A proposal offers a higher base rate. Before assuming it is a better deal, check what else changes. This guide compares one simplified set of terms with another on exactly the same activity.
1. Start with what the model can represent
The simplified comparison uses a primary reference amount, a base multiplier, one eligible second-procedure reference and payment factor, and an optional fixed annual adjustment. It holds volume and service mix the same in both scenarios so that the comparison is about those supported term changes.
It does not represent detailed modifiers, bundling rules, DRG/APC arrangements, coverage, effective-date eligibility or all exceptions in an actual agreement. You should not use the model when a major driver of your decision is outside its scope without separately analyzing that driver.
Before entering anything, identify the documents and the question. Is this a proposal comparison, an implementation review or a budget scenario? A forecast of future demand is different from repricing the same activity.
2. Choose one shared service mix
Our worked example has 10,000 annual eligible primary cases. Each has an average reference amount of $100. In 40% of cases, there is one additional eligible procedure with an $80 average reference amount. This is an intentionally simplified population, not a benchmark for a specialty.
The second-procedure share tells the model how often that additional component appears. The second-procedure factor tells it how much of that component is paid under the scenario. A 75% payment factor means paying 75%, not reducing payment by 75%.
3. Calculate the current scenario
With a base multiplier of 100% and a second-procedure factor of 75%, the primary component is $1,000,000. The second component is $240,000. With no fixed adjustment, the total is $1,240,000.
4. Apply the proposed terms to the same activity
The proposal increases the base multiplier to 106% but changes the second-procedure factor to 50%. The primary component becomes $1,060,000. The second component becomes $169,600. The total is $1,229,600.
These illustrative terms show the combined effect of a higher base rate and a lower second-procedure factor.
5. Explain the difference, not just the total
The tool changes one supported parameter group at a time in a fixed order. First it applies the new base multiplier while keeping the current second-procedure factor. That adds $74,400 across both primary and second components. It then changes the second-procedure factor at the new base multiplier, subtracting $84,800. No fixed adjustment changes in this example.
The effects add exactly to −$10,400. The order matters for allocating the interaction: changing the second factor first would attribute part of the effect differently. Neither ordering changes the final total. DueMD states the order rather than presenting the decomposition as a unique causal finding.
Restore the proposed second factor to 75%. With the other inputs unchanged, the total becomes $1,314,400—a 6% increase. This isolates the base-rate change.
6. Treat a flat adjustment as an explicit assumption
The optional annual adjustment can add or subtract a supplied amount. It can be useful for a separately calculated fixed effect, but it is not a detailed carve-out engine. If you do not know the amount, leave it at zero and document the excluded issue rather than inventing precision.
The tool blocks adjustments that make the total negative. It also shows percentage change as not defined when the current total is zero. A dollar difference still makes sense in that case; a percentage with a zero denominator does not.
7. Verify the reference outside the calculator
A statement such as “110% of a reference” is incomplete until the reference and scope are identified. Find the correct source and version before entering an amount. The Medicare reference tool keeps its supported dataset and dates next to the calculation; it does not decide which reference your commercial agreement incorporates.
The $100 and $80 amounts in the example are illustrative inputs, not Medicare rates for a code. They should not be copied into a real-contract analysis as a benchmark.
8. Use the result as a question for review
Take a comparison back to the documents, operational team and qualified reviewer. Confirm scope, exclusions, dates and how the terms would be implemented. A model of gross allowance is not a forecast of cash, margin, profit or demand. Costs and patient responsibility are outside this model.
The full methodology documents the component formulas and rounding. For a broader review checklist, see the contract starting point.
Continue the review
Do not confuse whole-service and component reductions
The scenario above applies a coefficient to the whole second-service reference. A term that reduces only a named component needs a different calculation. Compare the two approaches before applying a percentage to the wrong base.
Primary sources for this guide
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