Healthcare Business DEMYSTIFIED

de mys ti fy - to make less mysterious, clarify

How does my doctor get paid?

The process by which your doctor gets paid varies by payer and can be a complicated matter to explain.  First off, it is important to know that every physician's office that charges for services keeps a master list of all the types of services that they typically provide in their office.  This list uses CPT codes to identify the service (see What is a CPT code? under Topics).  From this master list, they review each code and assign a price to it.  The price may be based on the wholesale price to purchase an item, such as an immunization, plus expenses and profit.  If it is purely a service, the price may be assigned by using a published reference guide of average charges.  This reference guide surveys physician practices across the United State.  It is done anonymously and is divided by regions so that the final result should be an appropriate charge for the area of the country that the office is located in.

Now that you know that your physician's office has a price list, let's talk about what happens next.

Let's imagine a doctor has just opened a practice.  How does he or she get enough patients to walk through the door to keep their practice viable?  Many of the potential patients in the area have health insurance through their workplace.  Their insurance requires them to go to a participating provider in order to get the best level of benefits.  The physician would love to have access to this large pool of potential patients but he is not a participating provider.  In order to become a participating provider, the physician must sign a contract with the insurance company.  When this happens, the insurance company grants access to this potential patient pool.  In exchange, the physician agrees to give the insurance company a discount.  You could think of it as a volume discount.  The more potential patients the insurance company can offer, the bigger the discount they want.  Now you would think that it might be a percent off the list price and you would have been right 15 - 20 years ago in certain parts of the US.  But in today's marketplace, the insurance company has their own master price list.  You might wonder if they negotiate back and forth on each CPT code to arrive at a mutually satisfactory dollar amount.  At one time, that was the standard approach.  Now it is not that simple.  If our hypothetical new physician works for a very large group or hospital entity, or practices a specialty that is in high demand, they have a better chance of negotiating some changes in the insurance company's price list.  If our new doctor is in a small practice or in an area where there are many of his specialty, then he has very little negotiating power and must accept the insurance company's price list as is.

So now we have the physician's office master price list and the insurance company's master price list.  How do they work together?  The physician sees a patient and submits a bill to the insurance company itemizing each CPT code and listing their charge from their master price list.  The insurance company receives this itemized bill and, because the physician is a participating provider, the insurance company applies their price list to the submitted charges.  The difference between the submitted charge and the insurance company price list is the discount.  The discount is also called the write-off.  You can find these amounts listed on your Explanation of Benefits that you receive from your insurance company.

Our new physician may have to sign several contracts with several different insurance companies in order to get access to enough potential patients.  In order to be available to any potential patient who might like to come to our new physician's office, the doctor will need to be participating in all the major employers'  insurance plans in the area.  The different insurance plans are all competitors so they don't share their master price list (fee schedule) with any of the other insurance companies.  When the physician signs a contract with them, part of the contract forbids the physician from sharing any information about the insurance company's fee schedule with anyone.  As you might imagine, each insurance company has a different fee schedule and reimburses the physician differently for every CPT code.  Each discount, or write off, is also different for each insurance company.  As you might be beginning to imagine, it takes a lot of work for the insurance clerk in the doctor's office to properly credit and adjust each line on each and every patient account.