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30 Health Law. 12 (2017-2018)
The Price Is Right: What Is Usual, Customary and Reasonable between Provider and Payer

handle is hein.journals/healaw30 and id is 140 raw text is: THE PRICE IS RIGHT? WHAT IS USUAL, CUSTOMARY AND REASONABLE BETWEEN PROVIDER AND PAYOR By Nina Zhang, Esq. Stephenson, Acquisto & Colman Burbank, CA In most markets, consumers can easily determine what they should be paying for a good or service. For example, to buy jeans, consumers can flip open a catalog or drive to the nearest mall. They can compare prices across brands and at different stores, and if they do not know why one pair costs $500 and another costs $50, they can talk to a sales clerk. They can further make a note of the brand of the jeans; then, when they arrive home, they can research the brand on the Internet to understand what they are paying for. Healthcare is not like that. The market price is not visible, and con- sumers cannot readily access it or com- pare it across providers.1 People rely on their health insurer to negotiate prices with contracted providers, creating a network of participating providers. But often people receive care out of net- work from a noncontracted provider, such as when they need a specific pro- cedure, see a certain doctor and most frequently, when they must go to the nearest emergency room. When care is obtained out of network, patients are frequently unaware of the fact that the prices have not been determined ahead of time and that providers and payors rely on a murky rule, i.e. what is the usual, customary, and reasonable, or UCR rate, to determine the cost of care. In this age of consumer directed healthcare and increased patient cost sharing, the patients' share of out of network costs may be significant. Thus, unless a state prohib- its balance or surprise billing,2 the dif- ference between what the provider charges and the insurer pays shifts to the consumer. Because UCR is a standard that lacks clear guidance, payment disputes 12 often arise between providers and payors; providers typically want to be paid their total billed charges,3 while insurers want to pay substantially less. Federal law has historically been silent as to what the UCR rate is; only the federal health insurance exchange website provides some clari- fication, stating that usual, custom- ary and reasonable is the amount paid for a medical service in a geo- graphic area based on what providers in the area usually charge for the same or similar medical service.4 Pay- ors and providers, and sometimes elected officials, have challenged what this amount should be. History of Usual, Customary and Reasonable The usual, customary and rea- sonable payment method emerged in 1965 when the federal government enacted Medicare and Medicaid and the United States saw the slow and steady rise of health insurance. Previ- ously, patients paid physicians directly; physicians' primary source of income was what the average patient paid.6 Concerned that physicians would become locked into a schedule of fixed fees, the American Medical Association (AMA) campaigned successfully for a new method of pay- ment that would allow its physician members to retain flexibility and avoid a fee ceiling.7 Consequently, Congress developed and enacted a system that mandates payments on the basis of the regular (usual) fee of any physician who the patient cares to choose (assuming it to be within the range of customary fees in that area, or if precedent is lacking, to be reasonable).' Among private insurers, in the late 1960s Blue Shield imple- mented its own UCR program in response to the major labor and man- agement negotiators of that period who wanted complete coverage for their members.9 Unsurprisingly, new doctors started billing insurers at unprece- dented levels, lacking a record of charges, so that their usual fee could be whatever they chose.10 Seeing that they could earn more money, more experienced doctors followed suit. Physicians and hospitals, no longer having to deal directly with patients, faced little pushback. Consequently, costs exploded. Recognizing that Medicare costs were spiraling out of control, Congress and the Reagan administration enacted an alternative payment system devel- oped by researchers at Yale University. Rather than allowing hospitals to charge whatever they wanted, the new model paid hospitals a predeter- mined, set rate based on the patient's diagnosis and the average cost of resources used by all U.S. hospitals, the diagnosis related group (DRG) rate. This changed the incentives for hospitals; previously, the more a hos- pital did for its patients, the more money it received in payments, but now if a hospital could treat the patient for less than the DRG rate, it could keep the difference. Thus, hospitals had to be concerned about how long a patient stayed, the tests and procedures used during the stay, and how much was paid for the resources used in car- ing for the patients. This change helped lower Medicare hospital pay- ment increases by reducing Medicare patients' days of care but did not neces- sarily reduce overall costs. The healthcare industry would later develop additional methods of controlling costs, such as capitation, accountable care organizations and forms of bundling. Yet UCR rates remain a vestige of America's initial payment system and is alive and well in dealings between providers and Volume 30, Number 4, April 2018 The Health Lawyer

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