ED Coding and Reimbursement Alert

Keep Hospitals and Patients Happy:
Pay Attention to ED Professional Fees to Attract Managed Care Contracts

Historically, ED physician groups have set fees using a number of strategies. Sometimes fees are based on what the hospital wants the physicians to charge, sometimes on what the physicians decide the services are worth.

Until a few years ago, Medicare based its payments to physicians on the usual and customary charges for a particular code in a particular region of the country. Many private payers reimburse physicians according to a percentage of charges or an individual contracted amount per service. Consequently, emergency service charges
often vary widely among physician groups and in
different regions.

One hospital contract we acquired, they were charging $500 for a Level 5 [evaluation and management service] and $300 for a Level 3, which I felt was not appropriate, says Jeri Bennett, manager of coding and reimbursement for MedAmerica, Inc., an emergency physician group management company based in Oakland, CA.

Other groups, pressured by the administrators at their hospitals, try to set low fees in order to attract a lot
of patients.

Sometimes you may have a single-department physician group that is employed by the hospital, says Dieter Lehnortt, MA, director of compliance for Southwestern Medical Center in Dallas, TX. The hospital sets the physician fee schedule and their thinking is, We want to keep all of our fees low because we have patients calling to complain about how much we charge and we want people to come here. I know one group that charged $25 for everything, regardless of how much work was involved.

Although a low pricing structure may be pleasing to administrators at contract time, physician groups accepting such arrangements often have had to go back to the hospital for a subsidy to keep the department operating because these fees are too low to cover the actual costs of
emergency services.

On the other hand, groups that have fees that are set too high will find it difficult to attract managed care contracts and will invite disagreements with hospital administrators who receive complaints from patients in sticker shock over the numbers on the bill, says Lehnortt.

Why Does it Matter?

With Medicare and the majority of health plans already on a relative-value based system for setting payments for services, and many private plans basing their payments on a percentage of the Medicare allowable or percentage off the fee schedule, why does it matter what the actual physician charge is?

As one ED physician group coder put it, You can charge whatever you want for a service, but you are still going to get paid the same amount.

Well, there are many answers to that question, say Bennett and Lehnortt. The first is that such an attitude is unfair to private-pay patients who may have to shoulder all or part of the bill themselves. Our physicians are very aware that when they raise fees, it primarily affects the private-pay patients and they want to be fair to that group, too, says Bennett. If the physicians actual charges are not relative to the payments accepted by the emergency medicine group from third-party payers, then the charges are not an actual representation of what the service is worth and place an unfair burden on patients without health insurance.

If you have a fee schedule that is out of control or out of range with what other groups are charging, several things can happen, advises Lehnortt. First, if you are charging too much, you are severely increasing your audit liability. A payer will look at your fee schedule and say, Well, this guy is charging $1,000 for this service and everyone else in the community is charging $100. What is going on here?

Second, if your fee schedule is too high or too low you also are going to artificially overstate or understate your bad debt amount. Fee schedules I have seen in the past err on both sides of the spectrum, says Lehnortt. For example, say a group is charging $100 for a service that is normally considered worth about $30, he illustrates. Maybe most payers are reimbursing that service at $20. This groups data is going to show that, instead of $20 out of $30which is a nice percentagethey are being paid only $20 out of a $100 charge. This indicates they have only a 20 percent collection rate for that service, which looks real bad.

How Do You Determine an Appropriate Charge?

ED physicians, like other physicians, cannot just go out and talk to their colleagues about how much everyone charges for each service. Such an action would violate federal antitrust regulations and laws against price fixing.

What ED groups need to do is develop a methodology for establishing a fair fee schedule that ensures that their charges are both consistent and competitive with the market and internally consistent, says Lehnortt. (See related article, Establish an RVS-based Fee Schedule to Ensure Appropriate, Competitive ED Professional Charges, on page 61.)

What many groups are doing is setting a fee schedule that is based on relative value units (RVUs) for each service, in the same way that Medicare and most other payers base their reimbursement amounts on RVUs. These groups use the RVUs assigned by Medicare in its Resource-Based Relative Value System (RBRVS) or by another standard relative value system (RVS), like the one published by McGraw-Hill, Inc. The groups then develop a conversion factor by which they multiply the RVU number to arrive at
a charge for each service.

Mainly, what an RVU-based fee schedule will do is keep your schedule internally consistent, says Lehnortt. What that means is that you are not charging more for one service than you are for another, when the first service has a lower value or amount of work involved. Groups with schedules that dont have a method for comparison often end up charging more for procedures that the group does frequently, sometimes without considering the amount of work and resources used to provide that service.

When I used to do consulting and looked at physicians fee schedules that was one thing that always popped out, says Lehnortt. Charges for simple services that physicians tend to do in the ED pretty frequently, like laceration repair, sometimes were way out of relation with charges [for more complicated procedures.] But the providers wanted to keep the charges for laceration repair high because it was something they did a lot and they saw it as a way to keep the revenue up. Such a position is very shortsighted, Lehnortt feels.

Benefits to Using RVS

Using an RVS methodology for developing charges not only helps keep your fee schedule internally consistent, but can be a useful negotiating tool when dealing with third-party payers and hospital administrators, he adds.

You cant always please the hospital administration, but if you can show that the fee schedule is well thought out, well planned and based on a formula that is nationally recognized and available to everyone throughout the country, it is really hard for them to argue that your fees are arbitrary or incorrect, he says.

In addition, knowing what your fees are relative to the resources used, costs incurred, and services provided gives the group leverage when negotiating contracts with third-party payers.

When you are negotiating a managed care contract, for example, you are typically going to get paid a percentage of the Medicare allowable, says Lehnortt. When I was consulting with emergency groups, we would have plans come to us and say, We will pay you 135 percent of the Medicare allowable. Superficially this sounds good, because its 35 percent more than Medicare, but we would turn it down.

The emergency group did so because it knew that even 135 percent of the allowable was too much of a discount off their normal charges for most services to allow them to operate efficiently. Needless to say, the full Medicare allowable alone would have produced an even greater shortfall. You have to have an appropriate fee schedule to cover your costs and make sure you make enough extra money to get paid, he states. And then, it is a matter of knowing your fee schedule, and knowing what Medicare is willing to pay, and also knowing which plans you can negotiate fees with and which ones you cant.