Understanding Fee Schedules as a Revenue Enhancing Tool

Your strategy in setting your practice's fees is an integral part of successful practice management. Once set, you should perform a comprehensive review of your practice's fee schedules at least on an annual basis to ensure the most appropriate level of reimbursement is being achieved. Fee schedules that are not competitive with the marketplace should be changed. Depending on your circumstances, as a general rule several small fee adjustments over a period of time are more palatable than one large change.

The discussion in this section of PracticeAdvisor Resource Guide™ will focus on reviewing the some of the principles of establishing your practice's fee schedule, and proper billing and coding procedures.

Fees and the Success of Your Practice

Interestingly enough, a practice that sees a large number of patients each month does not necessarily perform efficiently. Many practices, in fact, which see large numbers of patients are run inefficiently and often have difficulty in generating sufficient income because the pace is so hectic that proper billing and collection procedures are not observed. Physicians who attract many patients without the ability to translate that volume into reasonable levels of revenue cannot provide the same level of care as those who have the right amount of patients and revenue for the size of their practice. It is, therefore, important to balance the income needs of the practice with the ability of the practice to properly care for patients. Patients remain loyal to physicians who can continue to deliver the highest level of care for the right price. Thus, patients are usually not driven to physicians who have the lowest prices; rather they remain devoted to those providers who efficiently and effectively provide for their care - as long as their billing practices remain competitive.

Setting a realistic and competitive fee schedule is essential in generating sufficient income for your practice. Certainly, setting your fees at the upper limits of the market will not ensure adequate practice income. Other factors must be taken into account such as your office location, patient volume, your marketing efforts, the friendliness of your office staff, and your ability to efficiently manage your practice and your patients' care. Yet, setting your fees too low may ensure your financial failure.

Fee schedules may be set in a variety of ways including informal surveys of your colleagues, and by purchasing data which presents current information on charges for your specialty in your general area. These commercially produced reports are based on a comprehensive survey of claims submitted to payers and can be refined to a zip code-specific basis for your practice's service area.

Some physicians feel that having competitive fees has little relevance in today's managed care marketplace where physicians are paid fixed fees or discounts from billed charges. Yet, fee schedules are often used to establish reimbursement levels and continue to produce income from a growing number of patients who pay directly for their own health care.

Concerns Over Improper Billing and Coding

In this day of increased governmental scrutiny of provider bills, providers are naturally cautious about their billing practices. It is not uncommon to hear about a physician who is being prosecuted by the government for fraudulent billing practices. Yet, the purpose of governmental intervention is simply to ensure that providers are billing appropriately and honestly for their services. A physician who complies with proper billing and coding procedures is not in danger of being persecuted. Experience indicates that many physicians actually code under appropriate levels simply because they are overly cautious or do not understand correct billing and coding procedures. While coding can be confusing, you will be served well if you master proper coding techniques and ensure that your office staff is well trained in this important area.

Physicians do not need to be afraid of charging the right price for their services, especially since very few invoices submitted for payment will ever get paid in full. With the current environment in which healthcare operates, practices can expect to collect only about 70% of gross fee-for-service charges. Thus, it is important to set these charges at levels that satisfy both the practices' operating targets as well as keep the practices competitive in the marketplace.

Multiple Coding Systems

The key point to remember here is that physicians should not get into the habit of not adjusting their fee schedules for the sole reason that patient volume is satisfactory. Inefficient pricing cannot help the physician, the practice or the patient no matter the encounter volume.

Coding for procedures and diagnosis are the major determinates of third party reimbursement. There are several basic coding systems of which you should be familiar to include:

• RVS codes ("Relative Value Studies") assign a non-financial relative value to each different procedure. In this way the complexity of each procedure is weighed against another so an equitable reimbursement can be calculated based on such factors as the skill needed, the time involved, etc. The basis of RVS is to increase the reimbursement for cognitive services while surgical and more specialized procedures receive less reimbursement.



• CPT-4 (Current Procedural Terminology) codes are numerical and used to report most cognitive procedures and procedures concerned with medicine, surgery, anesthesia, radiology, pathology and laboratory. Each service or procedure is identified by its own unique five-digit code. The first CPT coding book was published in 1966 and was based largely on the RVS methodology. CPT coding also uses "modifiers" which indicate some type of deviation from the standard five-digit code description. Modifiers are commonly two digits in length.



• HCPCS is an alphanumerical coding system developed by the Health Care Financing Administration (HCFA) in 1984 for Medicare and includes three basic levels. Level 1 refers to CPT procedure codes. Level 2 was developed by HCFA to supplement and refine the basic CPT codes. Level 3 refers to local codes which can be modified by each Medicare intermediary insurance administrator.



• ICD-9-CM provides codes for the diagnosis of most injuries and diseases. CPT-4 and ICD-9-CM codes are required for completing all health insurance claim forms and should be supported by documentation in the medical record.

