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Statement of Purpose of Adoption of Usual and Customary Charge Reference

Since their original promulgation in November 1995, the department's medical cost-containment regulations have provided fee caps for medical treatment rendered under the Pennsylvania Workers' Compensation Act, as amended. These regulations contain a number of different provisions to address the different types of billing conducted by various types of medical providers.
Generally, the regulations establish rates of reimbursement based upon the Medicare system's rates. However, Medicare does not establish a rate for all services that providers could conceivably utilize.
In recognition of this fact, since their inception, the regulations state: "If a Medicare payment mechanism does not exist for a particular treatment, accommodation, product or services, the amount of the payment made to a health care provider shall be either 80 percent of the usual and customary charge for that treatment, accommodation, product or services in the geographic region where rendered, or the actual charge, whichever is lower." 34 Pa. Code § 127.102.
Specifically, with respect to outpatient care, the regulations provide: "If a Medicare allowance does not exist for a reported HCPCS code, or successor codes, the provider shall be paid either 80 percent of the usual and customary charge, or the actual charge, whichever is lower." 34 Pa. Code § 127.103(c).
However, until recently, the department did not have access to a reference that would assist it in determining what constitutes the "usual and customary charge" for such services. Thus, pursuant to the recommendations of representatives of the medical provider and insurer communities, on Sept. 18, 2010, the department published the following notice in the Pennsylvania Bulletin:
Effective 11/01/10 when resolving applications for fee review under 34 Pa. Code § 127.256, the department will utilize the 85th percentile of the MDR database published by FAIR Health to determine "the usual and customary charge" as defined in 34 Pa. Code § 127.3.
Importantly, the database referenced by the department contains only codes for medical procedures that lack a Medicare rate or fee, as established in the department's 1995 regulations. Thus, the database does not affect Part A Chargemaster services (i.e., those fees charged by "cost-based" providers, including hospitals, burn centers, etc.).
Instead, the database only provides a reference rate for those services that currently have no Medicare charge associated with them, and that otherwise would be wholly unregulated.