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The necessary demise of Usual & Customary

As insurers abandon the traditional “usual and customary” metric in favor of Medicare’s rates for out of network reimbursement, consumers are getting hit with higher bills, and many are protesting.
That’s understandable; it’s also necessary.
The usual and customary reimbursement methodology is used to pay providers that aren’t in the member’s ‘network’; it is based on what other providers in the same area charge for the same procedures during the same time frame. For decades providers have gamed the system by charging more and more every year for the same procedure, thereby ensuring they’ll get paid more next time for the same procedure.
Health plans, struggling to hold down costs, have finally given up, switching from U&C to a methodology based on Medicare’s RBRVS system, albeit one paying at 150% – 250% of Medicare – again for out of network care.
Many members have been surprised/shocked/dismayed/furious when they discover their share of the cost is much higher than they expected, and they’re blaming their insurer. While that’s understandable, it is also anger misplaced.
Members going out of network do so because they are either a)ignorant (our son just went to an OON provider for his elbow MRI…) or b) they want care from a specific physician(s). In the case of a), shame on us for not educating the young man on the intricacies of health plan contracts.
For b), it’s not quite so straightforward.
These folks chose to go out of network for the care they wanted, and that’s entirely their right. In so doing, they forewent the binding rates negotiated – on their behalf – by their insurer with in-network providers. If they’d stayed in network, their out-of-pocket costs would have been much, much lower.
I’ve pilloried insurers for years for their inability to do what they’re supposed to do as a matter of course – deliver quality care at a manageable cost. The change from the easily-gamed U&C system to one based on Medicare is an appropriate and necessary one. Yes, it’s also painful, but controlling health care costs is going to be ever-more-painful, requiring all of us to choose between increasingly-distasteful choices – higher premiums or more access.

Now I’ve got to go spend some quality time with our son explaining all this. Yippee.

6 thoughts on “The necessary demise of Usual & Customary”

  1. Joe,
    Don’t forget to mention another very critical choice that may play an important part in a patient’s choice to go out of network…quality of care. Plenty of access to cut rate care is still cut rate care.

  2. Parenthood the gift that keeps on giving. Its nice to hear that even Black belts in managed care have trouble accessing care in a reasonable affordable manner. While its easy to point to the Carriers for failing to solve all our problems I contend that it is the break down of the physician patient relationship that has led to the crazy pricing and inefficiencies.When ever someone receives a service that someone else pays for we lose that moment when the seller in this case a Doctor says to the buyer,”you owe me this much money”. Again no solution just piling on.

  3. I agree with you that the Fair Health database UCR is set by the providers billed charges, and therefore so high that Carriers have resorted to a Medicare multiple in order to take control of the amounts in their group health contracts. However, the workers compensation market in many states dictates the use of Usual and Customary rates. The better solution would be a market study using data analytics for the average paid amount in the health care market. Similar to your argument in the group health market that a billed charges database is on the demise, so should any billed charge database in workers compensation.

  4. Steve – I didn’t forget; there’s no evidence of your claim. In fact there’s solid evidence that more expensive care is unnecessary and is not cost effective. If I’m mistaken, please provide citations.

  5. Finally, a move that could benefit policyholders! So, with insurers beginning to pay less for oon, how long until we see a downward shift in market premium pricing? Surely carriers would not be brash enough to think that the street will continue to pay current premium rates for less coverage???

  6. According to Wellpoint, only about 5% of care is out of network, at least in New York which was the focus of a recent New York Times article. The provider charge (list price) for a half dozen different tests and procedures cited in the article ranged from 11 to 18 times the Medicare rate which strikes me as outrageous on its face. Any provider (doctor or hospital) that accepts Medicare rates as full payment but is not in a particular insurance network and has the audacity to charge over 15 times Medicare and expects to be paid that amount or close to it has a lot of explaining to do in my opinion. As for insurers shifting to a percentage of Medicare approach to out of network payments, I say it’s about time. I wonder what in network contract rates average as a percentage of Medicare.

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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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