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Fee for Service Issues

Although new payment systems may well dominate physician reimbursement in the not too distant future, it is highly unlikely that those systems will replace fee-for-service entirely. You still may be paid only on a fee-for-service basis if you live in a part of the country where using an alternative payment system may not make practical sense—for instance, a community that cannot develop the requisite infrastructure. But even if you participate in a new payment system, fee-for-service reimbursement will likely continue to play some role in your reimbursement, and it will certainly play a major role during this period of transition as both a benchmark against which you will want to evaluate alternative payment models and as a portion of your payment.

Chapter two: Fee-for-service issues

Regardless of whether you will be compensated entirely on a fee-for-service basis or pursuant to a combination of a new payment system and fee-for-service, you will have to determine the adequacy of offered fee-for-service payments. This is not a simple task. First, you must determine what it actually costs you to provide services, including enough to cover salaries, office overhead, professional liability and other insurance and reserves needed to maintain up-to-date health information and other necessary technologies. For more information on one strategy for accomplishing this, see Establishing your baseline.

Second, you must determine what payments the health insurer is proposing to pay you, and you must do this separately with respect to each product in which you are considering to participate. This means that, for each product, you must understand each of the three components that go into health insurer payment determinations:

  1. the base fee-schedule;
  2. the claim edits which the health insurer applies to eliminate payment for certain services when they are billed with other services; and
  3. the payment rules which the health insurer applies to increase or reduce payment in certain circumstances, such as when a procedure is performed on both sides of the body, or multiple surgeries are performed during the same session.

Finally, you must understand how any of these three payment components may be changed, including what notifications you will receive and what rights you have with respect to accepting or rejecting these changes.

As is demonstrated by AMA’s National Health Insurer Report Card, health insurers vary widely in their use of claim edits. Moreover, in another study AMA commissioned, it was determined that health insurers were using 18 different versions of multiple procedure reduction rules. These variations can have a significant impact on the bottom line, not only by virtue of the payment reductions they cause, but also because of the additional administrative costs physician practices incur in trying to reconcile the unanticipated payment reductions. Thus, when performing your fee-for-service payment analysis, you should insist that the payer involved provides you with all of the specifics of its fee-for-service methodology for each relevant product. This information should include: a complete fee schedule, all coding requirements, and edits and all other payment rules. Otherwise you are not getting the whole story, and there will be no way for you to truly assess the impact of the fee-schedule, nor to reconcile payments assuming you decide to contract.


The AMA has developed a number of resources that are designed to help physicians identify the kinds of information that will enable them to determine actual reimbursements that they will receive under the fee schedule. The National Managed Care Contract (NMCC) contains an article specifically addressing the types of information that physicians should receive from managed care organizations (MCOs) in order to determine the adequacy of payment. The National Managed Care Contract Database comprises all state laws and regulations governing MCOs’ disclosure obligations, as well as an Issue Brief specifically designed to help physicians obtain relevant reimbursement-related information. The AMA has also developed detailed information on issues that must be considered when fee-schedules are based on the Medicare fee-schedule or Resource Based Relative Value Scale (RBRVS).

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