This article is part of a new series from the Practice Organization and the Office of Health Care Financing to help members understand the process and work that goes into establishing payment rates, both in Medicare and other third party insurers.

The short (and obvious) answer is the patient’s insurer.

The long answer is: The overall trend among health insurers is to set fees in a predictable schedule, modeled on the government’s Medicare Physician Fee Schedule. Although Medicare does not actually set the fees for other insurance plans, it can have a strong influence on how you’re reimbursed by third party insurers.

A little history: Twenty years ago, most health insurance policies were traditional, basic indemnity plans, called “80/20” plans. Payment rates were based on the “usual and customary rates” — the prevailing fees charged by practitioners in a given area (by state and ZIP code). Over time, if the prevailing fees rose, payment rates also rose. This proved to be arbitrary and inherently inflationary — since the prevailing fees seldom decreased. This scenario applied to nearly all health insurers, including Medicare. Consequently, Medicare took action to make its annual spending more predictable.

In 1992, the federal government created the Medicare Physician Fee Schedule specifically to determine relativity-weighted payment rates for services provided to the elderly and/or disabled population enrolled in Medicare Part B. Since then, it has been widely adopted by the commercial insurance industry for use in a variety of patient populations.

Although the Medicare fee schedule is frequently used as a benchmark by other insurers, commercial insurers are not required to adhere to the Medicare payment rates. They frequently decide to vary payment rates — paying some items at a higher (or lower) amount than Medicare does. For some state-based insurance plans such as Medicaid, the payment rates may be tightly regulated by the state government.

If you submit claims to Medicare on behalf of a patient, you should know that the Medicare fee schedule is updated yearly, with most policy changes occurring on Jan. 1. The changes are most often related to payment rates.

To track Medicare policy changes, you can subscribe to your local Medicare contractor’s listserv or e-newsletter. Information is also available on the Practice Organization’s website. Commercial insurers’ provider contracts generally require the insurer to give formal notice of rate changes to network providers. Other policies related to payment and claims filing are generally found in the provider contract (PDF, 212KB), the provider section of the company website and in company newsletters (paper or electronic) to providers. If you often file claims, it is important at least to skim the relevant sources for information related to behavioral and mental health services.

If you have questions about billing codes or payment, please email the Office of Health Care Financing.