How to set your fee schedule: Experts advise updating it every 3 to 12 months
■ You know what third parties pay you. But experts say you also need to know what your base charge is for every service you provide.
By Emily Berry — Posted May 4, 2009
How much do you charge for removing a wart? How about giving travel vaccinations? You might know what health plans or Medicare will pay, but what are your fees? Practice management experts say your fee schedule should be set carefully and updated regularly.
Setting a defensible fee schedule is always good business, but with self-pay patients asking for a break on their bills and health plans publishing charge information and demanding ever-deeper discounts, it's never been more important to know when a discount is too deep, experts say.
"This is what pays your bills," said Susan Childs, a practice management consultant with Evolution Healthcare, based in Rougemont, N.C. "Any other business does this every year, looks at your costs and what you need to charge. It's just that we get so bogged down with chaotic stuff every day."
Even if you end up discounting from your fee schedule in nearly all cases, you should know what your breaking points are -- when a discount means you don't make a profit, and where it would mean you lose money, practice management consultants say.
Frank Cohen, a health care consultant with MIT Solutions, based in Clearwater, Fla., said much of his work involves helping physician practices set fee schedules. "Your No. 1 responsibility is to be profitable. If you're not profitable, you cannot provide quality care," he said. "If you're not willing to do what it takes to make money, you're going to go out of business, and the community is going to suffer as a result."
How to determine your fee schedule
Carefully accounting for costs should be your first step. "The best defensible thing you do for your fee schedule is a cost study," Childs said.
You can do a study yourself or hire a consultant, but the key is to account for every cost and have a reasonable margin to live on and to reinvest in your practice.
Your goal is to break down your costs and your margin into units of work -- typically services and visits, which can be defined by Current Procedural Terminology codes. Breaking down costs into hourly units is another option, Cohen said.
Your end product should be a list of services each assigned a share of your overhead cost as well as your margin and the actual cost of providing the service. For example, your fee for a flu shot includes a fraction of your rent, your nursing staff's pay, the office's electric bill, your liability insurance premium, your own salary and a fraction of the cost of the new x-ray machine you are planning to buy in six months.
Basing your prices on costs plus margin ensures that your fee schedule is built on what you need to stay in business, not on what you think sounds fair. This will make your case stronger when you negotiate with payers.
The American Medical Association Practice Management Center offers a step-by-step guide to one method: using the Centers for Medicare & Medicaid Services' resource-based relative value scale and your own practice costs.
Because they are from a scale and not a fee schedule, relative value units, or RVUs, for every code must be multiplied by some conversion factor based on cost to produce a fee schedule. The AMA's suggested method begins with calculating your total costs. The next step is to list every CPT code your practice bills -- leaving out ones without an RVU. Identify the RVU for each code, including practice expense, practice liability and physician work RVUs.
Figure out how often each code is billed and add up the total RVUs billed each year. Next, using your total costs and total RVUs billed each year, assign a dollar value to every RVU. Once you've done that, multiply that per-RVU cost factor by the RVU for every code, and you have a fee schedule.
Even if you don't use RBRVS and choose to create a fee schedule based on an hourly rate, you should know how much time each service takes, Cohen said. That way you can take those numbers with you in health plan negotiations and justify your fees with a breakdown of your costs.
As you examine your own costs, it's also critical to have an idea of what your counterparts in the region are charging, without breaking antitrust laws by asking them directly. If you are just opening a practice or contracting with a new payer, you should find data that show the common fees charged by doctors in your specialty around your state, Cohen said.
Cohen also warns against paying for data from a source that isn't entirely transparent. Like many smaller health plans, some physician practices relied on data from the UnitedHealth Group subsidiary Ingenix.
Physicians paid Ingenix for the same data as a way to benchmark their own fee schedules. Unfortunately, as New York Attorney General Andrew Cuomo's office found in its investigation, the fees in the Ingenix database tended to be lower than the true "usual and customary" charges. Cuomo alleged that the insurers used a "closed loop" system to shortchange out-of-network physicians, feeding skewed charge data into the database to undercut what the same companies would turn around and cite as the basis for payments to out-of-network doctors.
United and most large national insurers have agreed to abandon that system in favor of a new, independent database. Meanwhile, there are other sources of transparent and reliable data, Cohen said. His consulting firm uses adjusted data from Medicare's Physician/Supplier Procedure Summary Master File -- a database of all submitted charges, not just amounts paid by Medicare -- to help doctors identify a valid comparison group to benchmark.
After you've done all the math, a fee schedule is not something to take out only when health plan negotiations come up. Experts advise updating your fee schedule every three to 12 months.
Liability insurance rates go up, market dynamics change, patient volume changes. You should be keeping up with those things, they said.
The best way to make sure it's up to date is to check what payers, public and private, are paying compared with your charges, Childs said. If Medicare is paying 100% of yours, something is off.
How to use your fee schedule
When you have a defensible, carefully assembled and updated fee schedule, you also have a starting point for health plan negotiations.
First, Cohen said, you don't have to contract with anyone -- you should see patient volume that offsets the discounts you give to each plan. If you don't, it's your choice to cut the cord.
Some physicians assume that they are beholden to the payer who brings the most patients. Not so, he said. After all, your biggest source of patients is also probably your largest source of costs.
Childs recommended always having a face-to-face meeting with a payer's network representative.
"You can either be a folder or you can be a personality and a presence," she said. The more they understand about your practice, the better they will listen in negotiations.
With your cost study and comparison information in your pocket, you should be able to tell if your fee schedule is about average, or higher than average. If it's high, be ready to defend that with arguments about demand for your services, cost savings you offer or quality you bring that your competitors do not, Cohen said.
If you are renegotiating a contract, identify codes for which you are paid on the low end of what your peer group is reimbursed. Make those the focus of negotiations rather than asking for an across-the-board increase.
If you meet with resistance, Cohen said, walk away. "Most payers don't listen until you walk away and cancel the contract," he said.
Even if you aren't ready to do that, Childs and Cohen said, do not take an insurer's proposed contract off the fax machine, sign it and send it back. "It's like saying, 'If the payer says that's the value of our services, then it must be true,' " Cohen said.
Your fee schedule also can be the starting point for discounting care for uninsured patients who don't have the luxury of a prenegotiated health plan discount, so it should be up to date.
Finally, both Cohen and Childs recommended some degree of openness with patients about how you price your care. Cohen suggested publicly posting your fee schedule methodology -- something he said the Mayo Clinic has done.
Childs recommended simply telling patients that you value their business, and you are always open to talking about what you charge and why, and what discounts are available. "If patients are forewarned, they will be prepared," she said.