- Sep 2014
Doctors really don't set their own rates. Our billing is complicated. First of all, they contract with a insurance company at a discounted fee in exchange for patient referrals. The fee is based on a formula called RVU or relative value units. The negotiations begin with a analysis of CPT codes or procedural codes. The formula consists of work (amount of expertise and resources), Practice expense (overhead) and Malpractice expense. Then you factor in the Work, Practice and Malpractice from a geographical aspect, such as NYC and Cleveland. The CMS sets the conversion factor every year. The formula looks like this:Question: Should doctors be free to set their own rates?
(W + PE + M) X CF = Fee
This is done for each CPT code used by the Doctor. Doctors start their business with a professional fee schedule and when they contract with insurance companies it is quite a bit less but will hopefully balance it out with patient volume. This is what you see on your EOB as an adjustment. This is a standard business practice in healthcare of writing off the difference between the physician fee schedule and the contract fee schedule.