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Contracting: Set your chargemaster

Contracting: Set your chargemaster Q. How can I not get bitten in my payer agreements?

A. One of the most common and often misunderstood potential hazards in payer contracts is the “lesser of billed charges” language found in almost all contracts. This language is usually worded like this: “Health insurance company will pay provider the lesser of its billed charges or its payer contracted rates for each code's reimbursement.” What does this mean exactly?
It means that, for example, if your payer-contracted rate at 100%, including patient co-payment, is $110 for a nebulizer (E0575), but your billed charge is $90 for this code, as defined in your chargemaster, you will be paid $90.
If this problem expands beyond just one CPT code, perhaps even pervades your entire chargemaster, then you may find that, while you have negotiated a terrific new contract, your claims are paid much lower than your contracted rates. What can you do to protect yourself from this outcome across all payer agreements?
Set your chargemaster at “UCR” (usual, customary and reasonable) levels. In the absence of a specific accounting recommendation, a good starting point is about 250% to 300% of Medicare rates. Pick a reasonable level of billed charges, well above all contracted rates. This approach prevents your codes' billed charges from being set below payer-contracted rates. You can also maximize your out-of-network revenue by doing so.  
It is good practice to track your payments vs. contracted rates each month for your top revenue producing codes to be sure that you are paid correctly. If you detect payments below contracted rates, then first compare your billed charges to the contracted rates. As a famous president once said, “trust and verify.”
Steve Selbst is CEO/co-owner, Healthcents Inc. Reach him at


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