In past medical billing articles have discussed the mechanics of patient balance billing.  We have also briefly discussed why providers may want to bill out of network because in theory should get higher reimbursement.  In this article we will discuss medical billing out of network, it’s benefits, fee schedule optimization, and implications for patient balance billing.


Why can it be lucrative to bill out of network?

Remember the trade off mentioned in prior article that you trade lower volume for higher reimbursement doing medical billing out of network (OoN).  When insurers (payers) receive a claim from an out of network provider, they should pay the UCR for that claim.  The UCR should be significantly higher than the contracted rate for that same service.  UCR is the average charged by a provider for a service in a particular area.  Different providers charge different rates for various reasons, but most tend to be in the 2x to 4x Medicare range.  Data on these fee schedules are available for purchase and we won’t got into great detail in this article, but a future article will discuss this and the evolution of UCR in more detail.


Most contracts will be within the 1.2x-1.5x range these days, although contracted rates vary wildly by payer and geography.  Some of the worst commercial contracts can be below the Medicare rate.  Some are even tied to Medicaid rates and also significantly below Medicare allowable.  Some lucrative contracts pay more than 2x Medicare and a few still pay a percent of billed charges like 80%.


If you have a contract that pays more than 2x MCR, it makes sense to contract with this payer.  Dropping a contract is only likely to yield benefits if the contracted rate is low relative to the UCR.  Following is an example that illustrates how on a per patient basis it can be profitable to go out of network:


Physician fee schedule                      3x

UCR                                                   2.5x

Contracted rate                                 1.4x

Net gain from billing OoN                   110% of Medicare rate!


Once doctors started to realize that billing OoN can be more profitable on a per patient basis, many then analyzed their yield by comparing payment OoN with potentially lower referral levels against their contracted rate and volume.  Many concluded it was more profitable in the aggregate to bill OoN and worked to maintain as much of their referral volume as possible.  In a future article we will discuss a possible way to do that.  We will also discuss how UCR has changed and what payers have done to combat the rise in out of network billing.


Fee Schedule Optimization

As noted above, billing OoN can yield a higher revenue per patient than billing in network.  What would happen if a payer’s UCR was 350% of the Medicare rate?  If a doctor is billing 300% MCR, then only 300% would be paid since payers may the lesser of the UCR or the billed rate.  In this case, money would have been left on the table by the provider.


Should you bill 3x, 4x, or even higher?  There is a benefit to billing higher fee schedules.  This is where the long tail of a distribution that is close to log-normal comes into play.  The higher the fee schedule, the more likely you are to capture all of the money that an insurer would pay.  Here is an example that illustrates why this is the case.  Let’s say most will pay you 1.5x-2.5x, but 1 in 10 will pay 6x and 1 in 50 will pay 10x.  Here is your average reimbursement under a couple fee schedule scenarios:

2x 3x 10x
191% 215% 259%


There is a significant jump when bumping the fee schedule from 2x to 3x since most payments are a very large portion of payments are over 2x.  What is astonishing is that in the model above, only 12% were modeled to pay over 2.5x, and yet the largest jump in reimbursement is when the fee schedule is increased to capture these OUTLIERS.  This is the statistical magic of the difference between median and mean.  You can see this in the 10x scenario as a $2,000 MCR allowable procedure would yield an extra 58% or $1,360 in additional revenue on each procedure!


How do you know if you’re leaving money on the table?  If look at payments and see some that pay (or allow since deductibles and coinsurance are real) at exactly your fee schedule, then you left money on the table.  Increasing the fee schedule until these are captured maximizes revenue.


Patient balance billing implications

Why not charge 100x the Medicare rate?  Some payers might flag unusually high charges for review or audit.  This is likely to stop all payment from this insurer until the review is complete.  A potentially larger issue is that of patient balance billing.  In the above example of a $2k MCR rate procedure, if the payer pays $4,000 (2x MCR), then a 10x fee schedule would mean they receive an EOB from their insurance company stating that they are going to be billed $16,000.  Many patients, especially elderly patients mistake this for a patient statement and get very upset and contact the doctor or the referring doctor to complain about the referral.  This is bad for referrals.  This is the biggest limiter on increasing fee schedule for out of network billing.


The Solution

Planning, due diligence, and a top medical billing company to analyze, consult, and implement.  Start with your objectives, including financial goals.  Work with your marketing and sales team to get their input on what will generate the most referrals.  Apache Health can provide consulting on what are market norms for fee schedules that help with marketing, as well as patient balance billing practices, potentially treating patients as if they are in network (which will be discussed in a future article), and other practices that assist with billing out of network.  Apache can also provide analysis that informs your decision and can even help clients track financial changes as a result of changing their fee schedule.


About Apache Health:

Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company. The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup. Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients.  Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers. Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track in-house billing performance improvement over time. For more information contact:

Sean McSweeney

Apache Health


Legal disclaimer: Apache Health is engaged in the business of healthcare revenue cycle management analytics.  We offer information about regulations, rules, and industry practices relating to compliance.  Apache has researched that subject and has set forth the results of that research herein.  Apache Health is not a law firm and we do not offer legal advice.  Apache does not guarantee the completeness nor the accuracy of its research.  You should consult with your qualified healthcare attorney.