While discussions of healthcare reform largely center on how (and for how much) medical services are paid, physicians need to remember how much they charge for services also is important for the success of their practice.
A practice’s fee schedule is a reflection of the relative value of all the services a physician offers, as well as a starting point for out-of-network and uninsured patient payments. A practice’s own fee schedule also provides a comparison tool for negotiating in-network rates from various contracted insurance plans, and is the basis of several important benchmarks practices can use to evaluate their performance, such as collection percentages and charges per encounter.
With so much riding on a practice’s fee schedule, it seems important that physicians routinely review their fee schedules. But do they? How long has it been since you dusted off the charge list of procedures you routinely perform? And more importantly, how do you know when your fee schedule needs to be changed or updated?
Here are a few suggestions for keeping your practice’s fee schedule up-to-date.
Industry recommendations for how often to review your fee schedule vary from every three months to once a year. The key is to do it regularly. If you are part of a large practice, you could form a committee to evaluate your fee schedule and report back during your quarterly or annual meetings. If you are a solo practitioner, make a note on your calendar to discuss this with your office manager. If you outsource your medical billing, meet quarterly or annually with your account representative to evaluate your fees.
Understand Your costs
As with any business, the amount you charge for a service must cover (and hopefully exceed) the cost of providing the service. The American Medical Association recommends establishing and reviewing your fee schedule by comparing the relative value units, or RVUs, of the services you perform to the actual cost of maintaining your practice.
The calculation works like this:
- First, determine your costs for the past year, including the cost of staff, supplies, utilities, rent, liability insurance, etc. Include all your costs.
- Then, make a list every CPT code you bill and determine how many times you billed it in the same year.
- Multiply the number of times you billed each CPT code by the RVUs (including practice expense, practice liability and physician work RVUs).
- Next, divide your total costs by your total RVUs to get your average cost per RVU.
- Finally, use that cost per RVU as the basis for your fee schedule by multiplying the RVUs of each code you bill by the cost factor you calculated.
Of course, establishing your practice’s cost factor is just a place to start. You may want to alter that value of your cost factor or specific codes to reflect expected changes in costs, patient volume, or payer mix. You’ll also want to consider the other factors listed below.
Recalibrate to Your Payer Contracts
A few weeks ago, we wrote about the importance of regularly evaluating and updating your payer contracts. Keeping your practice fee schedule up-to-date can help you with payer negotiations by helping them see their payment performance relative to other payers. But once negotiations are complete, you’ll also want to make sure your fee schedule reflects the value payers place on various procedures.
Some practices also use accepted payer fee schedules, like the Medicare Physician Fee Schedule, as a starting point for their own charges. For instance, you might charge 200 percent of Medicare’s allowed amount. In that case, you’ll want to continually update your fee schedule as payers update theirs.
Use Databases like Fair Health
On the other hand, other than government payers and the insurers you contract with, you may not know what an out-of-network payer pays for specific services. And as is the case with the ongoing debate of out-of-network balance billing, you may not agree with the payment rate or an insurance company’s coverage policies.
In that case, you could also incorporate third-party databases like Fair Health, which offers consumers an idea of the average (or usual and customary) cost for many common medical services. For physicians and other healthcare providers, though, Fair Health also markets its vast database as a tool for providers to navigate payer contracts. Which means it could also be one more piece of the puzzle to help you establish or maintain your practice fee schedule.
Adjust for Changes in CPT Guidelines
Finally, your fee schedule should reflect any changes to CPT codes or descriptions, especially the addition or deletion of codes or the bundling or unbundling of services like the recent unbundling of moderate sedation from many surgical or medical procedures. These changes usually are reflected through an adjustment of the codes’ total RVUs. So as long as you’re regularly updating your charges based on total RVUs, then you’ve got this covered. But if you aren’t using RVUs, you’ll want to calculate these changes based on your own system.
Plan today to dust off your practice’s fee schedule and update your charges using all of these tips.
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