Who Cares What You Charge? (You Should)

May 15, 2002
Elizabeth Woodcock

Why practices should pay attention to their fee schedules and how to set them

Too many practices pay too little attention to their fee schedules. It's easy to think that a physician's stated charges don't matter; hardly any payers reimburse at that level anyway.

In speaking with medical practices all over the country, I often hear (and have been known to say), "Who cares what you charge?" Insurance companies are going to pay a certain amount (often called an "allowable") for the procedure code, and that's the bottom line. If Payer A has set an allowance at $50, it will pay $50, whether physicians charge $50 or $500.

But practices ignore their fee schedules at the peril of their own financial success. I recently visited two practices that were both making costly mistakes involving fee schedules. Do you recognize your practice in either of these scenarios?

The first, a primary-care practice, was routinely billing its office visits at fees lower than the Medicare allowable. They were charging less than they could because they were not paying attention to how their fees compared to Medicare.

While revenues seemed low, the practice was very pleased with its reimbursement because they were collecting 100 percent of what they billed commercial payers. Of course, payers typically reimburse according to their allowable (which usually is at least slightly higher than Medicare) -- or the physician's fee schedule, whichever is lower.

A surprising number of practices actually charge less than the allowable. And if you charge the payer only $45 -- when $50 is the allowable -- don't expect to receive any gracious phone call or kind letter letting you know you are charging too little.

The second practice saw lots of cash-paying patients and allowed each physician to establish his or her own fees. Because the physicians were providing a number of new services, patients would often get to the checkout desk with an encounter form listing a procedure code that was not on the existing fee schedule. So, after waiting outside of exam rooms to ask physicians what they wanted to charge for the codes, the checkout clerks realized they would be more efficient by just guessing on the fees -- which were inconsistent and random, and tended toward the high end.

This practice was putting itself at risk by charging patients different amounts for the same service. Worse, it was probably losing patients who were made to wait around while staff decided what to charge them.

The lesson: Physician fee schedules do matter. Every practice needs to make revenue enhancement a priority. Your goal should be to get paid fairly for the services you provide. At the very least, your fees should be higher than the allowances set by payers; keep these additional points in mind as you set your fees.

  • Avoid changing your fees suddenly or dramatically. If you discover your fees have been too low, don't increase them by more than 10 percent increments every six months. Even though your fees are relatively meaningless to patients who are covered, they'll still see them on their receipts and copies of the explanation of benefits. A sudden increase can be a public relations nightmare for you.
  • Be sensitive to your market. Don't set a fee for a 99213 at $200 if the only other primary-care physician in town is charging $65. That said, avoid setting fees at all with physicians outside of your group. This is called collusion, something the authorities don't look kindly on.
  • Establish your fees based on the resource-based relative value scale (RBRVS), also known as a "percent of Medicare." (Download a sample fee schedule calculator from the "Tools" area of thi site.) A consistent approach to establishing your fees will be helpful for management, reporting, and tracking payer compliance based on allowance. Simply multiply the total relative value unit (RVU) of the CPT codes you use by the conversion factor chosen by the practice. You can establish multiple conversion factors for office visits versus procedures or surgeries, but most fee schedules fall in at 250 percent of Medicare (or a conversion factor of 2.5).
  • Have a uniform fee schedule for all physicians, if possible, and at least by specialty. Avoid charging different fees to different patients; you can, however, allow a reduction in the payment for self-pay patients. I often see groups offering a 30 percent discount to patients who do not use an insurance company and make their payments at the time of service (thereby encouraging prompt payment instead of a lengthy collections battle).

You work hard. By setting a profitable, but reasonable, fee schedule, you can be sure you are getting paid what you deserve.

Elizabeth Woodcock, MBA, FACMPE, is director of knowledge management for Physicians Practice Inc. She can be reachedat ewoodcock@physicianspractice.com.

This article originally appeared in the May/June 2002 issue of Physicians Practice.