Published: Jan 29, 2025
Updated:
Revenue Cycle Management

Fee Schedule Reimbursement: What MSOs Can Do When It Falls Short

Suzanne Delzio
Suzanne Delzio
8 minute read
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Once the ink is dried on a new location acquisition, the business manager at the MSO digs into fee schedule reimbursement. They’re often shocked by how much one or more payers actually paid compared to what their contracts dictate the provider was owed.    

Inadequate fee schedule reimbursement or “underpayments” threaten already thin provider profits. A study reported in Becker's Hospital Review reveals that providers experience annual losses of 1 to 3% of their net revenue due to underpayments from commercial payers. In practice, some physician groups face underpayment rates as high as 7%. 

While hospital margins have climbed to an average 5.1%, health system operating margins clocked in at only 1.6% in September, down from 1.9% in August, a drop from from a 12-month high of 2.3% in May and June. Thin margins leave little room for capital investment or growth, and potential for growth is typically why the practice or group caught the MSO’s eye in the first place.

MSOs often find that the healthcare providers they’ve acquired have been unaware of the extent of their financial losses due to underpayments. This lack of awareness can lead to substantial cumulative revenue loss over time, potentially impacting the quality and sustainability of healthcare services. 

Now that you, the MSO, is on the job, however, it’s time to surface these underpayments and pursue payers for what they rightfully owe. Here, you can review all of your remedies when you find your fee schedule reimbursement out of sync with your contracts.

What is fee schedule reimbursement?

Fee schedule reimbursement is how much money your payers remit for the procedures delineated in your claims. A fee schedule is a detailed compilation of fees or reimbursement rates for specific medical services. As part of the contract between the payer and the provider, it functions as a guideline for payer reimbursement to providers.

Fee schedules are typically based on factors such as the complexity of procedures, time and effort required, cost of supplies and equipment, and prevailing market rates. They play a crucial role in determining reimbursement rates and ensuring fair compensation for providers.

These schedules are carefully constructed based on various factors, including: 

  • the payer's cost structure 
  • regional healthcare costs
  • the outcomes of provider negotiations 

With little capacity to devise fee schedules, healthcare organizations have historically been on the receiving end, vulnerable to the fees payers dictate. 

Both commercial and public (Medicare, Medicaid) payers initiate fee schedule creation.

The Centers for Medicare and Medicaid Services (CMS) sends out the Medicare Physician Fee Schedule (MPFS). Similarly, each state develops its own Medicaid fee schedule, leading to large variations in fees across states. 

Private insurance companies, on the other hand, create their own fee schedules by:

  • using the Medicare fee schedule as a starting point
  • negotiating rates with healthcare providers
  • adjusting fees based on factors like provider specialty, geographic location, and network status 

To now, healthcare organizations have only created their own fee schedules for cashpay patients or as a starting point for negotiations with payers. However, payers’ iron-fisted control of the fee schedule is coming to an end. As healthcare costs continue to rise and reimbursement rates fall, providers are pushing back against insufficient fee schedule reimbursement.

  • In December 2024, a judge approved Blue Cross Blue Shield’s plan to pay $2.8 billion in underpayments to Alabama hospitals and healthcare organizations. The record-setting and potentially precedent-setting ruling also stipulates BCBS adopt new business practices to resolve claims more fairly. 
  • Recently, an arbitration panel ordered UnitedHealthcare to pay $91.2 million to Envision Healthcare for violating their fee schedule reimbursement agreement.
  • When Radiology Imaging Associates adopted an automated underpayment identification and contract management solution, they found just one payer’s fee schedule reimbursements short by $1.1 million.  

Healthcare providers have both the right and the responsibility to ensure they receive fair compensation for their services. By implementing effective strategies for underpayment recovery and maintaining vigilant fee schedule oversight, providers can enhance their net revenue. It's not just about reclaiming individual underpayments; it's about identifying patterns that lead to substantial revenue recovery.

Remember, every dollar recovered contributes to the sustainability of the practice and its ability to provide quality care. It's not just reasonable to pursue these funds—it's a critical aspect of responsible financial management – the MSOs prime directive.

Why fee schedule reimbursement falls short

As healthcare organizations fear, payers do deploy complex algorithms to determine payments. More frequently, however, underlying causes of fee schedule shortfalls have more to do with industry issues like contract complexity, staffing shortages, and the complicated shift to digital operations. 

Today’s contracts are very complex, confounding payer staff and provider staff alike. They make processing errors, mis-keying or mis-reading figures regularly. They can incorrectly bundle services or combine accounts.  

Keep in mind that errors can originate in the provider’s office, too. These lead to inaccurate fee schedule reimbursements just as much as payer mis-steps. For instance, should provider staff assign DRG (diagnosis-related group) code representing a less complex (and therefore less costly) service than what was actually provided, the payer will reimburse you based on the lower rate. Provider staff have also been known to leave out ICD or diagnosis codes and modifiers. Finally, transfers from one facility to another can be rife with errors made by provider staff. 

