"What to Do When a Third-Party Payer Says Your U&C is Unreasonably High"


"What to Do When a Third-Party Payer Says Your U&C is Unreasonably High"

Use this letter when you are underpaid based on your fee schedule.

Gil Weber, MBA

Adapted with permission from Podiatry Management
© Copyright, 2005. All rights reserved.
November/December 2005

Some managed care contracts pay based on a percentage of usual and customary fees (U&C). But what constitutes U&C can be a huge bone of contention. Here's how to put a Payer on notice when the dollars received are far fewer than expected.

Today most managed care provider agreements include fee schedules that reimburse the physician based either on fees tied to CPT codes or on a percentage of the current Medicare allowable. When the amount due is so clearly defined then claim reconciliation using a payer's EOB or other confirming reports should be a relatively straightforward process.

For example, if you're supposed to receive 110% of Medicare, and if Medicare would have paid $85 for a certain service, then each check you receive for that service should include a payment for $93.50 (less any applicable co-payment). And when your business office staff enters that payment into the computer the practice management software should confirm quickly and accurately if you've been paid the proper amount. Even if staff reconciles manually there should be very few discrepancies when it's clear up-front that CPT "XXXXX" is to be compensated at "$Y."

Around the country, however, there are provider agreements (typically PPO) that pay based on a percentage of usual and customary (U&C) charges. In most cases these contracts pay more than other managed care contracts since they're tied to a percentage of the physician's fee schedule, not to some highly discounted rate sheet concocted by the payer. Thus, contracts paying a percentage of physician U&C tend to be highly prized in a world of increasingly lower reimbursements.

Say one thing, mean another?

The vexing problem with using U&C as the payment calculation reference point is that so many contracts are ambiguous. If there is not a carefully written, mutually acceptable definition of U&C then payments sent by the payer could be quite different than the amounts physicians anticipate. And that means a contract turns out to be financially less attractive than it had appeared when signed.

The almost inevitable result can be something straight out of Alice in Wonderland as physician and payer accuse each other of negotiating in bad faith -- saying one thing but meaning another.

"Then you should say what you mean," the March Hare went on. "I do," Alice hastily replied; "at least - at least I mean what I say - that's the same thing, you know."

Lewis Carroll
Alice's Adventures in Wonderland

Benchmarks - whose data are you going to believe?

Unfortunately U&C can mean fundamentally different things to the parties on opposite sides of a contentious dispute. To the physician it seems so simple, so clear: "U&C is my fee schedule - the amount I charge private-pay patients, or insurance companies when there is no contractual discount."

Typically physicians set their fee schedules in line with what other, similar practices in the community are charging for similar services. This is ordinarily done rather informally, and each practice acts on its own to set a fee schedule that's realistic in the free market economy of the local community. There is no discussion of fees or joint fee setting among competitors (which certainly could raise antitrust concerns).

Payers, on the other hand, very often use data collected by outside consultants or agencies - bean counters. The fact that outside entities collect the date is not in and of itself a problem. Rather, the trouble is the source of the data and then the comparison of apples to oranges.

For example, if a podiatrist practices in San Francisco or Boston or Manhattan, his or her market factors (especially practice costs) are going to be significantly different than those of a podiatrist who practices in, say, Jackson Mississippi, or Billings Montana. And if a payer's U&C database has aggregated national data, or regional data, or even state data, that information may have little or no relevance to what's an appropriate U&C for a particular physician and his or her community.


As you'll see in the sample letter below, it's essential when challenging a payer's determination of U&C that the payer be tasked with explaining and justifying the method to its madness. If the payer has used non-comparable claims data, or used a statistically invalid sample, or pulled information from an obviously aged database, or perhaps done little more than pull numbers out of thin air, then the methodology must be questioned.

You'll want to come to the discussion armed with credible information to justify your U&C rates. To that end it can be helpful to tap into various sources including, but certainly not limited to:

  • state or county podiatry societies,
  • other community podiatrists (being careful not to use the information in ways that could subject any of the parties to an antitrust investigation),
  • other contracts you may have that reimburse more than the amounts this payer offers up as "appropriate" U&C.
Time to fish or cut bait?

A properly-worded letter backed up with credible data should be enough to convince some payers that your U&C charges are not out of line with the community. "Straight-shooting" payers will renegotiate the deal, and will adjust payments when it's obvious that the data they've been using are flawed.

On the other hand, some payers won't care what you bring to the discussion. These are the payers for whom the word "no" is always first and last out of the mouth - those that take the position: "My way or the highway."

Faced with such intransigence you'll have to decide just how important that business is to your practice. Just how much are you willing to let the payer jerk you around by unilaterally declaring, without substantiation, that your U&C is too high - that your fee schedule makes you an outlier and not entitled to the compensation you presumed was being offered when you signed the provider agreement?

In such case cutting bait may be the option you should consider.

Ask your attorney for help modifying this letter as appropriate.


Re: Claim #:<insert number>

Dear <insert name>

We are in receipt of <insert name of Payer>'s underpayment for the claim noted above on the grounds that our charge is above that which <insert name of Payer> considers to be the usual and customary rate. This reduction is unacceptable.

Our usual and customary charge for this service/procedure has been <insert dollar amount> for the past <insert number of years> years, and <insert name of Payer> has reimbursed that amount for each of the <insert number> claims we have submitted during that time. In addition, we called <insert number> other local podiatry practices in the Provider Directory and were told by all of them that their usual and customary charge for the same service/procedure is between <insert dollar range>

We believe that our charge does not exceed usual and customary for this community. However, if <insert name of Payer> has information proving that our U&C charges are out of line with the community then we are willing to review it. Therefore, please send us the specific information <insert name of Payer> has used to justify the usual and customary charge that it is relying on, how that figure was calculated, and why it is correct. We also need to know if <insert name of Payer> compared our charge to other podiatrists in this geographic area who have our level of experience and qualifications.

In addition, paragraph <insert number> of our Provider Agreement permits us to audit <insert name of Payer>'s books and records regarding our relationship. Therefore, you must share with us how <insert name of Payer> determined that our charge exceeds the usual and customary charge. If you do not, we will invoke our rights to audit <insert name of Payer>'s records in order to get that information. *

We hereby request that within 30 days of this letter <insert name of Payer> pay us the additional amount reduced from our claim or provide us with justification for the underpayment. If <insert name of Payer> does not, then we may have no choice but to take further action to protect our interests.

We would be glad to meet and/or discuss this matter.

Yours truly,


* Note: This paragraph should only be used if the Provider Agreement does give Physician this right.

Gil Weber is a nationally recognized author, lecturer and practice management/managed care consultant to physicians and industry. He has also served as Director of Managed Care for the American Academy of Ophthalmology.

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