Lesson 2: Fee Schedules, UCR, and Write-Offs

Every dollar figure in a dental practice starts from one of two numbers: the fee the office charges, and the fee a plan has agreed to allow. The difference between them is where a large share of a practice's revenue goes, and most front office staff are never taught how the mechanism works.

This lesson teaches the arithmetic and the vocabulary. You need it to post payments correctly, to explain a bill to a patient, and to recognize when a payer has paid less than it contracted to pay. It builds on the plan rules in Lesson 1.

The four numbers

The contractual write-off is the full fee minus the allowed amount. For an in-network practice it is not collectible from anyone. It is the price of participating in the network.

Hypothetical example. A crown has a full fee of $1,300. The plan's contracted fee for that procedure is $950. The plan covers major services at 50 percent, the deductible is met, and the maximum is not a factor. The write-off is $350. The plan pays 50 percent of $950, which is $475. The patient owes $475. The practice collects $950 total against a $1,300 fee.

Write-offs versus other adjustments

Adjustments are not interchangeable, and mixing them destroys the reports the owner uses to run the practice. Keep at least these categories separate:

• Contractual write-off (insurance adjustment). Required by a network contract. Not a business decision.
• Courtesy or professional adjustment. A discount the practice chose to give. Should be governed by a written policy and require authorization.
• Membership plan discount. Given under an in-house plan's terms.
• Bad debt write-off. A balance the practice has given up collecting. An accounting event, not a courtesy.
• Correction or refund adjustment. Fixing a posting error. Should be rare and always documented.

When all of these land in one bucket called "adjustments," nobody can tell whether the practice's collection problem is a contract problem, a staff discounting problem, or a collections problem. The Open Dental mechanics for adjustment types and write-offs are in Module 6.

Out of network: UCR, MAC, and the balance

When a practice is out of network, there is no contracted fee, so the plan uses its own internal allowance. You will see several terms for it:

• UCR (usual, customary, and reasonable). The plan's figure for what it considers a customary fee in the area. Carriers do not generally publish their methodology, so treat a UCR number as the plan's number, not an objective market rate.
• MAC (maximum allowable charge). A fixed schedule the plan applies regardless of the provider's fee, common in out-of-network plan designs.
• Table of allowances. A fixed dollar amount per procedure, with the patient responsible for the rest.

Because there is no contract, an out-of-network practice can generally bill the patient the difference between its fee and what the plan allowed, which is called balance billing. State law and specific plan arrangements can affect this, so the practice should confirm its own situation with counsel rather than assuming.

Hypothetical example. The same $1,300 crown, out of network. The plan's allowance for the procedure is $800 and it covers major services at 50 percent. The plan pays $400. The patient's responsibility is $900: the $400 coinsurance portion plus the $500 above the plan's allowance. The practice collects $1,300 in total, more than the in-network example, but only if it successfully collects $900 from the patient, which is the whole challenge of out-of-network practice.

One more out-of-network wrinkle: many plans pay the subscriber directly rather than the practice when there is no contract, depending on the plan's assignment of benefits rules and state law. That means the check goes to the patient's house and the practice has to collect from the patient. Verify this during verification, and set financial arrangements accordingly.

Leased networks, rental networks, and silent PPOs

Practices regularly receive payments at a discounted fee from a plan they never contracted with. Usually the explanation is a leased network: a carrier or third-party administrator has contracted for access to another network's provider panel and fee schedule. Your original network agreement may permit this, sometimes in a clause most people never read.

Sometimes the discount is not supported by any agreement that applies to the practice. That situation is often called a silent PPO. The practical response is the same either way:

1. Identify the source. Look on the explanation of benefits for the network logo or the name of the repricing entity, which is usually printed somewhere on the remittance.
2. Check your own contracts, including their network access and affiliate clauses, to see whether the discount is authorized.
3. Request the applicable fee schedule in writing from the entity claiming the discount.
4. If the discount is not supported, appeal the payment and ask for the contractual basis.
5. Ask your attorney about your contracts' network access provisions before signing or renewing, since this is where the exposure is created.

Checking whether the payer paid the contract

Payers underpay. Not usually maliciously, but through outdated fee schedules, incorrect procedure mapping, and repricing errors. If nobody compares, nobody knows.

The habit: when you post an insurance payment, compare the allowed amount on the explanation of benefits to the contracted fee in your software for each line. When they do not match, flag it. A pattern of small differences on the same procedure is usually a loaded fee schedule that is out of date on one side or the other.

