Physicians are often paid based off payer fee schedules. These fee schedules define how much a doctor will be paid for performing a service. In general, there are typically three types of fee schedules: Medicare, Medicaid, and Commercial.
For the purpose of this article we are going to focus on the commercial fee schedule because they “can” be negotiated.
Commercial fee schedules are the least transparent, payers do not publicly publish fee schedules to avoid losing their competitive advantage.
In general, a measurement of a commercial fee schedule is its relative reimbursement rate compared to the Medicare fee schedule (% of Medicare). The year of Medicare in question can be a “stated” year i.e., 2020, in which case the payer fee schedule remains at a percentage of the 2020 Medicare rates indefinitely (Evergreen Clause), or “current year”, in which case the payer fee schedule updates when Medicare rates are updated, typically annually.
Commercial fee schedules are negotiated between the payer and the provider. A payer will negotiate a fee schedule within its network of preferred doctors. Since a provider is able to bill any amount, this allows payers to pay less than billed charges while still allowing the providers to be reimbursed an amount they deem reasonable. As an in-network provider, payers will typically help steer additional members (patients) to the provider.
POTENTIAL IMPACT ON PROVIDER PRICES AND PRICE INCREASES
The existence of fee schedules does not mean that payer allowable’s in commercial markets are consistent across either payers or individual providers. In fact, our analysis indicates fee schedule amounts vary widely both across and within markets, from as little as 70 percent of the Medicare rate in some markets to more than 300 percent for some large practices in other markets. We believe the variation occurs because different physicians and medical practice’s have different leverage in their negotiations, which may be attributed to factors such as an area’s level of competition and a physician practice’s reputation.
WHAT CAN BE DONE?
In most practices, payers make up a majority of the revenue, but most providers do not know what is in their contracts.
While working with healthcare groups across the country, we have seen payers reduce their fee schedules by 5% to 12% due to lack of attention, this is devastating to your practice.
Fortunately, longstanding patterns of poor attention to contracts can be broken by managing, analyzing, renegotiating and monitoring your payer contracts. We believe in a proactive approach, not a reactive one.
CONCLUSION
As we move forward in the managed care world, there will be more pressure and attention put on physician fee schedules. Payers will continuously put pressure on lowering fee schedules and providers will want to raise or maintain fee schedules, providing fair and acceptable revenue for services provided.
Ensuring maximum reimbursement is always at the top of a healthcare provider’s mind. But we find too often that many providers are leaving money on the table with inefficient and infrequent payer contract management.