Why don’t providers pursue underpayments? 

Historically, with limited staff and time, providers have prioritized addressing full denials over partial underpayments. The perceived return on investment for pursuing denials is higher, especially for larger claims. In addition, identifying and challenging fee schedule reimbursement shortfalls requires a detailed understanding of contract terms and payer policies. This complexity can deter providers from pursuing underpayments as aggressively as denials.

In addition, fee schedules change rapidly, making it hard for providers to keep up. Commercial payers follow government payers’ lead. In the 18 months ending January 2024, CMS changed the physician fee schedule four times. The AMA updates ICD and CPT codes yearly (230 additions, 49 deletions, and 70 revisions in 2024). Other events also trigger payer fee schedule changes. For instance, as new medical procedures and technologies emerge, payers update their fee schedules to accommodate them.  New healthcare policies or regulations, along with inflation and other economic pressures can lead payers to adjust their fees to maintain profitability as well. When providers fail to catch these fee schedule updates, they risk losing revenue.

Each payer has its own unique way of sharing proposed changes. Blue Cross’s newsletter, the Blue Review, along with its provider portal lists updates. UnitedHealthGroup uses email and portals. Aetna encourages providers to visit its Availity provider portal to stay on top of fee schedule changes. During a revenue cycle management staffing shortage, however, staff tends to focus on more pressing issues like prior authorizations, scheduling, and eligibility. These are the tasks that get patients in the door.   

 As healthcare organizations face increasing financial pressures, however, there's a growing recognition of the need to achieve accurate fee schedule reimbursement to maximize revenue recovery.

Take a quick, self-guided tour through a powerful fee schedule reimbursement and  contract management tool:

Accurate fee schedule reimbursement and contract management

A proactive plan to manage the fee schedule is critical for MSOs. Tasks involved are:

  • Comparing actual payments to contract amounts: Note discrepancies between payments that come in and rates listed in the contract. 
  • Regular review and updates: Conduct periodic assessments of fee schedules, typically annually or biannually, to ensure alignment with current market rates and payer reimbursements.
  • Payer fee schedule monitoring: Stay informed about changes in payer fee schedules, particularly those of major payers like Medicare, which typically update annually.
  • Fee schedule benchmarking: Compare fee schedules against regional and national standards to maintain competitive pricing.
  • Reimbursement analysis: Regularly review payer allowables and compare them to fee schedules to identify potential underpayments or areas for optimization.
  •  Fee schedule maintenance: Keep up-to-date copies of all payer fee schedules and request updates when necessary.
  • Auditing processes: Implement routine audits of claims, remittance data, and payment postings to catch discrepancies or coding issues related to fee schedules.
  • Technology utilization: Leverage fee schedule management software to streamline processes, reduce errors, and ensure accurate billing.
  • Regulatory compliance: Stay informed about regulatory changes that may impact fee schedules and reimbursement rates.
  • Staff training: Ensure all relevant staff members understand proper charge capture and are aware of current fee schedule details.
  • Underpayment monitoring: Develop processes to identify and appeal payments that don't align with fee schedules.
  • Data analysis and reporting: Utilize data analytics to assess the performance of existing fee schedules, monitoring metrics like claim denial rates, payment timelines, and reimbursement levels.
  • Strategic planning: Align fee schedule management strategies with the organization's financial goals to support overall business objectives.

Who’s going to do all this work? 

The fee schedule typically falls under the purview of contract management. Unfortunately, many providers today have only a threadbare contract management system in place. 

A survey of 522 healthcare contract managers, conducted by Black Book, reveals a troubling trend in the industry. Doug Brown, Managing Partner of Black Book, summarizes the findings:

"The majority of US health systems are grappling with manual contract tasks and disjointed contract processes." 

The financial implications of this inefficiency are staggering. Based on the survey results, researchers estimate that the current piecemeal and ineffective manual approach to contract management is costing healthcare providers $157 billion annually. This figure underscores the critical inadequacy of manual contract management practices, which include the crucial component of fee schedule management.

The problem is exacerbated by staffing constraints in healthcare providers' administrative departments. The limited personnel available often lack both the time and necessary training to effectively manage the frequent updates to fee schedules. This combination of inadequate processes and understaffed, undertrained teams creates a perfect storm of inefficiency and potential revenue loss in healthcare contract management.

Contract management and fee schedule reimbursement solutions

A robust payer contract management system requires one of three solutions: 

  • in-house staff
  • a third-party contract management service
  • software

A manual approach conducted in-house has limitations. If your staff is not trained in the legalese payer contracts involve, they will struggle to recoup the revenue you deserve. You will wind up with the disorganized system described above.

