Pricing Optimization

What is the basis for determining how your practice sets its charge prices?

Before we dive in, it is helpful to understand how critical clauses within commercial contracts influence pricing. The majority of commercial payers contain a “lesser of” clause within their contracts. This clause means a payer will pay the lesser of the charge price on the claim or the allowable defined on the payer’s fee schedule.

As an example, ABC Payer’s fee schedule lists a rate of $100 for 99214. If your practice charges $120, your clinic will receive reimbursement up to $100, as the allowable is less than the charge price. Depending on the beneficiary’s health plan, your practice will receive payment from the payer, or the payer will pay a portion of the allowable, and the patient is responsible for the remaining balance. The practice will write the $20 difference off as a contractual adjustment. Contracts are more complex than represented here, but we simplified the example as it relates to charge prices.


Due to the inherent complexity and volume of contracts, many clinics opt to multiply Medicare’s fee schedule by 2x or an arbitrary number. The hope is that the resulting charge prices are higher than the rates of their in-network payers. On the surface, it appears a viable solution. However, without analyzing every contract, you cannot assure that money is not left on the table.

Instead, best practice is to set prices at a percentage (i.e., 110-120%) of your highest rate for each CPT code to remove the chance of underpayment. This process eliminates the massive discrepancy between gross and net revenue, and it decreases the number of write-offs and drastic contractual adjustments. The methodology is also justified in its defensible and rational approach. Further, competitively pricing your charges will help to differentiate your practice from competitors within the consumerism landscape.

Our platform functions as follows: we begin by developing a profile for the client that incorporates the contract terms and fee schedules for each payer. We then upload utilization data from historical claims and current charge prices. The output provides an impact analysis that identifies instances in which your charges prices fall below your contracted rates. You can then export the optimized prices to upload to your EHR or send it to your billing vendor. Although a small mispricing may appear nominal, they do add up. We had a client who added +$80,000 to their annual revenue just by changing the charge price for one code!

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