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Lower fee schedules, increase costs?

Dr Rebecca Yang discussed the correlation of fee schedules and associated physician billing activity.

Key takeaways

  • There’s somewhat of a correlation between low office visit reimbursement rates and higher incidence of physician dispensing.
  • evidence from CA indicates that when th FS whas reduced, doctors coding practices did too – more office visits were coded as level 4 and level 5, while the frequency of lower level visits decreased proportionally
  • when the fee schedule was subsequently increased, the trend to more upcoding moderated – then resumed when the fee schedule was frozen again.
  • this experience was essentially replicated in Louisiana
  • in Florida, a change to the fee schedule for facility-based lumbar MRIs essentially increased reimbursement for “unscheduled” MRIs when compared to “scheduled” MRIs.  Perhaps you, dear reader, will not be shocked to learn that “unscheduled” MRIs went from about 1/3 of all lumbar MRIs to over 2/3 over the next few years.

What does this mean for you?

Blunt instruments – such as the physician fee schedules in place in 42 states – CAN BE opportunities for bad actors to game the system, while hurting the good folks.  

Not to say they should be abandoned, but rather it is necessary to think about what will happen if you change fees (or other care-based reimbursement rules) – not what you hope will happen.

4 thoughts on “Lower fee schedules, increase costs?”

  1. Joe – Thanks for this!! SpecialtyHealth has known this for YEARS. Please see our article published in the Journal of Occupational and Environmental Medicine, (Volume 43, Number 8, August 2001, pp 672-679) “Paying Doctors More: Use of Musculoskeletal Specialists and Increased Physican Pay to Decrease Workers’ Compensation Costs.”

  2. That’s why payors need to do pre-payment audits: to make sure the codes billed and modifiers applied (such as 25,59) are supported in the documentation. When the Medicare fee schedule was adopted in our state, chiropractic manipulations charges virtually disappeared, and providers started billing joint mobilization, manual therapy, etc, instead (for higher reimbursement, and to circumvent CCI edits -modifier 59). However, their notes still reflected manipulation as the service rendered. Similarly, with physical therapy, many started billing work hardening almost exclusively, even though their notes still reflected therapeutic exercises. Moral of the story: keep an eye on the charges, but just as -or more- importantly, on the supporting documentation, to verify proper coding.

  3. Serving in the Louisiana at the time our workers’ compensation fee schedule was created, I was the only individual (on the team attempting to improve workers’ compensation) who opposed the adoption of a “Fee Schedule”. As a consultant I have observed a trend when payment is reduced or perceived to reduce reimbursements. Providers administer more services that are often duplicative and/or medically unnecessary to prevent a loss in revenue. This tend is not limited to workers’ compensation and has been observed in a variety of health insurance plans. The result is that insurers must retrospectively address up-coding, multiple services being added to usual treatments, and even ordering more in office diagnostic services to make up the decreased revenue potential caused by fee schedules. These practices do not appear limited to one health care specialty.

    1. In my 20 + years of experience, I believe fee schedules are extremely important. Particularly when they are Medicare-based and include not only the ingredients (fee schedule), but also the recipe (current AMA CPT codes and guidelines, CCI edits, etc). What payors need to do is be proactive, audit (at least some of) the bills against the providers’ documentation and make sure providers are compliant with coding guidelines such as 59 modifier usage, etc. Just re-pricing the bills to a fee schedule is no guaranteed limit of cost.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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