No Hard, Fast Rule Setting Up Your Fee Schedule

By Terry Leone, CPC, CIRCC, CPC-P

Physician fee schedules are the “usual and customary” fees a physician or group charges for services. Depending on the services provided, you may have multiple fee schedules.

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For example, if the group owns the equipment and interprets diagnostic studies, it may charge global fees for the entire service. If the group does not own the equipment, but does interpret the studies (as radiologists working in hospitals do), it may bill for the professional component of the service by reporting the appropriate CPT® code with modifier 26 Professional services appended. Or, if the group owns the equipment but does not interpret the studies, it may bill for the technical portion of the service by reporting the appropriate CPT® code with modifier TC Technical component appended. Or, the group may bill surgical fees based on the facility in which they provide the services.

Hospitals refer to fee schedules as the “charge master.” Charge masters are as complex as the various reimbursement methodologies they embrace. Inpatient care is reimbursed via Diagnostic Related Groups (DRGs). Some departments—such as the Emergency Department—are reimbursed by negotiated rates from various payers, while their ambulatory outpatients are generally paid by a fee schedule, similar to that of physicians. Due to hospital charge master complexities, out discussion here will stick to the physician fee schedule.

There is no hard, fast rule on setting your fee schedules; however, there are two methods the majority of physician offices and billing companies generally use.

The first method typically uses three separate fee schedules:

1. A workers’ compensation/no fault (WC/no fault), which is usually your highest reimbursement. Using just WC/no fault reimbursement rate for the fee schedule would inflate accounts receivable dramatically for all of the patients with general health insurance.

2. A Medicaid fee schedule, which is often the lowest reimbursement rate. If you use a WC/no fault rate based on local reimbursement rate, there would be no inflation of the fee schedule over the reimbursement rate. Setting these two fee schedules at the exact reimbursement rates will help to prevent over-inflated accounts receivable.

3. A third rate for all remaining payers, including all other insurances and any self-pay patients. This rate is the same for all patients and all insurances, with the fee schedule being higher than the highest payer of this group of carriers. This third group of charges will inflate your accounts receivable.

Using this methodology allows you to change a wrong insurance company without changing the charge rate for the service. Your physicians and billing company clients need to understand there will be payer adjustments (write offs) for each patient, which is the part of the charge that is higher than the carrier-allowed amount.

For example, if you charge $100 for a service of a participating carrier, but the payer allows $80, you have to write-off the $20 as a contractual disallowance because the charge was higher than the carrier allowed.

The second methodology is to load into your billing system the exact reimbursement rate of every payer you charge. The individual payers’ reimbursement rates become your fee schedule.

Although this method probably sounds better than the first, there are difficulties with this method.

For example, I have one HMO in my area with 42 separate lines of business, each having its own fee schedule. I would load all 42 fee schedules, plus the fee schedules of every carrier I send claims to. But the patient’s insurance information downloaded from a hospital does not tell you which line of business this patient belongs to. Even if your staff is registering the patient, the insurance card may not indicate which line of business. This means your staff doesn’t know which fee schedule to use, which can force a change to the charge amount and insurance company. Some managers don’t like staff-changing fees after the patient has been initially charged. Managing all of the different fee schedules is a large task—especially because payers often make throughout the year.

After you decide which charge methodology you are going to use, you need to set your “usual and customary” fees.

In the first methodology, it is best to use a percentage of the Medicare fee schedule to set up your general insurance fee schedule, use the workers’ compensation/no fault fee schedule for your specific area, and use the state Medicaid fee schedule for your Medicaid fees.

To set up your general insurance fee schedule, know your local payer reimbursement rates. For example, one of my local Health Maintenance Organizations (HMOs) uses 125 percent of our Medicare fee schedule for their reimbursement rate, while another local payer reimburses at 115 percent. After finding out the highest reimbursement rate for local payers, most offices generally set general insurance fees 15 to 25 percent higher to assure they are charging over the highest reimbursement rate. This assures physicians that no money is being left on the table.

No matter how you set it, your fee schedule should be logical, reasonable for your region, created using a set formula, and defensible during an audit.


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One Response to “No Hard, Fast Rule Setting Up Your Fee Schedule”

  1. Sara says:

    I was wondering if you could shed a light on something for me; I had heard about some physicians adjusting their fee schedules within their EMR to show double the amount of the charges. For instance, a 45378 is has a $400 charge, but the physician is adjusting the fee schedule to show $800. This will adjust their AR, meaning they will have to write off quite a bit at the end of the year. Here’s my question; what benefit is this to the physician? Do you know of any physician that has done this, and what it is getting for them? I was just curious because I’ve never known of any physicians doing such a thing.

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