Usual and customary is what a plan reaches for when it has no better answer. A negotiated fee schedule — a contracted or plan-defined rate for a specific procedure code — is the first choice for pricing a claim whenever one exists. U&C is the fallback for everything that doesn’t have one: an out-of-network provider, an uncommon code, a service outside any negotiated agreement. Instead of paying whatever was billed, the plan prices the claim against what’s typical for that service in that geography.
How the rate is actually derived
U&C isn’t one fixed number per code — it’s a statistical benchmark, usually a percentile of billed charges for that CPT code within a geographic area, drawn either from third-party benchmark data (data sets like FAIR Health are common sources) or from the plan’s own historical claims. A plan document typically defines the percentile it uses — say the 80th percentile of billed charges for that code and region — and that percentile, not the provider’s invoice, becomes the price the plan actually pays against.
A worked example
A member sees an out-of-network specialist for CPT 99214. The provider bills $450. The plan has no contracted rate with this provider, so the claim prices against U&C instead of a fee schedule. The plan’s U&C benchmark — the 80th percentile of billed charges for 99214 in that member’s region — comes back at $310. Cost-sharing (deductible, coinsurance) is calculated against the $310 U&C rate, not the $450 billed amount. The $140 gap between what was billed and what the plan recognized is where balance billing risk lives: absent a network agreement or a specific legal protection, the provider can bill the member directly for that difference, on top of their normal cost-share.
| Fee schedule | Usual and customary | |
|---|---|---|
| Basis | Negotiated or plan-defined contract rate | Percentile of typical billed charges for the code/geography |
| When it applies | Contracted provider, code on the schedule | No contract, code not on any schedule |
| Member exposure | Cost-share only, generally no balance billing | Cost-share plus possible balance billing on the gap |
Why this matters operationally
U&C is where pricing disputes concentrate. A member who doesn’t understand why their out-of-network claim priced at $310 instead of the $450 they saw on the bill is a support call, an appeal, or both — and if your U&C source or percentile isn’t documented and consistently applied, you don’t have a defensible answer when they ask. It also matters at the plan-design level: a self-funded employer or healthshare choosing its U&C benchmark and percentile is making a real cost-and-exposure tradeoff, not a technical footnote.
It’s a term people search for when they’re staring at a bill that didn’t match what they expected, which makes a clear, correctly-priced answer worth having on the record. A claims adjudication engine that applies fee schedules first and falls back to a configured U&C benchmark only when no contract rate exists keeps that pricing decision consistent and auditable, which matters as much for a self-funded employer plan managing its own exposure as it does for the member reading the EOB.