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
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.
