by Carol D. Tekavec, RDH
Fees are the lifeblood of any practice. What should a dentist take into consideration when establishing fees for each service?
Many dentists worry about how to set fees and when to raise them. Since fees are the lifeblood of a practice, setting them too low - particularly as it applies to allowable insurance percentiles - can cause a practice to lose money and decline in profitability. How does a dentist determine what fees to charge? How do insurance carriers set their fees? What do insurance "percentiles" mean for a dental practice? When and how should fees be raised?
We'll look at some of these important questions in this article and try to provide some guidelines for you to follow.
Q: How do insurance carriers set their fees?
A: Insurance plans typically base their fees on one of two systems: 1) "Charging Patterns" or 2) "Relative Value Scales." Charging patterns usually are based on a data pool of charges for each section of the country. Relative-value scales are based on studies produced by companies such as McGraw-Hill or Med-Index. The exact method(s) and the actual fees and percentiles set for each plan are considered to be trade secrets and are guarded closely.
Q: What are "percentiles" and what do they mean?
A: The data pool of charges that a carrier uses is set up by zip code on a geographic table that usually shows an average charge per treatment code, the most frequently reported charge per code, and eight different percentile levels. These percentile levels are reported as the 20th through the 90th percentile, with the 20th percentile representing the lower fees from the data pool and the 90th percentile being the higher fees from the data pool.
An insurance carrier presents several percentile levels to employers buying plans. Whatever percentile is selected by the employer becomes the set fee schedule or UCR fee schedule for that plan. Thus, the term UCR ("usual, customary, and reasonable") fee might be called more accurately a "negotiated fee." The fee schedule is negotiated between the employer purchasing the plan and the insurance carrier providing the plan.
Differences in percentiles can be quite large. For example: The 20th percentile fee for a particular zip code for a D2750 (Crown - Porcelain Fused to High Noble Metal) might be $500, while the 90th percentile might be $800. Since most plans will pay 50 percent of a D2750, the insurance carrier's exposure could vary from $250 to $400, with the patient paying the dentist the balance.
Q: Why won't insurance carriers reveal their fees and percentile ranges to dentists or patients?
A: It might cost them money! If a dentist knew what the top allowable fee and percentile range for each covered procedure in his or her zip code area is, he or she would be sure not to charge less. In other words, if the top allowable fee for Insurance Plan X for a D2750 is $800, the dentist would be sure to charge $800, not $700. In the real world, since a dentist has no way of knowing what the maximum allowable fees and percentile ranges are, many dentists may be charging less per procedure code than a plan actually allows. This saves money for the insurance company.
Q: How can this be legal?
A: Current laws (with the exception of the state of Minnesota as of August 2000) do not compel insurance carriers to reveal their fees/percentiles to either patients covered under their plans or to their dentists. The "Dental Benefits Disclosure Act" of Minnesota was designed to force insurance carriers to reveal the methods used by plans to set reimbursement schedules to dentists working with these plans.
The ADA also passed Resolution 20H at its year 2000 annual session. This resolution states, among other things, that such information should be available to dentists upon request. Without a way to enforce this, insurance carriers are not likely to cooperate.
Q: How does a dentist know what fees to charge?
A: Many organizations and publications, of which Dental Economics is one, conduct annual surveys where dentists can anonymously list their fees code by code. The results are compiled and published, providing dentists with regional (although not by zip code) information about what the average fees are for their area. Sources also are available that can set up so-called "balanced" fee schedules. This type of input shows an office where its charges are too high or too low in relation to other charges.
For example, an office may charge an excessively high fee for a crown while charging a low fee for a recall examination. A balanced schedule can present fees in a more appropriate relationship with one another and may provide a reasonable approach to fee determination. How ever, balancing fees does not assure payment from an insurance plan.
Various sources list access to detailed fee information, based on a knowledge of insurance percentiles per zip code area. The value of the information typically is closely related to the source, so investigating where the information is coming from can be important. Dated information from the Prevailing Healthcare Charges System's twice-yearly report would be accurate for these percentiles, as well as other sources with access to this data.
Q: When and by how much should dentists raise fees?
A: Most consultants who study fees and profits recommend that fees be raised at least once a year. Depending on where the doctor's fee schedule started, fees should likely be increased by at least 5 percent per year.
Setting appropriate fees is a difficult process, but can have extreme financial importance to the dental office. Other vital considerations include providing patients with written treatment estimates, informing patients about outside financial assistance (such as bank plans or health-care credit cards), and annually evaluating the plans with which the office is participating.
