This is an important topic, so I’ll throw my two cents in. Warning, it’s a long post. The monetary amounts listed below may or may not be completely made up.
A good place to start is with the CMS 1500 form (
https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads/CMS1500.pdf). This is your “bill”. All major payer’s (Medicare, Medicaid, Blue Cross, Aetna, etc) use this for for filing claims. You provide the same information whether filing electronically or by paper. There’s a lot of identifying information but the key parts with respect to your bill are the ICD 10 diagnosis codes, CPT codes and place of service. Your CPT code and place of service are what determine how much you are paid by the payer. Google is great for looking up ICD 10 codes and CPT codes.
Before we get to that we need to define fees better. When you provide a service you need to figure out what your fee for that service will be. To make it a little more complicated you will typically have a different fee depending on whether you are performing that service in the office or another facility like a hospital. This is so you can include the overhead of your office as a higher fee for services performed there. When you consider the list of all services that you provide you end up with a fee schedule which is just a simple map of CPT codes and fees that you’ve established for those codes. To simplify the process of creating a fee schedule many people, including various payers (insurance companies) will scale fees and allowables based on Medicare rates. You might scale your fees at 250% of Medicare. Allowables are the contracted, aka “in network”, reimbursement rates for various CPT codes. If you have signed a contract with a payer then regardless of what your fee is you are only allowed to collect the allowable amount. You cannot balance bill or bill the patient for difference between your fee and the allowable.
Here is an interesting fact that not many people know. Let’s create a scenario that is not too far fetched. Assume you’ve recently graduated from residency. You’re brave and have decided you want to start a private practice. You’re licensed by the state and on your way to board eligibility. Furthermore you’ve decided that you want to make a living off of ER call while you build a cash based practice like a vein clinic or bariatrics. As such you do not need to sign any contracts with third party payers including Medicare/Medicaid. You’ve been granted privileges at a few hospitals and you are placed on the call schedule. You may or may not get paid for call. You’ve set your fee schedule at 250% of Medicare. Since you are getting all your patients through the ER you basically see three types of patients with respect to finances: no insurance, private insurance and Medicare/Medicaid. Because you have signed no contracts with any payer including Medicare you might think you can bill whatever you want but surprisingly this is not true for Medicare/Medicaid patients. For patients with no insurance and private insurance you can bill whatever you want. Whatever insurance does not pay you can balance bill the patient; however, Medicare is different. Despite the fact that you have signed no agreement with CMS you can only charge a maximum of 115% of 95% of the Medicare allowable (
Lower costs with assignment | Medicare.gov). This doesn’t seem like it should be legal but apparently it is. I am not advocating for gouging Medicare and Medicaid patients but on principle this rule isn’t right and I would love to see a challenge to it. Now let me get off my soapbox and get back to fees.
Let’s use an example to see how all this might work. Assume a patient is seen elsewhere, diagnosed with chronic cholecystitis and shows up at your office with workup in hand. I typically bill the CPT code 99203 (new outpatient visit, low complexity) and place of service 11 (office). I am in network with their insurance. My fee is 269.55. The Medicare allowable in my area is 107.82. BCBS is 111.44. United is 117.8. Cigna is 120.84. I then take them to surgery and perform an uncomplicated laparoscopic cholecystectomy (CPT code 47562, POS 22 outpatient hospital). My fee is 1650.58. Allowables are Medicare (660.23), BCBS (816.75), United (855.28) and Cigna (901.27). This brings my total fee for this patient to 1920.13 but the allowables would be 768.05, 928.19, 973.08 and 1022.11, respectively. Once insurance has paid I collect from the patient the difference between the allowable and how much has already been paid. My fee is irrelevant. My fee would only be relevant for non Medicare out of network patients and no insurance patients. The fee/allowable for surgery includes all routine postoperative clinic visits for a period of 90 days after major procedures, 10 days after minor procedures and 0 days for some other procedures. Medicare/Medicaid carries this further and drops the word routine. Some third party payers will allow you to bill for postop visits to manage complications (e.g wound infection). Medicare will not.
It’s important to understand how the fee for service model works because it is what underlies your compensation as an attending. There is talk about value based payment models but this will probably apply more to internists than proceduralists. Endodontists, dermatologists, whatever are all subject to the laws of supply and demand. If you are in a saturated market or have a terrible reputation you will not bring in enough revenue. Your specialty will not matter. You are not going to make these high incomes that everybody keeps bringing up. Well, maybe someone will be willing to take a loss and pay you these high salaries initially on the hopes that you will get busy enough or feed their other revenue streams so they can profit from you in the future but there will be a limit to how much they are willing to lose.
A good rule of thumb, around here at least, for general surgery is to estimate that you will bring in $1000 per case. This includes all the nonoperative patients you may have billed in between operative patients. So the critical question to ask is how much volume do I need to provide a certain income. Here are some reasonable numbers:
- 325k/yr income and benefits (27k/mo)
- 7k/mo for two medical assistants, includes paycheck and benefits
- 500/mo for EMR
- 500/mo for medical waste removal
- 6k/mo for rent
- 300/mo for telephone and internet
This brings you to about 41.3k/mo total. You would need to a little over 41 cases per month to break even. Most of the surveys I’ve seen have general surgeons doing about 33 cases per month. As you can see it can be tough to make an MGMA median salary. As per procedure reimbursement rates fail to keep up with overhead inflation the situation will only get worse. This is the main reason why people are looking for employed positions, even people who have been in private practice for years. An employer has access to revenue sources other than your professional fees: facility fees, ancillary services, in network referrals, etc. They can allow you to operate at a loss if you only looked at the professional fees that you brought in because you are making them money through these other revenue streams. Many of these employers will pay you a salary plus production based on work RVU or a straight dollar per work RVU. Each CPT code has a work RVU associated with it. The example I used above, clinic visit followed by laparoscopic cholecystectomy, has a total work RVU of 11.89. Dollar per work RVU will vary and needs to be negotiated. I have seen $40 to $50 per work RVU. This is typically your take home pay. The employer covers overhead. There are all sorts of ways to complicate this arrangement. Multiprovider groups with shared overhead is one such way.
Private practice will go extinct.
PS Someone said that allowables are set where they are because surgeons are happy with that. Nothing could be further from the truth. The average provider starting a practice has no negotiating power in setting the allowables. If you want any sort of elective practice that provides real healthcare for the population you have no choice but to accept the allowables.
