Setting Physician's Fees

October 9, 2009

For a doctor opening a solo practice, trying to find out what rates other practicing physicians charge is an exercise in futility. Why? Legal and ethical ramifications for doing so. In some cases, other docs are in the same boat as you...they just don't know.

Oh boy, is this a hot potato. The third rail of medical practice economics. There are a lot of hazards involved in this necessary task, and you know that I always rant about how docs receive zero preparation for any of these important aspects of medical practice from our training. But setting our fees is complicated not just by ignorance, but also by various legal and emotional roadblocks. We need to understand these if we are going to establish our fees in a legal, professional and, hopefully, remunerative way.

There is an implied balance involved in all of this between our need to cover expenses and our desire to make a reasonable living and established medical business practice. It's better that the process should be transparent to all to minimize misunderstanding, but it rarely is. Why? Let me count the reasons...

Let's say you're a new doc who is opening a solo practice. You have no idea what to charge. So you ask around the hospital lunch room and are met with hemming and hawing. "I don't know. My office manager does that." So you ask your friend's office manager who tells you that he/she can't release that information. "It's private."

So you ask someone at the medical society who also demurs, mumbling something about, "It's up to each individual doctor and we are legally restricted not to discuss fees." In desperation you turn to your contact at the new billing service that you just hired. What do the other docs who use your service charge? "I'm sorry, I can't legally divulge that information."

Why, you ask, is everything not transparent? For one, the legal bar cited is the federal restriction on "price fixing," or the "anti-competitive" potential of all docs in a given area charging the same and not giving patients a choice. As if they actually price shop doctors. True, it whiffs of ethical impropriety for a physician to hawk his/her services based on a lesser price than others, rather than more arcane factors such as service and qualification, but that's our American system in action, folks.

The privacy issue often mentioned is just our culture's discomfort with discussing our incomes and how they are derived. New acquaintances will immediately tell you everything about their health, their relationships, and every intimate thing that you do not want to know. But no matter how well you know someone, you probably will never discuss how much money they have or make. That partially explains why the occasional publication of physician economic stats draws such intense scrutiny. "Those (other specialty) ____-ologists make how much?! (sputter, sput) "I'm gonna raise my fees!"

The irony is that in many areas, for many patients, you can charge what you will, but you will get paid the same as everyone else anyway. For this bizarre paradox you can thank managed care, HMOs, and our friends at Medicare. Independent Practice Associations (IPAs) can negotiate a bit for you with insurance companies if you are a member. If you are not, you have zero say in the matter. Insurance companies say take what we offer if you want our covered patients, or leave it if you don't. And part of the deal, if you take it, is that you can't balance bill the patient for what you think the insurance company should have paid you but didn't.

One of the advantages of being in a large group instead of a small practice is that you don't directly have to worry about ferreting out this information. But everyone in every form and structure of medical practice can benefit from knowing how this distorted facet of medical practice "works." Also in our roles as patients and employers it helps to know.

So what are you going to do? You have to come up with numbers for your coding (don't get me started on that!). You could do a rough financial analysis. Take your expected annual patient load and divide that number into your expected annual overhead plus your target income . The result is an average charge per patient but your problem with establishing specific fees for specific services is still not solved.

My (former) billing person finally said to me, after listening to my tale, "Let's just charge 130% of what Medicare pays." But I am reluctant to tell you what I actually do for fear of some Fed agent contacting me...