Health insurance carriers may use Usual, Customary and Reasonable rates (UCR) as a way to determine how much to reimburse a provider for services rendered to members that are covered under traditional (fee for service) and out of network plans.
Do not assume that just because a provider is considered non-participating that the health carrier will accept any amount that a provider chooses to bill for a service. Every claim processed by a health insurance carrier will go through some type of re-pricing, whether they use contracted rates for participating providers or UCR for non-participating providers.
The UCR rate is the maximum allowable that a carrier will reimburse for a particular service, regardless of what the provider may bill for that same service. The health carrier considers the UCR rate to be the "normal or average charge" for a service. Each CPT code that is billed will have a UCR amount tied to it.
If UCR is applied on a non-managed care plan, the portion deemed over UCR can be billed and collected directly from the patient or from a secondary carrier. The patient would also be responsible for any deductible and coinsurance amounts.
This "normal/average charge" is a combination of:
The result is the amount that will be considered the allowed amount for that charge.
Dr. Smith, Dr. James and Dr. Jones all practice in Los Angeles, California, all are pediatricians and all have offices within a few miles of each other.
Dr. Smith bills $300.00 for an initial newborn exam.
Dr. James bills $250.00 for an initial newborn exam.
Dr. Jones bills $250.00 for an initial newborn exam.
The health plan takes into consideration what all like providers, practicing in the same area, are billing for this same service and they will use this data to come with a "usual" charge.
Using the example above, both Dr. James and Dr. Jones bill the same amount for a newborn exam. The health carrier could determine that the "usual" rate for an initial newborn exam will be $250.00 for all providers, located in that area of Los Angeles, California.
Dr. Smith’s claim is over the UCR rate so it will be reduced to $250.00. The claims from Dr. James and Dr. Jones will be accepted as billed with no reduction.
Note: this represents a general overview of how UCR may be determined. Every carrier is different so use this as a guide to understanding the process.
Since most carriers lack the time and expertise to figure out the UCR computation for thousands of CPT-4 codes, as well as to continuously update them as needed, they may purchase a software program from an outside vendor that provides this information. This program is loaded into their system and will read each CPT-4 code and apply the correct allowable amounts. This information is normally updated annually.
The following example illustrates how UCR may be applied.
The insurance company applies the UCR allowance and determines that they will only allow the following:
Using this example, the provider will not be reimbursed as billed and the patient can expect to incur more out-of-pocket expenses.