Why does it cost more to use some doctors than others?

Introduction

Doctors are like everyone else – they need to make a living. So they spend a lot of time, brain power, and money going to medical school, where they generally incur a lot of tuition debt. They open a practice alone or with other doctors and use their skills to help people.

Why a certain doctor may cost you more than others can depend on whether he or she is:

Primary care or specialist: A primary care doctor takes care of the whole patient, while a specialist has advanced training and is often board-certified in a specialty – like orthopedics or heart surgery. A specialist’s services almost always cost more. Be sure your specialist is covered under your insurance.
In-network or out-of-network: Insurance companies invite providers to be part of the insurance company’s “network” of providers – which includes primary care doctors and specialists, hospitals, and other healthcare providers. An in-network provider almost always costs you less than one outside the network.

Primary care doctors

Regular care: check-ups, screenings, and immunizations
Head-to-toe care: such as headaches, nose bleeds, asthma, colds, urinary tract infections, cuts, falls, and broken bones
Chronic conditions: such as diabetes, heart disease, arthritis, and depression

A primary care doctor may include family and general practitioners, internists, and pediatricians. Sometimes a primary care doctor will refer you to a specialist for additional care.

Specialists

Specialists are experts in specific parts of the body – such as eyes, skin, heart, lungs, bones, and digestive system. Your specialist should be board-certified, which means he or she voluntarily took exams to demonstrate an exceptional expertise – knowledge, experience, and skills – and a commitment to excellence in a particular specialty or subspecialty of medical practice.

Before going to a specialist, find out if your insurance company requires a referral to that specialist from your primary doctor. Sometimes, a plan will not pay for a specialist's care if you haven’t been referred by your primary care doctor.

Examples of a specialist include allergist, cardiologist, dermatologist, emergency medicine doctor, gastroenterologist, gynecologist, neurologist, obstetrician, ophthalmologist, oral surgeon, a pediatrician board-certified in adolescent medicine or other subspecialties, and urologist.

Healthcare Provider networks

A network is a group of healthcare providers – primary care doctors, specialist, hospitals, dentists, urgent care centers, labs, outpatient facilities, and others – who have agreed to provide medical services to members of plans administered by your insurer at a discounted rate. So for you – using in-network providers leads to cost savings.

When healthcare providers sign a contract with an insurance company, they become what is called a "preferred" or "participating" provider or "in-network provider." If they don’t have a contract, they’re called "non-participating" or "out-of-network" providers.

How physician networks work

Many health insurance plans offer you a variety of health plan choices, all of which have cost implications for you.

No network: Some plans give you the option to see any doctor and go to any hospital you want
An exclusive network: With some plans, such as a standard HMO, you can only go to a provider in the plan’s network. You’ll have to pay all of the fees yourself for a provider not in the network – which can be very expensive.
In-network and out-of-network benefits: With some plans, such as a PPO, you save money by going to an in-network provider. However, if you choose out-of-network providers, your health plan still pays a – smaller – part of the bill.

How doctors are paid

Doctors - and other providers – are paid by the insurance company in various ways. The most common contract arrangements are a "capitated arrangement" and a "fee-for-service agreement."

Capitated arrangement: This is typical of managed care organizations (MCOs) and health maintenance organizations (HMOs), where the insurance company pays a guaranteed amount per enrolled patient. The doctors are paid regularly whether or not the patients come to see them for medical services.
Fee-for-service agreement: This is typical of some health plans, such as PPOs, where the insurance company pays doctors only if the patient goes to the doctor. Otherwise, the doctor receives no payment.

How you benefit from using in-network providers

By using in-network providers, you benefit in two ways:

Reduced out-of-pocket costs: In-network providers agree with your insurer to discount or reduce their fees for you as a member of their plan. An out-of-network provider doesn’t have an agreement with the insurer – and so you may be responsible for a portion of the out-of-network doctor’s or hospital’s billed charges which may be a significantly higher amount.
No balance billing: An out-of-network provider may bill you – called "balance billing" – for the difference between the provider’s billed charge and the amount paid by your insurer to the out-of-network provider, called the "maximum allowable fee."

Maximum allowable fee

Your insurance company sets a maximum allowable fee for most out-of-network hospitals based on the hospital’s costs for certain services – which are detailed in an annual report to the federal government. Often your insurer sets its maximum allowable fees for payments to out-of-network doctors based on the discounted and reduced fees it pays to in-network doctors.

Know your network

If you’re not sure which providers are considered in-network for your plan, look on your health plan ID card for a number to call your health plan, look on your insurer’s Website, or ask the provider.

Examples:

If you have a Preferred Provider Organization (PPO) plan and 90/60 coinsurance:

The plan covers 90 percent of in-network covered expenses, and only 60 percent of out-of-network covered expenses.
For out-of-network providers, your insurer covers 60 percent of the maximum allowable fee (MAF)*, not necessarily 60 percent of the providers billed charges which are usually higher.
For out-of-network providers, you’d be responsible for paying the following amounts:
- The remaining 40 percent of the maximum allowable fee, and
- The remaining difference between the billed charge and the maximum allowable fee.
The amount you’re balance billed by the out-of-network provider doesn’t count toward your plan deductible or your out-of-pocket limit. See the example below, which assumes your deductible is fulfilled for the year.

Services performed either in-network or out-of-network

In the following example, your costs for in-network for doctor and hospital totals $790, and for the same services with an out-of-network doctor and hospital, you pay $7,320.

	In-network hospital	Out-of-network hospital
Maximum allowable fees usually do not apply in emergency situations. In an emergency, seek care at the closest healthcare facility.
Billed charge	$8,600	$8,600
Charge minus your insurer’s discount	$3,800
Your insurer pays 90% of $3,800	$3,420
You pay 10% of $3,800	$380
MAF * (maximum allowable fee) for OON only		$6,700
Your insurer pays 60% of $6,700 for OON only		$4,020
You pay 40% of $6,700 for OON only		$2,680
You may pay additional balanced billed amount for OON only		$1,900
YOUR TOTAL PAYMENTCOSTS:	In-network hospital: $380	Out-of-network hospital: $4,580

	In-network doctors	Out-of-network doctors
Billed charge	$5,200	$5,200
Charge minus your insurer’s discount	$4,100
Your insurer pays 90% of $3,800	$3,690
You pay 10% of $3,800	$410
MAF * (maximum allowable fee) for OON only		$4,100
Your insurer pays 60% of $6,700 for OON only		$2,460
You pay 40% of $6,700 for OON only		$1,640
You may pay additional balanced billed amount for OON only		$1,100
YOUR TOTAL PAYMENTCOSTS:	In-network hospital: $410	Out-of-network hospital: $2,740

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