Archive January 2002 III, No. 1

How to Develop a Fee Schedule that Works for You

Dont let insurers determine what you charges should be.

Judith English

BIO

Caryl Serbin, RN, BSN, LHRM

BIO

If your surgery center is not as profitable as you would like it to be, it may be time to revise your fee schedule. In our consulting practice, we've evaluated fee schedules for centers all across the country. Often, we find that centers do not know what it costs to provide services, underestimate what insurers are willing to pay, fail to update their fees regularly, and fail to follow up to make sure they're getting paid properly.

Remember, insurers are in business to make a profit. They are very unlikely to tell you that you are not charging enough for a procedure. It's your responsibility to determine what your charges should be, based both on your costs and on your market. Whether you are starting up a new center and building a brand-new fee schedule or re-evaluating an old one, here's some advice on how to develop a fee schedule that works for you.

Calculate costs
You need to calculate what it costs you to do the procedures. This is time-consuming, but essential. Without this information, you cannot effectively negotiate profitable fees and your facility will surely suffer as a result.

First, calculate or estimate your direct costs-the ones you can link to a particular procedure. They include:
  • Labor. Calculate the number of hours of direct staff time necessary for each kind of case you do. For example, if a cataract case including room turnover requires 45 minutes each from a scrub tech and a circulator and one hour of perioperative nursing, add the cost of 0.75 hours for the first two individuals and one hour for the latter to the direct case cost.
  • Supplies, medications, implants and prosthetics. You should be able to find these costs by reviewing your invoices. Don't forget to estimate the impact of future price increases when creating your fees. For a new surgery center, you can ask your medical supplier for a list of supply costs.
  • Equipment. Determine the dollar value of any equipment specific to a procedure, such as a phaco machine. Then amortize the cost over its expected life. For example, if you paid $60,000 for a phaco machine and $5,000/year for a service contract after the first year, and you expect it to last for five years at 700 cases/year, then the cost of the machine is $23 per case. [$60,000 ($5,000x4)/3,500 cases=$23/case]. It may behoove you to ask an accountant for help with this.

Second, find/estimate your indirect costs, including items like rent, utilities, administrative salaries, maintenance and fixtures like OR tables and lights. Total up your expenses for the year and subtract the cost of supplies, clinical staff, and any other items that you consider direct costs. Dividing the result by the number of cases you performed will give you a rough average of your indirect costs per case. Add the direct costs of each procedure to the average indirect cost per case. This gives a reasonable estimate of your costs per case.

Sample orthopedic fee schedule



20900


Bone graft, small


0050


$574.00


$1800.00


27650


Repair achilles tendon


0051


775.00


2400.00


28285


Repair hammertoe, each


0055


510.00


1600.00


29815


Shoulder arthroscopy


0041


675.00


2100.00


29830


Elbow arthroscopy


0041


675.00


2100.00


29840


Wrist arthroscopy


0041


675.00


2100.00
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