The Importance of Lesser Than Language in Healthcare Provider Payment Contracts

Many healthcare providers have become very concerned about their posted charges for specific services and procedures in the new price transparency world in which they live. To this end, it is very common to see providers either reduce existing charges or refrain from price increases in selected areas. One very common result of price reductions is to increase the number of patient claims where a “lesser than” payment provision comes into effect.

Let’s take a closer look at how lesser than language may impact overall payment from a payer to a provider.  Claims that result in lesser than payment are simply situations where the provider’s actual charges are less than the negotiated fee. In general, there are two methods for assessing whether a lesser than payment provision results in any given situation. The first is on an aggregate claim level basis. For example, a specific contract may specify a payment of $17,000 for MSDRG 794 (Neonate with other significant problems). If actual charges for that claim were $13,000, then the payer would make a payment of $13,000 and not the negotiated fee of $17,000. The second type of lesser than is non-aggregate. This is usually at the individual charge code level, e.g., a lab test or imaging procedure. For example, CPT code 82785 (Assay of IGE) may have a negotiated payment rate of $44.00 when performed on an outpatient basis. If the actual price for this test was $39.00, then the payer would make payment at the actual price of $39.00 and not the negotiated fee of $44.00.

Most health care executives do not like to leave money on the table and their first response is often to remove these lesser than issues by selective price increases. While this may seem relatively simple to achieve, it is often not feasible or desirable. Let’s take the easiest type to fix first which is non-aggregate lesser than cases. In the lab test example above, it is very easy to increase the price from $39.00 to $44.00. This may not however be a good strategy even though it is very feasible. This specific test may be highly price sensitive, and your price may already be well above your peers. In addition, the specific lesser than situation might be just one payer with very low volume, so the dollars lost are not significant. In short, the potential gain in revenue must be balanced with community image and possible lost business.

Fixing aggregate level lesser than claims is often much harder to accomplish. Let’s use the neonate claim from above to illustrate this. Any specific review of lesser than neonate claims will show that there are many specific billed services included in these claims, perhaps 50 or more individual charged services or procedures. In most cases, the largest area is the nursery room rate accommodation, and one may be tempted to just raise that one charge code. However, the increases could be very large in many cases. For example, the current Level 1 room rate may be $2,300 and removal of the lesser than situation might require an increase to $5,800. Most likely, this level of increase is unreasonable and would only fix the one lesser than claim. Reviewing all neonate lesser than claims might suggest that other areas are creating the lesser than status such as drugs or lab tests. The actual size of the loss is also important. As discussed above, a few cases from one payer do not make a strong case for price adjustments.

So, what is the solution to minimize the loss of revenue from lesser than provisions. The best long-term approach is contract term adjustments. There should be a quid pro quo for specific changes from both parties. If you want a specific lesser than provision removed—or all lesser than provisions removed be prepared to negotiate revised fee schedules in other areas. In this era of price transparency, also recognize that your negotiated rates from one payer may be visible to other payers and might create some new demands for rate changes from payers who may feel their rates are much higher than their competitors. In the absence of agreement between payer and provider, selective price changes may still be your best option.

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Comments (1)

  1. I agree that it’s frequently considerably more difficult to fix aggregate levels lower than claims. My superiors request that these minor problems be resolved by targeted price hikes. To obtain advice, I will seek assistance from a reputable medical billing and coding firm.

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