CPT Coding

CPT is the most common coding methodology used in the country today. Because of the importance of coding to achieving adequate levels of reimbursement, it is essential that your office staff become familiar with proper coding procedures. Although capable of performing a wide range of procedures, most physicians tend to concentrate on a few key procedures in taking care of their patients' medical needs. An important function in performance management is the identification of these core procedures and ensuring that the fees set for these services reflect the most current competitive market data. Besides setting the correct fees for such services, it is necessary to use the correct CPT code at the time of claims billing. There is a great number of CPT codes, but they are categorized in the following manner:

Evaluation and Management Codes

Beginning in 1992, specific codes for evaluation and management ("E&M") of illnesses were included as part of CPT coding. The broad categories of office visits, hospital visits and consultations are further subdivided into new and established patients for office visits, and initial and subsequent visits for hospital visits. Consultations are also subdivided into initial and follow-up categories. Each type of service is divided into a range of codes. For example, an office or outpatient service for a new patient falls into code ranges of 99201 to 99205. The purposes of the E&M codes is to better identify the type of service and reimburse physicians for cognitive time spent caring for patients.

In 1994 HCFA issued the first guidelines setting the documentation requirements for the different levels of E&M service. The previous guidelines required far less documentation. Proper and complete documentation in the patient's medical record of services performed is essential to secure adequate reimbursement under the E&M codes. The levels of E&M services affect reimbursement and are based on four types of examinations:

• Problem Focused Exam - a limited examination of the affected body area or organ system



• Expanded Problem Focused Examination - a limited examination of the affected body area or organ system and any other symptomatic or related body areas or organ systems



• Detailed Examination - an extended examination of the affected body areas or organ systems



• Comprehensive Examination - a complete examination of affected organ systems or body areas and other symptomatic or related body areas or organ systems

In addition, the levels of E&M services recognize four categories of medical decision making to include straight-forward, low complexity, moderate complexity, and high complexity. Medical decision making refers to the complexity of establishing a diagnosis or selecting a management option as measured by:

• The number of possible diagnosis or the number of management options which must be considered;
  

• The amount or complexity of medical records, diagnostic tests, or other information that must be obtained, reviewed and analyzed; and,
  

• The risk of significant complications, morbidity or mortality, as well as comorbidities associated with the patient's presenting problems, the diagnostic procedures or the possible management options.

Physicians or their practice staff need to ensure that all procedures have been properly coded on claims forms. This responsibility sounds simple and easy to accomplish. It is, but it takes time and training to ensure that these steps are being performed accurately and efficiently. Ultimately, the physician is legally responsible for the correctness of all coding.

Medical Necessity and Getting Paid

The key issue in determining if a provider should be paid for rendering services is demonstrating that there is a medically justifiable need for performing the service. This is primarily established by examining the CPT or procedure in relation to the diagnosis code. Interestingly enough, problems related to documenting diagnosis are the most common reason that claims are denied. For example, according to a recent survey by the Office of Inspector General, 30% of all fee-for-service Medicare claims had errors and 37% of those errors were due to a lack of documented medical necessity. The basic requirement is that the diagnosis must justify the procedure performed.

Overview to Improving Practice Revenue

• Review fee schedules annually and adjust according to changes in the market or the rate of inflation



• Generally, fees should not be set at levels less than the 75th percentile for the practice's market



• Identify procedures that represent large portions of a practice's dollar volume and understand how these procedures are reimbursed



• Procedures in which physicians have particular expertise can be charged at the highest levels that can be sustained by appropriate coding techniques and the market



• Procedures which are "loss leaders" will not improve practice performance solely by increasing patient or encounter volume



• Explore methods of improving patient volume and mix to increase income



• Provide a reasonable array of patient services

Improving patient volume and mix and increasing patient services will be discussed in the Practice Marketing section of PracticeAdvisor Resource Guide™.

Getting Help with Establishing Fee Schedules and Ensuring Proper Coding

ExpertPractice.com has designed online applications that provide easy-to-use and low cost means for physicians to integrate coding tools into their clinical workflow. These applications, CodeChecker and WebCoder enable physicians to protect themselves from making errors in compliance coding that hurt practice performance as well as expose the practice to liability from government regulation. CodeChecker is an Internet-based HCFA compliance tool for physicians. It supports chart auditing and coding compliance and allows physicians to assess the coding accuracy of their practice using actual encounter data. CodeChecker allows physicians and their staff to quickly conduct an internal audit review of charts to determine whether or not appropriate codes were assigned to encounters. WebCoder allows for easy documentation of patient encounters while automatically generating the critical E&M codes for each patient visit. It also provides a patient record that stores all types of information such as active and inactive problems, current medications and laboratory data. Using applications such as CodeChecker and WebCoder provides physicians with powerful tools that, among other things, virtually eliminate errors that result from improper coding of procedures. Coding is typically viewed as a necessity that arises from insurance billings. However, proper coding of procedures becomes a very important practice performance solution, one which quickly translates into additional revenue and profits for physicians.