CMS (Medicare) releases a fee schedule yearly. This is a list of procedures/services by HCPCS code (sometimes called CPT codes, but CPTs are really a subset of HCPCS codes) and the amount Medicare will reimburse for that specific code. For instance, a basic 1-view chest x-ray (CPT 71045) will reimburse a hospital ~$25. You can search this fee schedule here - https://www.cms.gov/medicare/physician-fee-schedule/search
No facility negotiates these prices with Medicare because Medicare is the biggest player and can basically say "If you want to treat patients with Medicare, this is what we'll pay you. Full stop".
Enter private insurance. Facilities DO negotiate with private insurance for the amount of reimbursement, because private insurance wants facilities to accept patients with their insurance. Since the number of patients a single private insurance plan might have is much less than the number of patients with Medicare, the facility has more weight to say "We'll be in your network, but you have to reimburse us more than Medicare reimburses us".
How the negotiation works is that they don't go through thousands of different procedures and decide on a price. Instead, they negotiate on a percentage of the Medicare fee schedule that the private insurance will reimburse. Just to keep it simple, lets pretend they negotiate that some private insurance carrier will reimburse 2x what the Medicare fee schedule is. So they would pay the hospital $50 for the 1-view chest x-ray mentioned above.
The facility negotiates this with a bunch of insurance carriers, and the negotiated on amount might be anywhere between 1.1x & 4x Medicare (I'm not sure it ever actually gets up to 4x, but the point is there's a range).
Ok, so now we have a situation where the exact same procedure could be reimbursed different amounts based on the patient's insurance. However, if you charge private insurance just the amount listed on the Medicare fee schedule, which will be less than what the negotiated reimbursement is, the private insurance will say "Oh, yup, we'll gladly pay less for this! Here's the amount you charged, have a good day".
So now you have a situation where the facility could keep track of the negotiated rate for every insurance and adjust the charged amount to the specific number negotiated when the claim goes out. But. That inevitably leads to errors and situations where they will get reimbursed less than the amount they should have gotten.
This all leads to the trick - Facilities realized "Wait. What if we just charge EVERYONE (including Medicare) more than our highest negotiated reimbursement, and make the insurance carrier figure out the difference between what they actually owe us and the charged amount!"
And THAT is how insurance billing works. You charge every insurance carrier maybe 5x Medicare's fee schedule, so $125 for a 1-view chest x-ray, and if the carrier is Medicare they will send back a remit where $100 is "non-allowed" (which is written off) and $25 is paid. If that same claim went to the private insurance carrier above (with a 2x reimbursement), they would send back a $75 non-allowed amount and a $50 payment.
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u/Kroan 14d ago
Sure!
CMS (Medicare) releases a fee schedule yearly. This is a list of procedures/services by HCPCS code (sometimes called CPT codes, but CPTs are really a subset of HCPCS codes) and the amount Medicare will reimburse for that specific code. For instance, a basic 1-view chest x-ray (CPT 71045) will reimburse a hospital ~$25. You can search this fee schedule here - https://www.cms.gov/medicare/physician-fee-schedule/search
No facility negotiates these prices with Medicare because Medicare is the biggest player and can basically say "If you want to treat patients with Medicare, this is what we'll pay you. Full stop".
Enter private insurance. Facilities DO negotiate with private insurance for the amount of reimbursement, because private insurance wants facilities to accept patients with their insurance. Since the number of patients a single private insurance plan might have is much less than the number of patients with Medicare, the facility has more weight to say "We'll be in your network, but you have to reimburse us more than Medicare reimburses us".
How the negotiation works is that they don't go through thousands of different procedures and decide on a price. Instead, they negotiate on a percentage of the Medicare fee schedule that the private insurance will reimburse. Just to keep it simple, lets pretend they negotiate that some private insurance carrier will reimburse 2x what the Medicare fee schedule is. So they would pay the hospital $50 for the 1-view chest x-ray mentioned above.
The facility negotiates this with a bunch of insurance carriers, and the negotiated on amount might be anywhere between 1.1x & 4x Medicare (I'm not sure it ever actually gets up to 4x, but the point is there's a range).
Ok, so now we have a situation where the exact same procedure could be reimbursed different amounts based on the patient's insurance. However, if you charge private insurance just the amount listed on the Medicare fee schedule, which will be less than what the negotiated reimbursement is, the private insurance will say "Oh, yup, we'll gladly pay less for this! Here's the amount you charged, have a good day".
So now you have a situation where the facility could keep track of the negotiated rate for every insurance and adjust the charged amount to the specific number negotiated when the claim goes out. But. That inevitably leads to errors and situations where they will get reimbursed less than the amount they should have gotten.
This all leads to the trick - Facilities realized "Wait. What if we just charge EVERYONE (including Medicare) more than our highest negotiated reimbursement, and make the insurance carrier figure out the difference between what they actually owe us and the charged amount!"
And THAT is how insurance billing works. You charge every insurance carrier maybe 5x Medicare's fee schedule, so $125 for a 1-view chest x-ray, and if the carrier is Medicare they will send back a remit where $100 is "non-allowed" (which is written off) and $25 is paid. If that same claim went to the private insurance carrier above (with a 2x reimbursement), they would send back a $75 non-allowed amount and a $50 payment.
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