A healthcare fee schedule is a standardized tool used to control the prices paid for medical services. It acts as a predetermined pricing mechanism for healthcare payers, such as insurers or government programs. This schedule sets the maximum rates for virtually all covered care.
Defining the Healthcare Fee Schedule
A fee schedule is a comprehensive list detailing medical services and supplies, each linked to a specific maximum reimbursement amount. This predetermined payment is commonly referred to as the “allowed amount” or “contracted rate.” The schedule is the foundation for how an insurer, known as the payer, calculates payments to a healthcare provider for covered services.
Each service is identified using standardized, publicly available codes, ensuring consistency across the healthcare system. Current Procedural Terminology (CPT) codes identify medical procedures and services performed by physicians. The Healthcare Common Procedure Coding System (HCPCS) codes identify supplies, products, and services not included in CPT, such as durable medical equipment.
The fee schedule dictates the highest dollar figure a payer will permit for a service, regardless of the provider’s initial bill. This maximum allowed amount is the rate the provider agrees to accept as full payment when contracting with the insurance company. This system manages healthcare costs by establishing fixed reimbursement rates for thousands of distinct services.
Fee Schedules vs. Hospital Charge Masters
A common confusion involves the difference between a fee schedule and a Hospital Charge Master. The Charge Master (CDM) is an internal, comprehensive list of every billable item, service, and supply a hospital offers, complete with its gross price. This represents the provider’s starting or list price, which is often significantly higher than the actual cost of providing the service.
The Charge Master price is rarely the amount paid by any major insurer or government program and can be compared to a manufacturer’s suggested retail price (MSRP). Uninsured patients or those receiving care from an out-of-network provider are the most likely to be billed at or near these gross charges.
The fee schedule, in contrast, contains the net or negotiated prices—the allowed amounts—that insurers have agreed to pay the provider. When the hospital bills the insurer the high Charge Master price, the insurer reduces that amount to the lower, predetermined fee schedule rate before paying the claim. The fee schedule’s allowed amount is the figure that truly matters for provider reimbursement and for calculating a patient’s financial responsibility.
Major Users and Structures of Fee Schedules
There is no single, uniform fee schedule across the United States; different payers create different schedules based on their specific structures and negotiations. These schedules fall into two primary categories: government schedules and private payer schedules. Government programs, such as Medicare, use a structured, public methodology to determine allowed amounts for physician services.
Medicare’s RBRVS System
Medicare’s payment for physician services is based on the Resource-Based Relative Value Scale (RBRVS). The RBRVS assigns a relative value unit (RVU) to each service based on three components: physician work, practice expense, and the cost of malpractice insurance. This system ensures that payment reflects the total resources consumed in delivering the service.
The RVUs are adjusted by a Geographic Practice Cost Index (GPCI) to account for regional differences in the cost of doing business. The adjusted RVUs are then multiplied by a national conversion factor to arrive at the final fee schedule payment. Because this methodology is transparent, many private insurers use the RBRVS as a foundational starting point for developing their own fee schedules.
Private Payer Schedules
Private insurance companies develop their schedules through confidential contract negotiations with providers and networks. These negotiations result in wide variability in allowed amounts for the same service, even within the same geographic area. Private payer fee schedules are proprietary and not publicly disclosed like government schedules. The allowed amount is a product of market leverage, with larger hospital systems often negotiating higher rates than smaller physician practices.
How Fee Schedules Determine Patient Costs
The fee schedule’s allowed amount forms the financial baseline for determining a patient’s out-of-pocket costs. Responsibility is calculated based on the allowed amount, not the higher initial gross charge the provider submitted.
A patient’s out-of-pocket costs, such as deductibles, co-insurance, and co-payments, are applied to the allowed amount. For instance, if a provider bills $1,000 but the allowed amount is $400, the patient’s responsibility is based on the $400 figure.
Co-insurance is calculated as a percentage of the allowed amount, not the billed $1,000. Once the patient meets their annual out-of-pocket maximum, the insurer covers the entire allowed amount for subsequent covered services. The fee schedule acts as a ceiling on the payment the provider can receive and the amount the patient’s cost-sharing is based upon.