The 2006 Fee Schedule Survey: POWER to the PAYERS

January 1, 2007

This is the toughest year for physician reimbursement since we started surveying you on your fee schedules in 2001. Still, there are some ways to fight back.


If you’ve ever had to give terrible news to a patient, then you’ll know how we feel about reporting the results of our annual survey on how much physicians are getting paid for their services.

There’s no easy way to do this. So we’re just going to give it to you straight:

According to our sixth annual national survey of fee schedules, average physician reimbursement from commercial payers and Medicare collapsed in 2006, with payment levels averaging 17 percent below that of 2002 and a staggering 36 percent below that of 2004.

Moreover, we’re not at all certain that reimbursement rates have hit bottom. Consolidation in the insurance industry is reducing competition among payers for physicians’ services, allowing them to pay you less. The dwindling number of payers reduces your leverage; it’s harder to drop bad contracts when there are fewer payers with whom to do business.

“In the past 24 months, payers have really stonewalled negotiation more than I’ve seen over the past eight to 10 years,” says consultant Gregory Mertz with The Horizon Group in Virginia Beach, Va.

But there are still some measures you can take to limit the damage to your practice. Let’s have a look at the numbers - and talk about some solutions.

Allowables from commercial payers for E&M visits dropped 10 percent nationally from 2005 to 2006.

It’s even worse for specific parts of the country. In the Northeast, payments sank - hold your breath - 27 percent in just one year, almost as bad as the 20 percent cut in the Pacific region. When Physicians Practice began publishing fee schedule data in 2002, commercial reimbursement loosely tracked changes in Medicare rates. Now it’s off the map. In 2005, we could hardly believe how dramatic the cutbacks were. But payers were generous in 2005 when compared with their behavior in 2006. This is the worst-looking data we’ve ever seen.

The incredibly shrinking payment

For example, the average payment for a 99213 - a mid-range, established office visit - is now only $50.80. You’ll get merely $94.11 on average even if you’re treating an elderly patient with multiple chronic health conditions and coding at the highest level, 99215.

Those dollar amounts are shocking enough, but it’s the cumulative rate drops that are sending practices over the edge.

Take New England (again) as a horrific example. In 2002, physicians in America’s Northeast were receiving approximately $56 for a 99213 visit. In 2006, they got $46.23. That’s a difference of $9.77. If you bill a 99213 visit 1,500 times a year, that’s a loss of $14,655 in annual revenue from just one code. Add similar drops in 14 other E&M codes, not to mention the multitude of procedural codes, and you can see things are ugly.

Here’s another 2006 shocker: Nationally, Medicare is now a better payer than commercial payers. Yup, you read it right. Better think twice about cutting back on those Medicare patients. They may be your best bet for decent pay.

And these figures only address E&M visits, on which Physicians Practice collects the most data. (We also track allowables for for non-E&M codes.) We’re not even taking into account the tremendous cuts in drug reimbursements.

Lisa Smits manages The Allergy and Asthma Center in Fort Wayne, Ind. Though she has doubtless seen cuts in E&Ms, she is more concerned about injections and infusions. “Where we’ve been hit a lot is meds,” she explains. “We are paid less than it costs to get the medicines. … We are seeing more patients than ever, but reimbursement has been down the past two years.” She adds that, usually, “We don’t really negotiate because there are about nine or 10 allergists here [in Fort Wayne]. It’s take it or leave it.”

Why is this happening?

Why are things so glum? Consolidation and the collapse of physician organizations are two central explanations.

Payer consolidation “has rapidly accelerated during the past five years,” explains Laura Morrow, a managed-care contracting consultant based in Tulsa, Okla. “During that time, large health plans have consumed smaller plans very rapidly.” UnitedHealth Group, for example, purchased 11 other plans in 2006, including MetLife, PacifiCare, Oxford, and many more.

“If you look just at United, WellPoint, and Aetna,” says Morrow, “those three plans have 77.7 million insured lives. The top 10 health plans only cover 106 million insured lives. So the top three health plans cover 73 percent of the insured population. It’s astonishing.”

When UnitedHealth Group goes out to contract for its 23 million lives, it appears to have complete control over its contract terms with physicians. Physicians feel they can’t reject a United contract without also turning away a substantial portion of their patient base. In other words, to say no to United is to turn away too much business. “Physicians are very cautious about dumping 15 percent to 20 percent of their patient volumes,” acknowledges Mertz. “Where are the additional patients going to come from?”

Morrow calls the provider contracting process a “fishing expedition.” First, payers mail out their first round of contracts offering their very lowest rates. About 20 percent of physicians contacted accept it. Then the payer sends a second round of contracts, offering slightly better rates. Forty percent of physicians sign that version. Then the payer starts calling the holdouts, threatening not to allow them into their network. “The physicians are in a panic that they’ll be out of network, and they fall in and accept what is still a very low rate,” says Morrow. Of course, industry consolidation makes physicians much more likely to accept lackluster rates faster.

Such pressure is also breaking up independent physician associations (IPAs) and other groups established to give physicians some negotiating power, says Mertz. Physicians in traditional messenger-model IPAs are no longer sticking together. Even if some practices reject low-paying contracts, others will panic about losing patients and break with the IPA to accept it.

“All the physician coalitions are falling apart,” Mertz says. “In many cases, the payers drew a line in the sand and were willing to have IPAs withdraw rather than make concessions.”

Daniel Griffin, a family physician and head of an IPA in Fort Collins, Colo., agrees. “A lot of IPAs went under in Denver, and there seems to be a correlation between having an IPA and having an ability to negotiate fees,” he says.

Mertz reports seeing more practices formally integrate - that is, form partnerships rather than loose IPAs - to regain greater negotiating clout: “People who historically haven’t been the best of friends are suddenly talking about integration to get an extra margin.”

