CMS Pub. 100-04, ch. 23, § 80.4

B3-5020

Prevailing charges are those charges that fall within the range of charges most frequently

and widely used in a locality for a particular procedure or service. The top of this range

establishes an overall limitation on the charges that the A/B MAC (B) accepts as

reasonable for a given procedure or service, except where unusual circumstances or

medical complications warrant an additional charge.

For any fee screen year, the prevailing charge limit in a locality for a service must be

calculated as the 75th percentile of the customary charges determined for that service.

Array each customary charge for the service in ascending order and weight by how often

the physician or other person rendered the service (as reflected by the charge data used to

calculate the customary charge. The lowest customary charge which is high enough to

include the customary charges of the physicians or other persons who rendered 75 percent

of the cumulative services is then determined as the prevailing charge for the service. The

proper procedure for establishing revised prevailing charge screens based on the 75th

percentile is illustrated by the following example:

Customary Charge Number of the item/

service rendered

Cumulative Services

$5 1402 1402

$6 1115 2517

$7 1680 4197

$8 803 5000

Total 5000

In the above example, 75 percent of the total of 5,000 services equals 3,750 services. The

prevailing charge is, therefore, $7. (A total of 2,517 services were rendered with $5 and $6

customary charges, and an additional 1,680 services were rendered with $7 customary

charges. The 3,750th service was thus rendered with a $7 customary charge.)

A/B MACs (B)/DME MACs establish four customary charges as the minimum number of

customary charges for the same service needed to calculate the prevailing charge for a

particular service in a locality or in an A/B MAC (B) service area.

If it is necessary to establish customary charges using price lists, A/B MACs (B)/DME

MACs use these customary charges to also establish the required prevailing charges. (See

§80.3.1.) If the A/B MAC (B)/DME MAC cannot derive precise data on the frequency of

services from their records, they may use any information they have about the volume of

business done by various suppliers in their area in order to weight the customary charges

used to calculate the prevailing charges.

If the A/B MAC (B)/DME MAC has not established a locality prevailing charge for the

service by specialty or group of specialties, they select the locality prevailing charge from

the remaining sources of data (items 2 through 5 below inclusive). That sequence must be

followed in strict order except as otherwise permitted by item 6. The first charge available

in the sequence of sources of data is selected as the locality prevailing charge. Payments

must be based on the fully adjusted locality prevailing charges.

Approved Sources of Data in the Required Sequence

1 Prevailing charge by locality and by specialty or group of specialties;

2 Prevailing charge by A/B MAC (B) service area and by specialty or group of

specialties;

3 Prevailing charge by locality without regard to specialty;

4 Prevailing charge by A/B MAC (B) service area without regard to specialty; and

5 Array of actual charges - Where items 1 through 4 have not produced an acceptable

prevailing charge and where at least four physicians or other persons in your service

area (without regard to locality or specialty) have submitted charges for a service

(but four “qualified customary charges” are not available), array all the available

actual charges for that service. Set the prevailing charge for that service at the 75th

percentile of that array.

6 Item 4 may be omitted with RO approval from the sources of data listed above, e.g.,

because this simplifies claims processes and reduces the related expenses. Also,

when there is insufficient charge data to establish valid prevailing charges for

substantial numbers of services or items, request RO assistance in working out

mergers of charge data with that from other A/B MACs (B). Use another A/B

MAC (B)’s data that has a similar service area with regards to medical prices, and

other economic and demographic characteristics. Such data mergers must receive

prior approval from CMS.

The steps described above may not always achieve a perfect result. However,

beneficiaries, physicians, and suppliers have the right to question the determination in a

given case. In such instances, A/B MACs (B) should use their best judgment based on the

available data to resolve the issue.

The CMS publishes A/B MAC (B) and DME MAC localities. These designations should

be used in making reasonable charge determinations. Where appropriate, multiple

localities may be used with respect to different types and levels of services. This may

occur where there are not enough members of a specialty group in any one locality to

establish a valid basis for deriving the prevailing charges for their services. Prior CO

approval must be obtained when deviating from the established CMS localities.