We're not leaving $250,000 on the table anymore

Surprise! Some insurers will actually pay more than you charge. This doctor did the math and boosted his bottom line.

By Scott P. Rigby, MD
Internist/Munroe Falls, OH

As a partner in a nine-member primary care group, I had always been interested in new ways to increase our income and the value of our corporation. Although the practice was growing and financially successful, our earnings weren't as high as they should have been. My partners and I had been careful to monitor overhead costs at our three offices, but the main problem was low collectible revenue. That's not a good thing for any business, but it's especially critical for a medical practice since the margin between cost and profit is so narrow. Because improperly set fees meant less than satisfying reimbursement from insurance companies, I decided to take a closer look at our fee structure.

Unfortunately, medical education hadn't prepared my group for the difficult task of knowing where to set fees. Our initial fee schedule had been based largely on guesswork. And because the charges had been randomly selected, reimbursement rates were well below what we expected.

A better method would have been to look at the actual cost of seeing patients. We could have calculated our overhead—payroll, supplies, malpractice insurance, health insurance, and the like—then set fees that would allow us to turn a profit. Still, even that wouldn't have guaranteed maximum reimbursement.

Most doctors base their fee schedule on a percentage of Medicare allowable rates. These rates, derived from the resource-based relative value scale (RBRVS), often correlate with the larger insurers' reimbursement schedules, but they're well below the rates smaller companies will pay.

Complicating matters, there are no Medicare allowable fees for some common CPT codes, such as the cost of vaccines. So a health plan that computes its physician fee schedule as a percentage of Medicare allowable might determine its own rates for non-RBRVS codes. Or the company might simply pay a percentage of physician charges on non-RBRVS codes. Undercharging in the latter circumstance obviously damages your bottom line.

Why settle for less than top dollar?

Third party payers determine a range of allowable reimbursement. That's why careful fee setting is so important. If you ask for less, the plans will gladly pay you less. Calculating maximum reimbursement, I realized, was the key to increasing our revenue—without requiring any of the partners to see more patients, work longer hours, or take less vacation. Basically, this was lost money waiting to be found. And I found it.

How did I do it?

I started by getting fee schedules from the plans we participate in. This was harder than it sounds: Insurers know that physicians often sign contracts without the fee schedule attached, so not every company is eager to provide this data.

There are, I discovered, two types of fee schedules: percentage of Medicare allowable and weighted fee average. In the former, a fixed percentage is applied equally to all RBRVS codes. In our location, this varied from 85 to 140 percent of Medicare rates. Non-RBRVS codes, such as wellness visits, were reported separately or reimbursed as a percentage of billed charges.

A weighted fee average schedule offers higher reimbursement for some codes, while others are reimbursed at a very low rate. As you might guess, the codes we use the most tend to get the lower reimbursement.

With all of the fee schedules in front of me, I compiled a spreadsheet that listed our practices' CPT codes, the Medicare allowable for each code, our charge, and the corresponding maximum reimbursements from each insurance provider. See columns 1 through 8 in the table below for an abbreviated sample of the result.

To generate the figures for the insurers' columns, I simply calculated the Medicare rate for each CPT code and multiplied that by the reimbursement percentage in each contract.

If you examine the sample charges for level 3 new and established patients (in bold in the table), you'll see that we were capturing the maximum amount for Medicare and for insurers 1, 2, and 3. Insurers 4 and 5, however, were obligated to pay us more than we were charging. The actual figures for my practice revealed that we were losing significant dollars per claim on 99213 and 99203 visits. Among the nine physicians in our group, the lost revenue for one year was approximately $33,000 for those two visits alone.

Rethinking charges to maximize revenue

Obviously, we needed to raise our fees to capture this lost money. For each CPT code, we selected an amount that slightly exceeded the maximum reimbursement we were contractually permitted. This ensured that we captured all available revenue. The last column in the chart shows our corrected charges.

Two charges—99201 and 99211—were decreased to more accurately reflect insurer reimbursement. Still, when the corrected charges were applied across our fee schedule, we were able to capture an additional $250,000 for the year. Indeed, because the turnaround time for electronic claims can be as short as two weeks, we realized increased revenue the first month.

At first, even after hearing of the anticipated revenue surge, some of my partners were reluctant to raise our fees. They argued that because most insurers were paying less than we were charging, setting higher fees would result in falsely elevated accounts receivable, with a subsequent poor collection ratio.

My counterargument was that the additional revenue was real money, and the adjustments were necessary to ensure proper reimbursement. In my internal medicine practice, we implemented a single fee schedule as a percentage of Medicare allowable. And although this schedule did inflate the accounts receivable slightly, we were able to track the adjustments from charges to expected payment, enabling us to calculate an accurate collection ratio.

Prior to changing our fee schedule, we would post daily payments from insurance companies, compare the payments to our charges, calculate a collection ratio, and be happy if it was above 80 percent. When insurers are paying correctly, payment should equal charges minus adjustments, and the collection ratio should be 100 percent.

I never expected recalibrating fees would improve our bottom line to the extent that it did. Because of the narrow margins between cost and profit, we cannot afford to accept less than insurance companies are willing to pay.

 

Scott Rigby. We're not leaving $250,000 on the table anymore. Medical Economics 2002;17:52.