Payers are also counting on the lifestyle appeal of some markets. “I’ve worked in 30 different markets. It’s counterintuitive, but physicians in the Northeast, California, and Denver are some of the lowest-paid physicians,” says Morrow.


Actually, it makes sense when you think about it. So many people want to live in these areas that reimbursement drops as cost of living rises. Physicians are somewhat willing to put up with the lower revenue to maintain the lifestyles they enjoy. However, “You can only accept the lifestyle expense to a certain degree,” Morrow points out. “You still have to pay overhead. Staffing expenses are not less expensive in these areas. Overhead is higher from a real estate perspective. Taxes are higher.”

Indeed, Denver-based consultant Todd Welter says he’s seen lots of physicians leaving Denver for remote areas of eastern and northern Colorado in hopes of being better able to make ends meet. “Docs are just sick of it in Denver,” says Welter. “They go start an OB/GYN practice in [a rural area] and say, ‘Look, I’m not going to work for free anymore.’”

Fight the power

But short of moving to the boondocks, do you have any recourse? Well, a bit. Frankly, trying anything is better than just taking it, which is what most physicians do, says Morrow: “Physicians feel like the insurance companies have all the power, and they don’t. Realistically, the physicians need to take responsibility for their revenue. The payers are not going to come back and automatically offer an increase. … Physicians need to contact payers about every two years and say, ‘I want to renegotiate.’”

How do you do that? First, arm yourself with knowledge about individual payers. “Health plans can consistently take advantage of physicians because physicians are typically very uninformed about health plan revenue,” says Morrow. Perhaps this fact will motivate you: From 2001 to 2006, health insurance premiums increased 65.8 percent. Overall inflation went up only 16.4 percent over the same period. And workers’ earnings increased just 18.2 percent, according to Morrow. At the same time, business is booming for commercial payers.

UnitedHealth Group, for example, saw its net earnings rise 38 percent in the third quarter of 2006. (Annual numbers weren’t available at print time, but you can go to www.unitedhealthgroup.com for the latest. Look in its investor section.)

These guys aren’t starving and aren’t making healthcare more affordable for your patients.

Having established that, you’ll need three other pieces of information to negotiate well.

“One is competitive intelligence,” says Morrow. “You need to know what other doctors in the community offer and how you compare to them. … You need to take a good look at the health plans in your area. Who has market share and who does not? You don’t need to contract with every health plan, but you do need to contract with those with large market share. … You also need to understand the employer community. … If you have employer connections, I encourage physicians to utilize those.”

You’ll also need to know what you’re receiving for your services. Have copies of contracts and fee schedules from every payer in your office. “Payers are required to provide you with the contract and fee schedule, even if it’s 20 codes at a time,” explains Morrow.

Keep in mind that a positive approach will get you further than whining. “Most of my clients would like to believe that I have a very adversarial relationship with health plans,” says Morrow. “That’s false. I work in a very positive negotiation manner. Health plans have to win as well as the physicians’ group. Most contractors have more work to do than they can possibly complete. It’s human nature that they are going to work with people who treat them with dignity. No one wants to go back into a negotiation where people scream and yell at them. Unfortunately, that happens with many physicians. If you are very angry, maybe you are not the one from your group who should do the negotiations.”

Mertz suggests focusing the discussion on individual codes that are paid much lower than the norm. “In some cases,” he notes, “practices will go in and say, ‘We can either do this in the office, or we can do it outpatient at the hospital. Make it worth my while, and I’ll develop this program.’” For example, in-office vasectomies and colonoscopies can save payers money, even if they reimburse such procedures relatively well.

Morrow adds that there is little point to arguing about processes, bundling, and other such issues while negotiating with payers. “You have to make a determination,” he says. Ask yourself, “‘Am I being paid adequately to play by their rules?’ Because their rules are not going to change. You have to play by the rules and the structure they have in place.”

If you find your payers’ fees to be inadequate, ask yourself if you can you find other ways to bring cash in the door, such as adding ancillaries in the form of in-office lab, radiology, or even cosmetic services.

Griffin just bought the practice of a physician in his neighborhood who went bankrupt. How is Griffin staying afloat in the same area? “We run a very efficient office,” he says. “We’re seeing patients all day instead of doing paperwork and dictation.” He says he spends only 20 percent of each day on administrative tasks, generating revenue the rest of the time. His three-physician practice also has only three staff members. That’s lean.

The winds of change

If you can keep it together for a while, outside forces may swing circumstances in your favor. If projections about physician shortages prove true, payers will soon have to work harder to retain their network physicians. Some of your leverage could be coming back.

But waiting around for that to happen is iffy at best.

Practices can also focus more of their efforts on patient collections. Some of the drop in allowables reflects a shift to consumer-directed healthcare. Patients are being expected to cover more of their healthcare costs. So train your front desk to collect those copayments. Look into and push for better data, even real-time adjudication, from your payers in terms of copays and deductibles. Track patient collections separately from payer collections to measure your success.

Another option: Give up on commercial payers, and set up a cash-only practice. It’s not a great idea for the risk-averse and cash-strapped, but it does present another choice. (For more information on starting up a cash-only practice, visit www.PhysiciansPractice.com, and type “cash only” into the search tool or e-mail audio@physicianspractice.com to order a CD of our how-to seminar on the topic.)

And keep reading Physicians Practice. We’ll be publishing articles throughout the year on dealing with payers, improving collections, analyzing ancillary possibilities, improving overall efficiencies, and crafting new types of practice models.

In the meantime, remember: You are not alone.

Pamela L. Moore, PhD, is senior editor, practice management, for Physicians Practice. She can be reached at pmoore@physicianspractice.com.
This article originally appeared in the January 2007 issue of
Physicians Practice.