a quick estimate of what you should collect.
  • Maximize payments. Regardless of what an insurance plan is willing to pay for a claim, they will never pay more than what you bill them. If Aetna, for example, is willing to pay $150 for a level 3 office visit, but you bill them $125, Aetna will only pay you $125. If Aetna’s allowable suddenly increases to $165, unless you have matched their increase in a timely fashion, you will still only receive the amount billed. It’s important to set your fee schedule high enough that you never bill a contracted payer less than they are willing to pay and high enough that you can be reasonably paid by those plans that pay a percentage of billed charges. Setting a fee schedule higher than you expect to be paid will also allow some “wiggle” room to mitigate any unexpected shifts in your allowables. A good rule of thumb in attempting to determine the appropriate charge rate is to multiply Medicare rates by at least 1.5 to 2 times. The higher the multiplier, the more contractual write offs (the difference between an insurance allowable and physician’s fee schedule) you will incur each month as there are few plans in California that will allow much over 1.75 times Medicare. The multiplier you select should be informed by or comparable to practices in your area and your own payer contracts, if possible, but you will typically be quite safe with 2 to 2.5 times Medicare. Before finalizing your fee schedule, you should also make sure that none of your payer contracts have carve outs or allowables that exceed (or even come within 25 percent) of your fees.
  • Set a safety net. When developing your fee schedule, you should always first create a report that identifies any claims that were paid at 100 percent of billed charges. If you see this happening frequently, your charges for the codes on that claim are possibly too low and should be revisited in your fee schedule.
  • Don’t scare away patients. Unfortunately, your patients do not understand contracted rates and physician’s fee schedules. Setting too high of a charge, while developed to receive maximum payment, could negatively impact a physician’s reputation or ability to collect from patients. Many self-pay patients (or those with high deductible insurance plans), for example, will call a doctor’s office and ask what the charge is for an office visit or procedure. If the patient hears that your office visit costs $1,500, they will likely move on to the next practice. Additionally, for those patients already on your panel, they will see that you charged $1,500 for an office visit on their Explanation of Benefits (EOBs). Even though the EOB also shows that you were only paid $150, the idea that you charged so much can easily lead patients to view the practice as unreasonable and deter patients from paying off any balances they might have—becoming a burden for your staff or billing service. For this reason, you should additionally avoid sudden changes in fees. To keep patients from reacting to drastic increases, it is better to increase charges incrementally until they are where they need to be.
  • Pay attention to your insurance contracts. Always read an insurer’s contract thoroughly before signing and make sure to obtain a copy of your contract. If you do not already have a current copy of your multiple contracts, simply contact your insurance carriers to obtain a copy as they required to make one available upon request.


You work hard. By taking care to set a reasonable fee schedule, you can be sure you are getting paid what you deserve.



About the Author

Mary Jean Sage is the Founding Principal and Senior Consultant of The Sage Associates. She has
extensive experience as a health care management specialist and is a coding and practice management




The articles provided in Practice Management News are general. They do not constitute legal, practice management or coding advice in any particular factual situation or create at attorney-client relationship. Consult your attorney or other professional for advice in your particular situation.