Friday, March 2, 2012

Understanding and Setting Fee Schedules


To begin this post, let’s start by understanding what the term fee schedule means. There are two related meanings. For the medical care provider a fee schedule is the list of charges or fees that the doctor wants to be paid for services. Think of this as a price tag for every different services in a doctor’s office. For the insurance company, the fee schedule is a list of what amounts they will allow in payment for the doctor’s services.

In the credentialing section we found that insurance payments are governed by the contract that the doctor has with the insurance company. This type of payment arrangement is called fee-for-service.  Even though the insurance/doctor contracted prices are predetermined, the doctor’s practice still has to send a bill with an associated fee for each procedure.  So to accommodate this as well as set a price list for patients without insurance, the doctor’s office creates a fee schedule.

So how does one set a fee schedule? Glad you asked…

 Let’s start with this MOST important point..Although the doctor and the insurance have a contract saying that a certain rate will be paid,  the insurance will never not pay anymore than you ask for. That last statement is most important in setting the practice’s fees  or costs for services. The insurance will not pay anymore than they are asked to pay! That means if you send a charge to the insurance for an amount lower than they would normally allow, the insurance will pay you the lower rate because that’s what you  requested.  

For example an insurance company called XYZ usually pays $75 for procedure code 99214 (an evaluation and management service), I send them a claim (medical bill) with code 99214 for $50, the payment I receive will be $50. In sending that bill at less than the contracted fee schedule, I have successfully lost my practice $25 in revenue. This is why setting the practice fee schedule is so important. If not done correctly, the practice will lose money. So how can a practice make sure that this is not happening to them? Simple, set your fee schedule (charges for services)  high enough  but not too high.

The next thing to consider is simplicity. The doctor will likely see a lot of different patients with all different insurances. Technically, the insurances are required to give you a copy of their fee schedule upon request and it is a good idea to obtain that fee schedule to check that the insurance is paying correctly. But considering that the practice will have a lot of diversity in insurance mix, insurance fee schedules change, and various factors (like modifiers and place of service) affect reimbursement – it is difficult to maintain a separate fee schedule for every insurance. The most simple way to create a fee schedule for a medical practice is to set the practices charges slightly higher than the highest paying insurance company. Since there are so many variables, this is a challenge too. So how can we make this simple? Medicare. 

Medicare’s fee schedules are determined by the US Government.  Their fee schedule (or amount that they will allow fee for service providers for rendering services) is a made up by calculating the amount of work that a provider does for a particular procedure times a conversion factor that accounts for the cost of being a doctor in a particular region (cost of living). All of the math supporting Medicare’s fee schedule calculation is available in a document called the Federal Register. Medicare is by no means the highest fee schedule, so you should not use it for commercial insurance billing without some modification. Still, with a little tweaking Medicare’s fee schedule is a great place to start. 

The Medicare fee schedule is available on all local Medicare websites and  is updated every year with new calculations. It is important to use your local Medicare fee schedule because the conversion factor (the multiplier) used to calculate the payments vary by location. For example, since it is more expensive to work in New York City, the doctors receive a higher payment rate that a small Midwestern town with a lower cost of living.

First let’s look at an example of a Medicare Fee schedule and see how it is read.































Reading the fee schedule is easy. First, locate the procedure code in the second column. The third column is called the Par fee, which is the amount that Medicare allows participating providers. The fourth column is the Non-Par fee, for providers who opt out of Medicare participation. The final column is the limiting charge.  The limiting charge is the maximum amount that most non-participating providers are allowed to charge the Medicare patient for services rendered.

A non participating provider can agree to “accept assignment” on a claim by claim basis. Accepting assignment means that the provider agrees to Medicare’s participation rules and as a perk for doing so the provider will receive the insurance payment directly. An unassigned claim will be paid to the patient instead. The limiting charge does not apply to participating providers, non-participating providers when assignment is accepted, and some non-physician practitioner specialties that are required to bill all charges on an assigned basis. This is a little confusing for now, but it will become more clear when we learn how to fill out the CMS 1500 form.

You will note that some procedures are listed multiple times with different allowed amounts. There are two reasons for this. Notice in the first column, some codes are preceded by a number sign (#). This indicates the allowed amount for services rendered in a facility. The facility fee is less than the fee allowed for the same service rendered in an outpatient setting. This is because Medicare will also have to pay facility charges. So the reimbursement for the provider is decreased.

The second reason for the multiple listings is due to the application of certain modifiers. On the example page above, next to the service code, you will see the modifiers 26 or TC and the original code is listed three times (59020, 59020-TC and 59202-26) and the code without the modifier pays the highest amount. This is because Medicare will be paying another party for parts of the same service. Some services are divided into components or pieces based on who is responsible for which part of a service. Most commonly the 26 and TC modifiers will appear with radiological procedures.

The modifier 26 indicates “professional component” meaning that is the portion of service that the doctor performs, in radiology it is usually reading the films and creating a report with results. The TC modifier is for use by the facility where the services were preformed indicating that the facility owns and maintains the equipment or machinery that was used for the test. If the doctor owns the equipment, perform the test, and prepares the results they are entitled to the entire reimbursement and therefore no modifier is used. This is called a “global service”.

Many choose to use the Medicare fee schedule as a guideline for setting an office fee schedule. In order to exceed other insurance’s fee schedules and avoid underpayments, a good rule of thumb is to multiply Medicare’s fee schedule by 1.5 to  2 times for each CPT code. For example,  if Medicare allows $100 for procedure code 99215 your fee schedule would be $100 x 2 = $200. Two times Medicare is usually about right, it is not too high but it is high enough to exceed other insurance’s higher-than-Medicare fee schedules.

What is wrong with a “too high” fee schedule?  First, patients without insurance will have trouble affording fees that are too high. As well, a too high fee schedule can be considered unreasonable and spark an insurance audit. Second, adjustments will be very large, making financial analysis difficult. Let’s go in to more detail about that.

Each individual insurance has a contracted fee schedule. The practice needs to send a bill (claim) an amount higher that they expect to be paid. So what happens to the difference? Here is an example: We send a bill to insurance company XYZ for $75 for procedure code 99214, they return a statement allowing $50 that is  $25 less than we asked for. Now remember, we signed a contract in which we agreed to accept the insurance’s allowed amounts as payment in full; therefore, we have to make an adjustment to our bill. This adjustment is known as the contract adjustment. The contract adjustment is the difference between the doctor’s billed amount and the insurance’s allowed (or contracted) amount. This will become clearer when we discuss reading explanation of benefits.

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