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Thread: Setting Fees

  1. #1
    Join Date
    Apr 2007

    Question Setting Fees

    AAPC: Back to School
    I know a medical practice has to have a standard fee schedule regardless of payor, but I need to find it in writing. Can anyone help???

  2. #2
    Join Date
    Apr 2007
    Jacksonville River City AAPC

    Default Fee Schedules


    You seem desperate for an asnwer. I'm afraid there isn't a specific "rule" that guides this - which may be why the responses aren't flooding in. It's more of a conglomeration of business decisions and making sure you don't break other rules that guide this answer.

    Technically, I suppose a company could have multiple fee schedules - but then you would have to monitor them frequently for compliance with your contracts. For instance, you couldn't charge anyone else less than you charge Medicare patients. And if you have specific contracts, you'll need to make sure your contracts don't prohibit you from having multiple schedules or any other binding issues.

    It is much easier, from pure business sense, to have a single fee schedule that is charged across the board and then different write-off adjustments to meet the specific contract requirements. This allows you to show consistencey, defend equal treatment (show that you aren't giving prefential treatment to any group), and justify discounts or reductions.

    That's the quick and dirty answer. I know it doesn't give you the specific something 'in writing' you are looking for - but at least gives you some talking points.
    Melissa Brown, RHIA, CPC, CPC-I, CFPC
    Past Chair AAPC Chapter Association Board of Dirctors
    Past-President, River City AAPC
    Executive Co-Chair, Coding on the River

  3. #3
    Join Date
    Apr 2007


    These points are well taken and followed, I was just wondering if it were in writing somewhere to be able to back myself up. Thanks for taking the time to reply!!

  4. #4


    This is an old article from 2006 for dermatology..but it might help you. I personally don't recommend multiple fee schedules, but you could. All my 250+ physician clients have one set fee schedule set at a percentage of Medicare and above their highest payer. Most practices do this. The only fees that may be different for the same procedure is when it's performed in facility vs. non-facility due to the facility differential. and typically self pays get a certain discount in my private practices. In my hospital owned practices, self pays do not get discounts.

    Hope this helps.

    By Inga Ellzey, M.P.A., R.H.I.A., C.D.C.
    A nother year is over and a new business year is just around the corner. This month will find us all back at our desks ready to battle with insurance companies so that we can get paid for the quality work provided to our many dermatology patients.

    In addition to cleaning out our desks, filing cabinets and storage closets, it’s also the time to rethink and revise the fee schedule or schedules for your third-party payers.

    Most dermatology practices use the Medicare allowables for the current year as a measuring stick for determining fee schedules as well as determining the profitability of their managed care contracts.

    My advice for 2006 is to batten down the hatches because again this year the reimbursement forecast is stormy.

    What to Expect in 2006
    Although there still could be an 11th-hour policy change, the climate for next year’s profit thermometer looks like it will drop at least 5 degrees (percent).

    The 2006 Medicare fee schedule has been released and it’s not good for physicians in general, but dermatologists specifically. Based on the new conversion factor for 2006, which is $36.1770, dermatology fees will be reduced approximately 5% in 2006. (Physician groups are still lobbying for a 1% increase at the time of publication.)

    No specialty came out ahead for 2006, and the largest decline in fees were incurred by radiology, hematology/oncology and diagnostic testing facilities with 6% overall decreases. Geriatrics, clinical psychologists, and services for nurse practitioners got off with only a 3% reduction. All other specialties had losses between 4% and 5% (including dermatology).

    Fee Comparison
    Check out the comparison chart above so you can see how the most commonly dermatology services will fare for 2006 compared to 2005 reimbursements. Some number crunching can give you a great forecast as to what you can expect with respect to your practice’s profitability.
    Keep in mind that managed care plans usually base their reimbursements on Medicare rates or a percentage of Medicare allowables, so it’s quite easy to know how much decrease you can anticipate.

    Is One Fee Schedule Enough?
    An ongoing dilemma for office managers/administrators and providers is in regard to fee schedules: how many fee schedules should there be?

