Customary, Prevailing, and Reasonable
Customary, prevailing, and reasonable is a historical Medicare methodology for setting physician payment by comparing a provider's charge against their own customary fee, the area's prevailing rate, and a reasonableness check. It preceded the resource-based fee schedule used today.
What is the customary, prevailing, and reasonable methodology?
Customary, prevailing, and reasonable was a historical method Medicare used to determine how much to pay physicians for their services. It compared a provider's submitted charge against three reference points: the provider's own customary fee for that service, the prevailing rate charged by peers in the same area, and a final reasonableness screen.
Payment was generally set at the lowest of those measures, which tied reimbursement to actual charging patterns rather than to a calculated estimate of the resources a service required. This charge-based logic defined Medicare physician payment for years.
Why does the customary, prevailing, and reasonable approach matter historically?
The method is important largely as the predecessor to the resource-based system that replaced it. Because it keyed off historical charges, it could entrench existing fee differences and offered limited control over how payment related to the effort or cost of a service.
Those shortcomings drove the shift to the resource-based relative value scale used today, which sets payment according to the work, practice expense, and other resources a service consumes. Understanding the older methodology clarifies why the modern fee schedule was designed the way it was.
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