UCR

Usual, Customary, and Reasonable — a method payers use to determine the maximum amount they will reimburse for out-of-network services based on charges for similar services in the geographic area.

UCR stands for Usual, Customary, and Reasonable, and it is how payers determine what to pay for out-of-network services. When you are out-of-network with a payer and their member comes to you, the payer does not have a contracted fee schedule. So they use UCR to figure out how much to pay. Usual is what you typically charge for the service. Customary is what providers in your area typically charge. Reasonable is what is considered appropriate given the complexity and circumstances. In practice, payers calculate UCR using large claims databases that show the distribution of charges for each CPT code in each geographic region. The problem with UCR is that payers have a lot of discretion in how they calculate it. Some use the 50th percentile of charges in your area. Some use the 80th percentile. Some use Medicare rates as a benchmark. There is no universal standard, which means two payers might have very different UCR amounts for the same service in the same area. For years, many payers used Ingenix (now Optum) data to calculate UCR, which was found to systematically undervalue charges. A class-action settlement in 2009 led to the creation of FAIR Health, an independent database that now provides more transparent and accurate charge data. Some states require payers to use FAIR Health or similar independent databases for UCR calculations. As a provider, UCR affects you when you see out-of-network patients. If you charge $500 for a service and the payer's UCR for that service is $350, the payer reimburses based on $350 and the patient is responsible for the $150 difference (unless the No Surprises Act applies). Knowing the UCR rates in your area helps you set charges that are competitive and understand what out-of-network patients will owe. Your billed charges should always be at or above the highest UCR rate in your area. If you bill below UCR, you are leaving money on the table for every out-of-network claim.