Non-Risk-Sharing Arrangements

In traditional plans, and even in managed indemnity and many PPO plans, fee-for-service is the standard reimbursement method for non-facility health care providers, such as physicians. While discounts are sometimes applied to fees, fee-for-service does not directly control utilization.

1. Fee-for-service—Reasonable and Customary (R&C) or Usual, Customary and Reasonable (UCR) utilizes a schedule of maximum allowable (or "prevailing") fees for covered services within a particular geographic area. The prevailing R&C fee is typically set at the most frequently occurring charge within a particular range. Physicians are paid the lesser of billed charges or the prevailing R&C fee. This is the way traditional plans have operated for years, and most patients do not even realize a prevailing fee schedule is being used unless the provider "balance-bills" the patient for any excess over the prevailing fee. Since this arrangement reimburses the provider for each service, there is no specific incentive for providers to effectively manage utilization. R&C reimbursement is common with indemnity and managed indemnity plans since it requires no established contract with providers.
2. Fee-for-service—Fee Schedule reimburses physicians based on negotiated rates (e.g., using a relative value scale). The physician is reimbursed the lesser of billed charges or the negotiated maximum, which is usually based on the current procedural terminology (CPT) code. The entire fee schedule is subject to a relative value scale (RVS) which takes into account the physician's type of specialty and location. Like the R&C method, this arrangement reimburses the physician for each service, resulting in little incentive to manage utilization. These fee schedules are common in PPOs, in which a negotiated contract sets the fee schedule in advance with contracted physicians. Participating physicians agree to accept the scheduled fee as payment in full and they agree not to balance bill for any additional charges above the scheduled fee, although they are allowed to bill for allowed copays, deductibles and coinsurance portions which the plan requires of the member. It is crucial that the managed care company provide monitoring and review of physician utilization patterns in order to avoid unnecessary expenses.
3. Resource-based relative value scale (RBRVS) is a variation of RVS under which the relative value assigned to a procedural code is derived from the components of physician work units (including time and skill), practice expense units, and malpractice expense units with the intent of reimbursing according to comparable costs of doing business, not according to specialty. Medicare adopted this approach in 1992.