Usual and Customary Fee Schedules Who sets them and how?

by Shellie Pruden Director of Medical Practice Relations

Before 1992, U&C was a term used by Medicare to calculate physician fees; the term now has no standard meaning. In the early 1990s, insurers used Medicode’s MDR database for “prevailing charge” or the Health Insurance Association of America system to establish a claim payment limit. Both systems were acquired by Ingenix, a subsidiary of United Healthcare. Although Ingenix produces a limiting fee schedule, the methodology used in creating the fee schedule is proprietary and under no regulatory authority. As a result, the American Medical Association and other plaintiffs have joined a class action lawsuit against United Healthcare for violating patients’ rights and actions resulting in a reduction of out-of-network physician reimbursement to below market value. The lawsuit is pending in US District Court, New York. For more information about this lawsuit, contact the TMA Legal Department at 800-880-1300.

The Texas Department of Insurance Web site has no definition of U&C, although other states have adopted a definition. For instance, the Illinois Department of Insurance defines U&C as “the charge for health care that is consistent with the average rate or charge for identical or similar services in a certain geographical area.”

The AMA takes a broad view when it comes to defining U&C. Under policy H-385.990, the AMA recognizes the validity of a pluralistic approach to third-party reimbursement methodology and recognizes that indemnity reimbursement, as a schedule of benefits, as well as “usual and customary or reasonable,” have positive aspects which merit further study. It reaffirms its support for freedom for physicians to choose the method of payment for their services and to establish fair and equitable fees; freedom of patients to select their course of care; and neutral public policy and fair market competition among alternative healthcare delivery and financing systems. The AMA reaffirms its policy encouraging physicians to volunteer fee information to patients and to discuss fees in advance of services, where feasible. It urges physicians to continue and to expand the practice of accepting third-party reimbursement as payment in full in cases of financial hardship, and to voluntarily communicate this practice to their patients (CMS Rep. B, I-83; Reaffirmed: BOT Rep. TT, I-92; Reaffirmed: CMS Rep. E, A-93; Reaffirmed: CLRPD Rep. I-93-1; Reaffirmed: Sub. Res. 137, A-94; Reaffirmed: CMS Rep. 5, A-04).

In actuality, it’s the health plan that determines U&C, and for a number of reasons. As a result of aggressive FTC investigations in the Dallas area, physicians in this medical community are acutely aware that they are prohibited by law from discussing their charges with another physician. As a result, a physician has no way of knowing what a usual charge is. Insurance companies are in a much better position to make that determiniation. They receive claims from physicians that include the billed charges, negotiate out-of-network rates, and negotiate discount fee schedules with the majority of their network. Because most of this information is determined to be proprietary, the plan is at liberty to determine its own formula for “usual and customary.” For the insurers that do survey local charges in order to determine U&C, physicians may be supressing their own ability to maintain an independent U&C fee schedule by filing claims with allowable amounts in the “charge” field of a claim form.

Usual and customary charges came about as a way of balancing excessive charges. By creating a U&C fee determination, an insurance company could better predict out-of-network financial exposure. Although the companies were able to normalize the out-of-network fees, the ability for the provider to bill the patient for the balance owed kept the insurance company at the negotiating table. The difference is made up by the patient, who then is responsible for paying the balance between the insurer’s out-of-network “allowed” amount and the billed charge. In a free market environment, customer relations is the only mechanism that keeps the insurance companies at the negotiating table.

Because of the increase in patients bearing the burden of this untenable situation, the Texas Legislature likely will weigh in. The Senate State Affairs Committee heard testimony last fall from patients who have been impacted by the difference in what insurers pay for care and the actual billed charges for which they are responsible. The challenge for the Legislature will be finding the balance between protecting the patient from excessive charges and retaining the only mechanism that keeps insurance companies in legitimate negotiations.