Derived Rates: The Dollar Figures in Payer Files That Aren't Negotiated Prices

Open a payer's machine-readable file and every rate looks the same: a code, a provider, a number. It's natural to read each number as a price the payer agreed to pay. Most of them are. Some of them aren't — and the ones that aren't can look exactly like the ones that are. This post explains the field that tells them apart, and why one value in it, derived, deserves particular care before it goes anywhere near a negotiation. (New to these files? Start with what an MRF is.)

Every rate has a negotiated type

Under the Transparency in Coverage rule, each rate a payer publishes is labeled with a negotiated type — a short tag that says what kind of number it is. There are five, and they fall into two groups.

The first three are actual contracted dollar amounts. They're what most people mean when they say "the rate." The last two are something else.

Percentage rates: a ratio, not a price

A percentage rate is the easiest of the two to spot, because it isn't a dollar figure at all. It says the payer pays a share of the facility's billed charges — 60%, say — and the dollars only exist once you know the charge it's applied to. We've written about why that resists comparison in percent-of-charge contracts: lining a percentage up against a per diem compares a ratio to a dollar amount.

Derived rates: a dollar figure that isn't a contracted price

A derived rate is harder, because it is a dollar figure. It's a number the payer calculated from some other arrangement — a percentage deal or a bundled payment, for example — rather than a price it contracted for that service. The payer is translating an arrangement that isn't priced in dollars into a dollar amount. That translation is an estimate, not a negotiated rate.

The problem is that once it's in the file, a derived rate sits in the same column, in the same format, as a negotiated per diem. Nothing in the number itself says "calculated." Only the negotiated type does.

How a derived rate misleads

Here's the kind of case that made us change how Ratebench handles them. A residential facility showed a derived rate of a little over two thousand dollars — a perfectly plausible per diem. Read on its own, it looked like a real contracted price, and a facility comparing itself against it could easily have anchored on it: "a peer gets this much a day."

But it wasn't a price that peer negotiated. It was a figure the payer had calculated from a different arrangement. Treat it as a contracted rate and you'd be benchmarking against an estimate — exactly the kind of number TierBench exists to keep out of a negotiation. (It's the same reason we work only from actual rates, never modeled ones.)

How Ratebench handles them

Ratebench shows negotiated, fee-schedule and per-diem rates by default — the contracted dollar amounts. Percentage and derived rates are off by default, because they aren't contracted dollar amounts.

They aren't thrown away. Refine has toggles to include them when you want the fuller picture — to see that a payer pays a facility on percentage terms, for instance. When they're on, the results carry a "not a dollar rate" note, so a percentage or a derived figure is never mistaken for a contracted price.

That's the same principle behind confidence-scored rate data: be honest about what each number is and how much weight it can bear, instead of flattening everything into one column and hoping it averages out.

What to check in any rate data you use

Whether the data comes from us or anywhere else, three questions catch most of the trouble:

• What is this number's negotiated type? If the source can't tell you, you can't tell a contracted price from an estimate.
• Are percentage and derived rates mixed in with dollar rates? An average or percentile that blends them isn't measuring one thing.
• Is the comparison like for like? A per diem should sit next to other per diems for the same level of care — not next to a percentage or a calculated figure. (For the full set of contract structures, see the billing grammar of behavioral health.)

The takeaway

Not every dollar figure in a payer's file is a price someone negotiated. Negotiated, fee-schedule and per-diem rates are; percentage rates are ratios; derived rates are estimates the payer calculated from another arrangement. Keeping those apart is the difference between benchmarking against what peers are actually paid and benchmarking against a number that only looks like it.