How much do you charge for removing a wart? How about giving travel vaccinations? You might know what health plans or Medicare will pay, but what are your fees? Practice management experts say your fee schedule should be set carefully and updated regularly.

Setting a defensible fee schedule is always good business, but with self-pay patients asking for a break on their bills and health plans publishing charge information and demanding ever-deeper discounts, it's never been more important to know when a discount is too deep, experts say.

"This is what pays your bills," said Susan Childs, a practice management consultant with Evolution Healthcare, based in Rougemont, N.C. "Any other business does this every year, looks at your costs and what you need to charge. It's just that we get so bogged down with chaotic stuff every day."

Even if you end up discounting from your fee schedule in nearly all cases, you should know what your breaking points are -- when a discount means you don't make a profit, and where it would mean you lose money, practice management consultants say.

Frank Cohen, a health care consultant with MIT Solutions, based in Clearwater, Fla., said much of his work involves helping physician practices set fee schedules. "Your No. 1 responsibility is to be profitable. If you're not profitable, you cannot provide quality care," he said. "If you're not willing to do what it takes to make money, you're going to go out of business, and the community is going to suffer as a result."

How to determine your fee schedule

Carefully accounting for costs should be your first step. "The best defensible thing you do for your fee schedule is a cost study," Childs said.

You can do a study yourself or hire a consultant, but the key is to account for every cost and have a reasonable margin to live on and to reinvest in your practice.

Your goal is to break down your costs and your margin into units of work -- typically services and visits, which can be defined by Current Procedural Terminology codes. Breaking down costs into hourly units is another option, Cohen said.

Your end product should be a list of services each assigned a share of your overhead cost as well as your margin and the actual cost of providing the service. For example, your fee for a flu shot includes a fraction of your rent, your nursing staff's pay, the office's electric bill, your liability insurance premium, your own salary and a fraction of the cost of the new x-ray machine you are planning to buy in six months.

Basing your prices on costs plus margin ensures that your fee schedule is built on what you need to stay in business, not on what you think sounds fair. This will make your case stronger when you negotiate with payers.

The American Medical Association Practice Management Center offers a step-by-step guide to one method: using the Centers for Medicare & Medicaid Services' resource-based relative value scale and your own practice costs.

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