Also check the coinsurance percentage applied, whether the deductible was taken correctly, and whether a downgrade was applied that should not have been. These are the four most common recoverable errors, and they are only findable if your software holds the contracted fee schedule.

Setting the office's full fee

This is an owner decision, but front office staff should understand the logic, because patients ask. A practice's full fee should reflect its own costs, its market, and its positioning. It should not be set at the lowest contracted rate, because that leaves nothing above the highest-paying plan and makes the fee for uninsured patients lower than it needs to be.

Most practices review fees annually, comparing them against their own cost structure and against the payer schedules they participate in. There are commercial fee survey products that report percentile fee data by geographic area, and owners often use them as a reference point. Two cautions: any fee decision should be made independently by the practice, since discussing or coordinating fees with other practices raises antitrust concerns, and any published survey data is a reference point rather than a rule. An owner should work this out with their own CPA and, where fee-setting practices are involved, their attorney.

Reviewing plans and requesting increases

Once a year, an office should be able to answer: what does each plan pay us for the twenty procedures we do most, weighted by volume, and how does that compare to our full fee and to each other? That analysis drives everything else: which plans to keep, which to renegotiate, and which to leave.

Requesting an increase is a normal business process. It generally involves contacting the payer's provider relations department, asking for a fee schedule review, and supporting the request with information about the practice: years in the network, patient volume from that plan, services offered, hours, locations, and any specialty or technology that differentiates it. Results vary widely. Some payers review on a fixed cycle, some only when a contract is up, and some rarely move at all. Ask what the process and timeline are rather than assuming there is none.

For the decision-level analysis, see our article on whether to drop a PPO and the PPO write-off and fee schedule calculator.

Putting this lesson to work

The mechanics here are simple arithmetic, and almost all of the money lost in this area is lost through record keeping: missing fee schedules, charges entered at the discounted rate, and adjustments dumped into one bucket. Fix the record keeping and the analysis becomes possible.

Next, Lesson 3 covers coding and documentation, which determines which fee applies in the first place. Also see the PPO write-off calculator and the operations chapter on insurance and the revenue cycle.

Try it

1. Inventory your fee schedules. List every plan your office participates with and note whether you have the current fee schedule on file, with its effective date, and whether it is loaded in the software. The blanks are your project list.
2. Audit ten posted payments. For ten recent insurance payments, compare the allowed amount on the remittance to the contracted fee in your software, line by line. Note every mismatch and whether it repeats on the same procedure.
3. Check your adjustment categories. Run an adjustment report for last month and see how many distinct types are in use. If contractual write-offs and courtesy discounts share a category, propose splitting them.
4. Work the out-of-network math. Pick a procedure and calculate the patient's portion both in network and out of network, using a plan allowance you have actually seen. Write both numbers down so you can explain the difference to a patient.
5. Look for unfamiliar network names. Scan a month of remittances for network or repricing names you do not recognize. For each, find out whether your contracts authorize that discount.

Check yourself

1. What exactly is a contractual write-off?

The difference between the practice's full fee and the allowed amount under a network contract. For an in-network practice it is not collectible from the plan or the patient. It is the cost of participating.

2. Why should the claim always carry the full fee rather than the contracted fee?

Because posting the discounted amount hides the write-off, makes production reporting meaningless, and removes the expected amount you would otherwise compare a payment against, which makes underpayments invisible.

3. What is the difference between a contractual write-off and a courtesy adjustment?

A contractual write-off is required by a contract the practice signed. A courtesy adjustment is a discount the practice chose to give and should require written policy and authorization. Keeping them in separate categories is what lets an owner tell a contract problem from a discounting problem.

4. A remittance arrives with a discounted allowance from a network you never signed with. What do you do?

Identify the network or repricing entity named on the remittance, check your existing contracts for network access or affiliate clauses that might authorize it, request the applicable fee schedule in writing, and appeal the payment if no agreement supports the discount.

5. Why does an out-of-network patient often owe much more even when the plan pays a similar percentage?

Because the percentage is applied to the plan's own allowance, which is typically lower than the office's fee, and with no contract the practice can generally bill the patient the remainder. The patient owes their coinsurance plus the entire amount above the plan's allowance.

This guide is educational content and does not constitute legal, financial, tax, or clinical advice. Laws and regulations vary by state and change over time. Consult your own dental-specific attorney, CPA, and state dental board before acting.