Outsourcing your contract management tasks to a firm can keep your contracts updated and your fee schedule reimbursements accurate. Because they involve consultants along with legal and accounting professionals, however, these solutions can be pricey. 

There's a growing recognition among progressive healthcare providers that technology offers a solution. Many are turning to contract management software systems with automated payer fee schedule management features. These tools address the dual challenges of limited staff resources and the need for specialized expertise in managing complex fee schedules. By adopting these automated systems, providers can streamline their processes and reduce errors. Automated oversight helps reclaim a significant portion of the revenue currently lost to inefficient contract management. 

When an orthopedics practice needed support…

A large medical group, with 120 physicians across 30 locations, began to suspect their fee schedule reimbursements were not aligning with their contracted rates. This realization prompted them to take action and hold their payers accountable for appropriate payments, fees, and terms.

While they had long harbored suspicions of underpayment, the group lacked the resources and time to thoroughly investigate these discrepancies. Upon closer examination, they concluded that only a robust contract management system would remedy the complex issues they faced.

After carefully evaluating several automated contract management solutions, they selected one that could handle both the tedious contract uploading process and the intricacies of their system. This solution swiftly ingested and digitized all contract data. As new payments were processed, the system automatically compared each to the contracted rates. Leveraging machine learning and AI, it identified the payers and CPT codes responsible for the most significant underpayments. Once the staff alerted their payer representatives to the errors causing these underpayments, the group recovered $10 million in lost revenue. Remarkably, they achieved this without the need to hire additional revenue cycle management staff to implement and maintain the contract management system.

An increasing number of physician groups and practices are adopting contract management software to capture all revenue outlined in their contracts. In the following sections, you'll discover how your organization can utilize such tools to ensure payer accountability and drive margin growth.

8 benefits of automating fee schedule reimbursement

Healthcare organizations that implement contract management technology with a focus on fee schedule reimbursements experience a range of benefits:

1. Revenue enhancement: 

  • Secure higher reimbursement rates by accurately tracking and comparing fee schedules across payers.
  •  Identify and recover underpayments by automatically comparing actual reimbursements to contracted fee schedules
  •  Maximize revenue by ensuring all services are billed according to the most current fee schedules

2. Operational efficiency:

  • Centralize and automate fee schedule management, reducing manual work and errors
  • Streamline claims processing by ensuring claims align with current fee schedules, reducing denials
  • Automate appeals processes for underpayments based on fee schedule discrepancies

3. Improved visibility and analytics:

  •  Gain comprehensive oversight of all payer fee schedules in a centralized system
  •  Enable data-driven contract negotiations using analytics on historical fee schedule performance
  •  Model different fee schedule scenarios to assess financial impact

4. Reduced revenue leakage:

  •  Automatically flag payment variances and underpayments by comparing reimbursements to fee schedules
  •  Ensure proper charge capture and coding based on current fee schedules to prevent underbilling
  • Monitor compliance with fee schedule terms to avoid missed revenue opportunities

5. Accelerated Cash Flow:

  •  Speed up the revenue cycle by reducing denials related to fee schedule misalignments
  • Enable quicker identification and resolution of payment issues based on fee schedule discrepancies

6. Enhanced Payer-Provider Relationships:

  •     Facilitate clearer communication about fee schedule terms and expectations
  •     Provide better data on fee schedule performance to support collaborative negotiations.

7. Strategic Insights:

  •     Identify trends in fee schedule changes to optimize reimbursement strategies
  •     Inform decisions on which payers offer the most beneficial fee schedules.

8. Regulatory Compliance:

  •     Ensure adherence to complex regulatory requirements in fee schedules
  •     Keep providers updated on fee schedule changes and renewals

By addressing fee schedule vulnerabilities within the broader context of contract management, this software can potentially increase a healthcare organization's revenue. It improves operational efficiency by automating fee schedule updates and comparisons, and enhances strategic decision-making by providing clear insights into the financial impact of different fee schedules across the revenue cycle.

Increase fee schedule reimbursement accuracy 

MD Clarity's RevFind solution offers comprehensive visibility not only into your fee schedules but your entire revenue cycle, enhancing your financial performance while simultaneously improving patient experiences. This powerful tool centralizes and digitizes your payer contracts, streamlining management and analysis.

RevFind can:

  • automate comparison of each payment against contract terms
  • flag discrepancies and notify staff
  • consolidate contracts into a single, accessible platform
  • benchmark reimbursements against national standards, including Medicare
  • deliver critical contract insights to support proactive negotiations
  • assist in the underpayment recovery process 
  • conduct root cause analysis to keep reimbursements accurate

By leveraging RevFind's capabilities, healthcare providers can enhance revenue capture by identifying and addressing faulty fee schedule reimbursements promptly. Our clients also improve operational efficiency and go into contract negotiations with the data and confidence they need to win rate increases. 

Get a demo to see how RevFind can optimize your fee schedule reimbursements. 

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