    Independent surveys conducted in the past have consistently revealed that almost 50% of the practices generally have only one fee schedule. About 35% of the respondents stated that they had two fee schedules, and less than 15% of dermatology practices indicated they had more than three.

    As the owner of two national dermatology-specific billing services, it is my personal recommendation that dermatology practices have at least two fee schedules: Medicare and non-Medicare. (If you are non-participating with Tri-Care but regularly file claims with this carrier, it would be advisable to also obtain and have a separate fee schedule for these claims.)

    Most providers no longer use complex and time-consuming Relative Value Systems in determining their fees. Instead, most take the Medicare fee schedule and increase the allowables by a certain percentage — 20% to 50% above Medicare is most common. The percentage used is based on geographic location. (Obviously, a Manhattan dermatologist would have a more aggressive increase over Medicare rates versus one in rural Tennessee.)

    Competition in the surrounding area, reimbursement rates by local managed care plans, and demand for services by your practice area are also deciding factors.

    Having at least two fee schedules has advantages:
    1. Your accounts receivables (A/R) will be more realistic.

    Billing the Medicare allowable to Medicare and determining a reasonable non-Medicare fee schedule will keep your A/R more in line with anticipated payments.

    2. Your practice will have a benchmark for analyzing the reimbursement of your non-Medicare carriers (especially contracted managed care payers).

    Since Medicare has become the benchmark for determining what your managed care plans are (or should be) paying, it makes it much easier to track the profitability of carriers when you can compare their allowables to those of Medicare.

    Keep in mind that many managed care plans do not publish fee schedules, but simply state that they will pay a percentage of Medicare (e.g., 115% of Medicare’s participating fee schedule or 95% of the limiting charge).

    Why You Shouldn’t Have a Separate Fee Schedule for Each of Your Managed Care Plans
    Many providers ask me why they shouldn’t have a fee schedule for each of the managed care plans with which they are contracted. There are many reasons for this.

    1. Most managed care plans don’t just have one reimbursement schedule.

    Take Blue Shield, for example. Under the umbrella of Blue Shield, there may be a hundred different plans: HMOs, PPOs, PSO, capitation and fee-for-service. Within a single type of plan such as a PPO, there can be many fee schedules based on each employer group.

    It would be almost impossible to accurately develop a fee schedule in your database for the hundreds of different groups and plans. If you enter one fee schedule into your database for all the different plans, you may lose money since other groups under the same carrier umbrella may pay more.

    It makes more sense to have one managed care fee schedule that is high enough to capture most fee schedule rates.

    2. Most managed care plans don’t advise contracted providers of fee schedule changes.
    How do you know when a managed care carrier with whom you are contracted updates their fee schedule?

    In most cases you don’t.

    Contracted carriers rarely advise their providers of fee schedule changes. Therefore, if you have a specific fee schedule in place for a given plan and that plan has a fee increase, you would lose money since you would be charging a lower fee. If you were charging 20% to 50% above the mean reimbursement rate, then the insurance staff would automatically post any increase by the carrier.

    3. Too many fee schedules are unmanageable by billing department staff and result in increased errors.

    As stated before, since most plans have multiple fee schedules and there can be 20 to 50 different addresses for one carrier (like the Blue Shield example), your staff will have to carefully decide which fee schedule to choose when a charge is entered. This is time-consuming and frequently ends up in the staff sending the claim to the wrong address or using an incorrect fee schedule.

    And who is responsible for updating the different schedules since many of them change frequently?

    It makes much more sense to have one catch-all managed care fee schedule (and a separate one for Medicare).

    What Should You Charge and Why?
    So you agree that having two fee schedules makes sense for your practice. Fee schedule #1 will be the Medicare fee schedule based on the exact amount allowed in your geographic payment locality.

