Reasonable and customary fees are the amount allowed by a health plan for a specific medical service. Health plans determine the amount of these fees to ensure an equitable limit on the amount of coverage for medical procedures and services. Insurance health plans determine what is to be considered reasonable for a procedure by using a range of fees normally charged in a geographic area. If a doctor has charged anything above that amount for their services, the patient may be responsible to pay. It may be important to find out the upper limit a plan will pay a potential healthcare provider.

Traditional insurers pay claims based on reasonable and customary fees that they calculate using statistics which are based on national studies of fees charged by doctors and other medical providers. The insurer will determine independently up to what percentile they will pay of the normal range of charges in a geographic area.

Those who are in managed care health plans, and stay in the network, will not have to worry about reasonable and customary fees. The prices for procedures and services are agreed upon in advance by health plans and health providers in the network. However, if they go to a doctor outside the network, they will not only pay co-insurance fees of about twenty percent, but then their insurer may determine a reasonable and customary fee range that they will pay. For example, if a patient goes out of network for a procedure that their health plan pays up to $500 for as a reasonable and customary fee and their doctor charges $1,000, they will pay 20 percent or $100 as a co-insurance fee, their health plan will pay $400, and then the patient may be responsible to the doctor for the remaining $500. Hopefully, this will not come as a surprise for the patient.

When an insurer disallows part of the charge as being above the reasonable and customary fee allowance, this really only means that a charge is above the percentile range that the health plan used to calculate what they will pay. Doctors and other health care providers are entitled to price their services as they choose.

Health plans vary and their coverage will also vary. Most policies will explain and define the term, reasonable and customary fees, as it applies to their health plan. However, they will seldom disclose the percentile they use to calculate what they will pay. Because of this, the wise healthcare consumer will communicate both with their health plan and their healthcare provider; this should be done in advance, if possible, to understand exactly what is meant by reasonable and customary fees for the medical services they need.