Dr. Smith decides to become part of a commercial health carrier’s network of participating providers of all specialties. He contacts the health carrier, goes through the enrollment and credentialing process, agrees to the terms of participation and, once completed, his name is added to the provider directory.
Using the provider directory, a patient selects Dr. Smith and calls his office for an appointment. Because commercial health insurance carriers, unlike Medicare and Medicaid, do not publish fee schedules that list the allowed amounts for all services by CPT-4 code, Dr. Smith’s office does not have an exact way to determine what the patient is required to pay upfront nor will they know for certain what he may be reimbursed.
The services are
provided to the patient and the claim is billed using the provider’s normal
charge for all services. The health carrier will then re-price each billed
charge to the contracted rate that is on file for the
What is a Contracted Rate?
One of the key provisions that a provider must agree to, once they become participating providers, is the acceptance of the health insurance carrier’s contracted rate. Carriers use contracted rates to reimburse providers for services rendered to members covered under a managed care plan. This use of contracted rates allows health carriers to manage costs because a participating provider is usually paid less than his normally billed charges.
Health insurance carriers use contracted rates to determine what will be allowed and ultimately paid on a billed claim. Contracted rates could be a flat amount for each service, a percentage discount, or some other methodology. Reimbursement is usually less than the amount that a provider normally would charge for that same service.
A contracted rate is agreed upon, by contract, between the provider and the insurance carrier in advance.
Participating providers accept the contracted rate and agree not to balance bill the patient for any charges that exceed these rates. Patients would be responsible for any applicable copay, deductible and coinsurance amounts only.
The insurance company applies the contracted rate and determines that they will allow the following:
$100.00 is not covered as it is over the contracted rate and will be adjusted off by the provider.
So your next question may be why would any doctor accept such a reduction in billed charges? The answer is simple:
Today, most patients have some type of managed care plan and if a doctor wants to keeps their practice profitable they need to treat a steady stream of patients.
Healthcare is expensive and managed care plans are designed to require low or no money out of pocket for patients that choose to see a participating provider. This means that a provider may have better access to more patients with all kinds of different plan types if they participate.