How Medical Billers Determine Reimbursement from Commercial Payers

By Karen Smiley

Commercial insurance pays providers in its own way. Thankfully, that way is not in barter. Rest assured, it’s real money. But how you go about getting that cash for your provider can vary, depending on the insurance company. Sometimes, a commercial payer bases how it doles out cash on what Uncle Sam does; more often, procedures are priced based on the amount of work involved by the physician plus a whole host of other factors.

Here’s a quick breakdown of how the docs get paid. The amount of work associated with each procedure is represented by the RVU, or relative value unit. The Centers for Medicare & Medicaid Services (CMS) assigns an RVU to each CPT code, and the amount is reviewed at least every five years. Medicare fee schedules are based on RVUs.

Commercial insurance company payer contracts are often based on either Medicare fee schedules or RVUs; some are based on both (the payment allowance for a particular CPT code may be based on the Medicare fee schedule, for example, while the multiple procedural discount clause is based on RVUs for prioritization).

The other factor that determines reimbursement is the geographical location of the provider. Commercial payers all understand that operating a practice in a major metropolitan area, where the cost of living is higher, takes more money than operating the same kind of practice in a less populated, rural area, where the cost of living is lower.

For this reason, actual reimbursement includes the cost of maintaining an office and other overhead expenses, like the malpractice expense associated with particular procedures.

Commercial payment is also based on contract allowances if a contract is in effect on the date of service. When no contract exists to dictate reimbursement, the service provider has the right to demand payment in full for services provided. That’s why fees are often based on the same Medicare fee schedule that contracts are based on. Providers usually bill a multiple of the Medicare allowances.

Regardless of how you compute the billed charges, you should bill every payer the same: If a procedure costs $2,000, then the cost is $2,000 for every claim. Keep in mind, however, that although all insurance companies are billed the same, expectations regarding reimbursement are payer‐specific and include things like procedures that may or may not be covered and how long the payer has to send payment.