    The next step is to determine how your practice will decide what the non-Medicare fee schedule should be (Fee schedule #2.) Here are some suggestions that might help:

    1. Obtain the 2006 Medicare fee schedule.

    The first step in determining your non-Medicare fee schedule is to look at your present Medicare fee schedule.

    By now you should have received your 2006 fee schedule from your local Medicare carrier. If not, you can obtain it on the local carrier’s Web site. (Updates for the upcoming year are sent out in November.)

    2. Determine your 20 most frequently billed CPT codes.

    Most dermatologists make 90% of their income on 20 CPT codes.

    Make a list of your practice’s 20 most commonly billed CPT codes. You can easily obtain this data from your computer by generating a procedure productivity report. This report will tell you how many times each CPT code was performed and what percentage of the total practice income that code represents.

    Most practices will find that certain E/M (evaluation and management) services as well as a handful of surgical services make up the top-20 list.

    3. Determine your top three to five managed care plans (those that represent your largest percentage of practice income).

    This data can easily be retrieved from your computer. Software varies, so if you are not familiar on how to access this report, contact your software vendor for instructions.

    4. Make a matrix (spreadsheet) and enter carrier allowables for your top-20 CPT codes.

    This can be done using a spreadsheet such as Microsoft Excel. The spreadsheet can also be used to calculate increases or graph the data.

    The spreadsheet will let you know carriers that are under paying compared to other contracted carriers. This information also will alert you to which exact CPT codes are being underpaid and which should be renegotiated. (The Inga Ellzey Practice Group, Inc. sells a software product called DermCoder Fees and Codes that can export the entire dermatology Medicare fee schedule for your locality to Microsoft Excel.)

    5. To determine your fee schedule, you can do one of several things:

    a. Calculate what percentage of Medicare each plan pays for each CPT code. Average the averages.

    You should see a trend for each of the plans you are evaluating. Some may pay a certain percentage over Medicare: some under.

    Once you determine what the average reimbursement percentage of Medicare is, you can use that percentage to increase your fee schedule.

    b. If this seems too complicated or time consuming, then pick the highest allowable and set your fee schedule for all your plans for that CPT code based on the allowable of your highest paying plan. This could result in a more inflated A/R, but it would assure that you won’t lose money by undercharging.

    Or, determine a percentage above Medicare based on the trend. If you notice that most carriers on the spreadsheet pay significantly above Medicare, you might go with 40% over Medicare for your non-Medicare fee schedule. If your fees hover close to or even a little under the Medicare allowable, then you might want to establish your non-Medicare fee schedule based on 20% over Medicare.

    c. Ask your accountant for assistance or input, if necessary.

    6. Monitor the fee schedule you have in place by monitoring your adjustment rate. Your new fee schedule should be reviewed no earlier than April 2006.

    Your adjustment rate should be between 20% and 30%. If it’s too much over 30%, your non-Medicare fee schedule may be too high. If it’s too much under 20%, you may want to increase your fee schedule another 10% to 20%.

    Just be sure that you, your administrator, and your accountant are all on the same page regarding the basis for the fee schedule and anticipated adjustment rate.

    Negotiating with Managed Care Plans
    Don’t do all this work without making headway with managed care plans.

    If you notice that a carrier or several carriers are paying too low, you have several options.

    1. Drop your lowest two plans.

    Most practices that do this regularly see increases in their practice profitability — not decreases.

    2. Negotiate for a higher fee schedule by asking for an across-the-board increase. (Example: You want a fee schedule that is 35% above 2006 Medicare participating allowables. Always be specific!)

    3. Rather than negotiating for an across-the-board increase, ask for increases in your top-20 most commonly performed services only or those that you notice are severely underpaid.

    Most practices are more successful in negotiating specific rate increases than getting a complete fee schedule increase.

    Good Luck in 2006. As we head into the new year, I wish to take this opportunity to thank you for your loyalty in reading my column. My prayers are with each and every one of you that you and your loved ones will find a new year filled with unlimited health, one dollar more than you want or need, the joys of laughter, and the serenity of peace among us all everywhere.

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