Usual Customary and Reasonable Cost of Care

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Usual Customary and Reasonable Cost of Care 2017-05-04T04:06:00+00:00

We receive inquiries from attorneys about their need for coders in cases involving determination of the Usual, Customary and Reasonable (UCR) cost of health care.  In other situations, actuarial or utilization management (UM) expertise is requested to assess the coverage determinations of an insured member / patient.

Determining Usual, Customary, and Reasonable Costs of Care – Coders vs. Regulatory and Economic Factors

Coders, actuaries, and UM professionals are important in healthcare because they interpret physicians’ progress notes in the patient chart, enter a diagnosis code or procedure code, or render opinions on insurance risk and medical coverage for reimbursement.  However, these disciplines do not span all of the factors that must be evaluated when determining UCR.

Critical Factors Outside Coder Expertise

When providing expert testimony regarding UCR, other factors which come into play include the distribution of medical costs in a geographic area; frequency of patient use, or abuse, of the health system in the context of plaintiff’s duty to mitigate damages; case management; utilization management; whether the patient used insurance, in-network, out of network; and other factors.  Expert testimony must include not only the coder’s perspective, but also must include a view of clinical documentation, regulatory framework, and an economic perspective, factors which coders are not trained to provide.

Inpatient, Ambulatory Costs and Codes, Medicare Base Rates

When coding inpatient and outpatient diagnosis, ICD-9 diagnosis codes are used (after October 1, 2015 ICD-10 CM will be used). For inpatient procedures, ICD-9 is used (after October 1, 2015 ICD-10 PCS will be used) and for ambulatory procedures, CPT codes are used. Diagnosis and procedure codes are a standardized method to both describe the patient condition and medical procedures, and establish a foundation for reimbursement.  Whatever the methods used to determine the codes, the care setting, contracted provider, payer, and other factors must be evaluated in making a determination about UCR.  Medicare base rates established by Centers for Medicare and Medicaid (CMS) must also be considered.

Value Chain – Different Paths for Inpatient and Ambulatory

There exists a ‘value chain’ which extends from clinical documentation to coding to reimbursement, that may need explanation for the benefit of the court, plaintiff, or defendant’s counsel. Along this path, step–wise transformations, of patient condition and treatment into money, occur as care is delivered. The value chain that establishes UCR starts with the patient condition, as documented by a licensed clinician, spans to coding and reimbursement and / or out of pocket costs and other factors. Medical specialties, Diagnosis Related Groupings (DRGs) for episodic inpatient care, FFS, and newer ‘population health’ (aka ‘value based care’) models deliver varied results when calculating UCR. Whether FFS or value based care service is provided may depend on the contractual arrangement between payer and provider.

Fee for Service vs. Value Based Care and the Affordable Care Act

The selection of value based business model, whether Accountable Care Organization (ACO), or Medicare Advantage (Medicare Part C), also determines the value of care delivered, even the methods chosen to document the condition of the patient.  In population health models, Risk Adjustment Factors (RAFs), HEDIS scores, and HCC severity codes, indicating the relative cost of providing care for a population with certain condition(s) and diseases, may be factors.  A pattern of abuse of these factors, to manipulate records, coding, and reimbursement on value of care may need to be considered as an ‘upcoding’ which could trigger a fraud investigation.  Medical coverage for pre-existing conditions, depending on the date of service, may be a factor.

Along this value chain, patient records and codes are transformed into money. It is expected and intended by patients, and codified by various local, state and federal regulations, that their medical information and personal identifiers are kept secure and only transformed into money by HIPAA Covered Entities, including health care providers, clearinghouses and health plans.  Breaching the security of this data and breaking the trust of the participants may lead to unscrupulous use of patient data by identity thieves. A medical claim with expected reimbursement and out of pocket costs as adjudicated by Medicare, Medicaid or private insurers (including health plans and accident insurance such as automobile insurance) is the usual process for reimbursement.

Retrospective or Prospective Views

The potential need to evaluate economic value of care provided from a retrospective or present view in litigation discovery requires that the regulations in effect, at the time (date of service) for the care provided, are also considered.  Similarly, regulations such as Meaningful Use have different provisions during Stage 1 in 2011 versus Stage 2 in 2013 or 2014.  For prospective UCR, HHS, under the Obama administration, has announced a goal to increase the use of value based care models over FFS models in coming years.  This also impacts calculations for UCR.

Reasonable Health Care Consumer

Patients can mitigate the cost of care by being good shoppers. For example, using insurance, if the patient is covered, enables the health plan to examine medical necessity, in-network provider pricing vs. out of network, unnecessary duplication of procedures and other factors.  If the patient is not insured, health care providers may seek to mitigate risk with cash up front or payment plans.  Health care providers may see uninsured patients as an opportunity to price procedures at list price rather than UCR.


In determining UCR, one must consider an aggregated set of silos of data, privacy and security safeguards for the data, the processes used and decisions made by the people involved, which include clinicians, coders, and clerks, not to mention choices made by the patient himself. Did the patient make intelligent, reasonable choices between available health care options? Therefore a holistic view of the regulatory, clinical, coding, and reimbursement landscape is essential to determine the value of care.

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