This blog post summarizes RPC’s white paper, “Determining Usual, Customary, and Reasonable Charges for Healthcare Services.” It explains how RPC determines the reasonableness of the charges of healthcare services by applying the UCR method.
Determining Usual, Customary and Reasonable Charges: An Overview
When a healthcare provider and payor have not agreed upon a negotiated rate for a service or when there is no fee schedule set by a statute or rule, the Usual, Customary, and Reasonable method is frequently the way health plans decide on the allowed amount for a service. Because a personal injury plaintiff may lack health insurance or the healthcare providers did not file claims with the plaintiff’s health plan, a UCR analysis of medical claims may help establish reasonable amounts for past and future medical expenses.
Before discussing how RPC determines usual, customary and reasonable charges, distinctions in the terminology must be addressed.
Usual and Customary vs Usual, Customary and Reasonable Charges
While publications and organizations often publish the terms interchangeably, “usual and customary” (“UC”) and “usual, customary, and reasonable” (“UCR”) have very different meanings.
“Usual and customary charges” are the charges on a provider’s chargemaster. A chargemaster is a list of standard charges for given services that apply to all patients, without regard to the expected source of payment.
“Usual, customary and reasonable” refers to the maximum usual and customary charge a payor considers reasonable. Providers set UC charges and apply those charges uniformly. Each payor decides what it considers the UCR charge for a particular service in that market.
Another important term when discussing UCR charges is “allowed amount”. The allowed amount is the total amount a health plan determines the provider should be paid for a service. The total amount is the sum of the plan responsibility and the patient responsibility. If a provider’s charge is at or below the plan’s UCR charge, the provider’s charge will be the allowed amount. If the provider’s charge is above the plan’s UCR amount, the UCR amount will be the allowed amount.
There are certain services and certain geographic markets for which it is not possible to apply the UCR method. In those cases, RPC uses other methods to determine a reasonable payment amount.
Industry Standards
In our white paper, RPC defines a percentile and provides a Number Ranking and Percentile chart that demonstrates how percentile rank is determined. Often, percentile value must be arrived at by interpolation, or estimating new data points between existing data points. When analyzing percentile rank, a percentile should not be confused with a percentage. A percentage is not a comparison of a set of data points but is a fraction of one particular value. Percentages are used by health plans to define how much of a provider’s billed charges should be paid.
Many plans set the UCR amount at the 75th or 80th percentile of charges for comparable services in the same geographic region or market. While certain analysts have adopted the 70th percentile as a definition of a usual, customary, and reasonable charge, RPC defines the maximum reasonable charge as the 80th percentile when data is available. If we rely on publications for usual, customary and reasonable charges, most publications report the 75th percentile value but not the 80th percentile value and we use the 75th percentile value as the UCR amount.
Practices of Major Payors
The white paper surveys which percentile rank different health plans use to determine the UCR charge. The conclusion is the 75th percentile is used by most health plans, followed by the 80th percentile. RPC concluded that the 75th or 80th percentiles are reasonable to use to set the allowed amount using the UCR method.
Read all of RPC’s Determining Usual, Customary, and Reasonable Charges for Healthcare Services white paper here and contact us for a free consultation of your payment dispute at no obligation.
RPC has over 20 years direct experience in medical bill review and analyzing health provider payment disputes. Our team of economists, healthcare administrators, accountants and physician advisors can analyze individual bills, payment policies and the entire payment process ranging from compliance with provider contracts to the definition of usual and customary fees.