Negotiating Physician Fee Schedules

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Better Data for Improved Fixed Compensation

[By Christy Clodwick; MHA]

[By Dr. David E. Marcinko MBA]

biz-book1It is known that most health plans operate with fixed fee schedules. While these fee schedules have little or nothing to do with RBRVS, and most are based on a percentage of what Medicare pays, the question is: “are they tied to levels that are more than 3 or 4 years old?”  Physicians who have no negotiating tools or a plan in place, and who question the methodology that the payers are using, are (too casual-left) with a ‘take it or leave it’ response from the health insurance provider.

Gathering the Data

A good solid foundation of data is necessary to negotiate better reimbursement rates successfully. The practice administrator or accountant (not 1 in 100 accountants can actually do this) should have this information readily available, especially if the office has an automated billing system.

Steps to Preparing a Fee Analysis

First and foremost, the medical management team in charge of this project will need to determine the most commonly used CPT® codes for the practice.  The bulk of primary care or family practice physician fees should be derived from the revenue of the office visit, hospital and preventive medicine codes. This in turn may limit the number of codes for the study. The frequency of each CPT code should be listed over a 12 month period.  If applicable, laboratory fees should also be included to see if there are fluctuating reimbursement schemes for these services. The codes on the list should account for at least 75% of the total practice charges.

Determining Top Payers and Reimbursement by Payer

It is known that Medicare and Medicaid use established fee schedules and do not negotiate, therefore the focus should be on the other major payers that make up the bulk of the reimbursement. In this process, make sure that the payers in the report are the practice’s top payers. The practice administrator will also need to determine the reimbursement for each code that is sent to the various payers’ list in the report. The administrator or team leader (the average GP has 3-4 employees, so I don’t think there would be a team leader, here). For this project we can use the Explanation of Benefits EOB that is received from each payer that has been selected for the report.  When including this data, make sure the allowed amount, not the paid amount, is referenced. After this information has been gathered, each payer’s reimbursement rate will need to be calculated as a percentage of Medicare’s reimbursement rate. Medicare’s current rates for any geographical area can be found through the “Medicare Physician Fee Schedule Look-up” tool at:


This site also provides a reference to Relative Value Unit, (RVU) that Medicare assigns to each code.

RVU Conversion Factors

It is important for the practice administrator or manager to understand the RVU conversion factors and how they work, simply because most payers are in the beginning stages of using this method. To calculate a payment for service you multiply a particular CPT Code by the Medicare conversion factor for that code. For an example we will use the code 99214 – office visit. The Relative Value Unit for that Code is 2.2. The Medicare conversion factor for the same code is $37.34.  The calculation would result in a rate of $82.15.  Geographical adjustments must be taken into account when performing these calculations. The next step in this process would be to review the fees for each code listed in the report. Calculate each fee as a percentage of Medicare’s rates. You will find different statistics for each payer.


Apply the Rules and Process

Follow these basic rules when applying this new process:

First, if the charges are being reimbursed at 100%, the fee may be too low. At this point, raising the fee for that code would be acceptable (Usually not the case). Next, If several fees are in this category, the practice should just set all its fees to a percentage of Medicare reimbursement across the board, such as 125 percent (many managed care plans pay at less than MC, i.e., 80% MC). Finally, a tiered fee schedule would be applicable if the payers seem to pay more for certain procedures or diagnostic studies. That would set evaluation and management codes at 125 percent of Medicare reimbursement while charging 150 of Medicare reimbursement for other procedures and diagnostic tests.


The medical practice administrator should make sure that, no matter which fee schedule is best suited for the practice, it is updated annually to prevent loss of any increases that may occur per payer.


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact:


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2 Responses

  1. Christy,

    Fabulous post; I think I finally understand it. And, I just ordered the book, too.



  2. More Family Docs Charging Patients Administrative Fee

    A growing number of primary-care physicians are hitting their patients with another charge: an annual “administrative fee” of $100 to $250 to help the doctors defray the costs of running their practice.

    The fees generally cover the amount of time they spend giving medical advice over the phone, e-mailing patients, maintaining medical records and talking with insurers to argue coverage denials or get certain prescription drugs.



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