There are many items that are confusing in the world of medical billing. One of the most confusing areas for individuals that are new to the business side of medicine is the idea of medical billing allowable. There are not many businesses where a bill is sent out for much more than one would expect to collect. In most business if you bill $100 then you expect to collect $100. In the business of medicine a bill for $100 is often sent out with the expectation that only $50, $30 or even less will be collected. Why?
This is primarily done for four reasons:
- Consistency is the key: Do not allow any inconsistencies in your fee schedule. These inconsistencies when spotted may harm your AR. Instead of changing your fee schedules often, maintain a standard fee schedule such as Medicare Fee Schedule Plus a 10% increase. This can highly reduce the risk of hectic calculations. A consistent fee schedule will throw light on your AR enough to get a clear picture on your collections.
- Revenue Enhancement: Medical practices will often see patients with insurance plans for which the provider is out of network. Some of these plans pay a percentage of billed charges. So, you do not want to set fees too low because for the plans that pay a percentage of billed charges the practice would leave money on the table that they could be collecting.
- Don’t scare away patients: So, given the two principles above why not simply charge 10 times Medicare and be done with it? Well, there are two ideas to keep in mind here. First, many self-pay patients (or those with high deductible insurance plans) will call a doctor’s office and ask what about the charge for an office visit or procedure. If the patient hears that your office visit cost $1,500 they will likely move on to the next practice. The second idea that you need to keep in mind is that patients will see on their Explanation of Benefits (EOBs) that you charged $1,500 for your office visit. Even though the EOB shows you may only have been paid $150, the idea that you charged so much can easily lead patients to view the practice as greedy and unreasonable.
- Do not lose hard-earned money: Insurance companies only pay what you ask of them. For example, if SIGMA is liable to pay 120$ for a level 3 office visit but a bill is raised only for 100$. The company will pay you only 100$ (i.e., the amount billed by you). The lack of updates on the fee schedules will cause you to lose your hard-earned money. Another example can be taken into consideration, say the allowable value goes up to 150$ but you bill them for 125$ you will still get only 125$.
- Comparability: If a practice continually changes it fee schedules (see point 1 above) then comparing charge volumes across months and years becomes less meaningful. For example, does the fact that charges are up 10% this June versus last mean more patients are being seen or that the fee schedule has changed? There are other measures that are easily decoupled from charge volume, such as patient encounters, but charge volume is the fastest and easiest metric for most billing software and departments to produce.